The False Claims Act (FCA) continues to be the federal government’s primary civil enforcement tool for imposing liability on healthcare providers who defraud federal healthcare programs. A significant portion of FCA litigation is initiated through the filing of sealed qui tam complaints by relators on behalf of the United States. When these complaints are unsealed, whether the government intervenes or not, their first hurdle is often surviving a motion to dismiss. Because actions under the FCA allege fraud against the government, courts require allegations sufficient to satisfy Rule 9(b) of the Federal Rules of Civil Procedure.

Determining whether an FCA complaint satisfies Rule 9(b) turns on two related questions: Does it contain an adequate description of the alleged fraud scheme? If so, does it connect that scheme to false claims submitted to the government?

This post discusses the requirements for adequately pleading a fraudulent scheme. An upcoming post will discuss the requirements for connecting that scheme to the submission of actual false claims. To follow our discussion of recent developments in FCA pleading standards, subscribe to this blog.

Pleading Details of a Fraudulent Scheme

Generally speaking, courts agree that in order to pass muster, FCA complaints must include all of the details one would expect to find in the first paragraph of a newspaper article—that is, the “who, what, when, where and how” of the alleged fraud. While meeting this standard may seem simple enough, courts continue to grapple with the nuances and difficulties associated with pleading fraud with the requisite specificity.

Pleading the “Who”

A number of courts have recently dismissed complaints that impermissibly grouped defendants together without identifying the conduct attributable to each alleged bad actor. For instance, in U.S. ex rel. Hendrickson v. Bank of Am., the U.S. District Court for the Northern District of Texas dismissed an FCA complaint where the relator failed to distinguish among the 16 individual banks accused of defrauding the government by unlawfully retaining benefits payments for deceased beneficiaries. The U.S. District Court for the Middle District of Florida in U.S. ex rel. Schiff v. Norman, similarly dismissed FCA allegations against two dermatology practices, the owner of the practices, and his wife who supervised billing because the relator “lump[ed] together” all of the defendants and failed to specify what fraudulent conduct each had allegedly committed.

Carving out an exception to this rule, the Ninth Circuit in U.S. ex rel. Silingo v. WellPoint, Inc., held that a complaint need not distinguish between defendants who had the exact same role in an alleged scheme. The Ninth Circuit drew an analogy to “chain” and “wheel” conspiracies, explaining that if a fraud scheme resembles a chain conspiracy—where each defendant is responsible for a distinct act within an overall plan—then a complaint must separately identify which defendant was responsible for which distinct part of the plan, but if the scheme resembles a wheel conspiracy—where a single defendant (the “hub”) separately agrees with two or more other members (the “spokes”) to carry out similar tasks—then any “parallel actions” of the “spokes” can be addressed by collective allegations. In similar fashion, the U.S. District Court for the Eastern District of North Carolina recently denied a motion to dismiss against 48 LLC defendants in U.S. ex rel. Gugenheim v. Meridian Senior Living, Inc., reasoning that the relevant reimbursement policy had been put into place by their common member-manager.

Pleading the “What” and “How”

Courts have continued to hold that allegations of a fraudulent scheme must be linked to claims actually submitted in furtherance of that scheme. For instance, in U.S. ex rel. Roycroft v. Geo Group, Inc., the relator alleged that a residential drug and alcohol treatment center billed for group counseling services that were not actually provided and falsely certified compliance with statutory and regulatory requirements by failing to disclose that it did not provide enough addiction services each week. While the Sixth Circuit acknowledged the relator detailed a fraudulent billing scheme and even identified certain claims, it affirmed the dismissal because the complaint failed to explain what was false about each of the identified claims so as to connect them to the broader scheme.

However, at least one district court has recently held that a relator need not always describe the particular statute or regulation violated by the defendant. In U.S. ex rel. Morgan v. Champions Fitness, Inc., the U.S. District Court for the Central District of Illinois held that allegations of “factually false” claims—those that were submitted for services not actually provided—rather than “legally false” claims—those that were wrongfully certified to be in compliance with a certain statute or regulation—did not require identification or description of any specifically-violated regulation.