An unfortunate trend for defendants in False Claims Act (FCA) cases is continuing as the Eighth Circuit Court of Appeals joined other federal circuit courts in lowering the pleading standards that qui tam relators (whistleblower plaintiffs) must satisfy in FCA cases. In U.S. ex rel. Thayer v. Planned Parenthood of the Heartland, No. 13-1654, 2014 WL 4251603 — F.3d — (8th Cir. Aug. 29, 2014), the Eighth Circuit held that a False Claims Act case can survive a motion to dismiss even if the plaintiff did not specifically identify any false claims in the complaint.
When health care providers are defendants in FCA litigation, the first line of defense is often to seek dismissal of the complaint based on a lack of detail. In particular, Federal Rule of Civil Procedure 9(b) specifically requires that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” (Emphasis added.) But courts are split on the level of detail Rule 9(b) requires in a FCA complaint.
Three appellate courts — including the Fourth, Sixth, and Eleventh Circuits — have held that a relator must provide some specific representative examples of the false claims that were submitted by the defendant for a FCA case to proceed. Unfortunately, an increasing number of appellate courts — including the First, Third, Fifth, Seventh, and Ninth Circuits — have held that a relator does not have to identify specific false claims as long as the complaint describes: (i) a fraudulent scheme to submit false claims; and (ii) reliable indications that false claims were submitted. Despite the split among the circuits, the US Supreme Court declined to resolve the issue in March 2014, denying a petition for writ of certiorari in U.S. ex rel. Nathan v. Takeda Pharmaceuticals, Inc., North America, 134 S. Ct. 1759 (2014). Subsequently, in Thayer, the Eighth Circuit became the latest appellate court to opt for the more lenient pleading standard that likely will allow many more FCA cases to move forward.
Eighth Circuit’s Decision in Thayer
In Thayer, a former Planned Parenthood clinic manager in Iowa alleged that, from 2006–2008, Planned Parenthood engaged in a fraudulent scheme to submit false claims for Medicaid reimbursement, e.g., for unnecessary birth control prescriptions. The relator alleged personal knowledge that the clinics submitted false claims but did not specifically identify any such claims. Nevertheless, the Eighth Circuit ruled that the complaint contained sufficient particularity because it detailed a fraudulent scheme “paired with reliable indicia that lead to a strong inference that claims were actually submitted.” (The relator, as a former clinic manager, had knowledge of the defendant’s billing system and practices.)
The Thayer decision continues a trend that erodes fundamental procedural protections guaranteed to FCA defendants by Rule 9(b). The Rule’s particularity requirement is intended to provide critical protections to defendants, e.g., to provide them with fair notice of the allegations against them so that they can prepare their defense. In addition, the Rule was designed to protect defendants from meritless claims, discourage strike suits (lawsuits intended to compel the defendant to settle for an amount lower than the probable litigation costs), and prevent plaintiffs from filing lawsuits in an attempt to uncover information during discovery. Although the Supreme Court declined last term, given the deepening divide among circuit courts, it is possible that the Court will address the issue in the future.
What Thayer Means to You
For health care providers and government contractors who already operate in heavily regulated, high-risk industries, the Thayer decision serves as yet another reminder that courts continue to be increasingly sympathetic to relators (and the government) in FCA cases. This development reinforces the importance of maintaining a robust compliance program to promptly identify and address compliance concerns before they become the basis for potential FCA litigation. Toward this end, health care providers should work closely with counsel when compliance concerns first arise.