This is the second post of a two-part discussion of FCA pleading standards and discusses the pleading requirements for connecting a fraudulent scheme to the submission of false claims. Read our previous post on the requirements for pleading the details of a fraudulent scheme.

Pleading Submission of False Claims

Most courts require FCA plaintiffs to round out their FCA pleadings with allegations that false claims were submitted to the government as a result of the alleged fraud scheme. Some courts require plaintiffs to identify specific representative examples, while others permit the pleading of “reliable indicia” leading to a “strong inference” that claims were actually submitted.

Pleading Actual Claims

The U.S. District Court for the District of Massachusetts recently laid out the level of detail generally expected for pleading the submission of actual false claims. In U.S. ex rel. Wollman v. General Hospital Corporation, it held the relator made insufficient allegations of actual claims submitted as part of a fraudulent billing scheme involving overlapping surgeries when the complaint included “no dates, identification numbers, amounts, services, individuals involved, or length of time” for any of the surgeries at issue.

Not all circuits require allegations of actually-submitted claims, but even in circuits where courts do not generally require them, such allegations are needed when the alleged scheme could have led but did not necessarily lead, to the submission of false claims. For instance, in U.S. ex rel. Campos v. Johns Hopkins Health System Corp., the U.S. District Court for the District of Maryland dismissed a complaint alleging fraud resulted from the defendant’s practice of assigning in-state patients a lower waitlist priority code because the relator could not point to a single actually-fraudulent claim submitted in furtherance of that scheme. The court reasoned that at least some patients’ waitlist codes must have matched their true priority status since high priority codes were assigned only on the basis of clinical need. Going further, the district court held that the relator was not entitled to use discovery to uncover an actual fraudulent claim.

Alternatives to Pleading Actual Claims

Several courts have continued to apply the Fifth Circuit’s so-called “Grubbs standard,” under which a relator is not required to provide a representative false claim actually submitted to the government, so long as the relator provides “reliable indicia” leading to a “strong inference” that such claims were submitted.

While this standard is less demanding than that required by other circuits, courts continue to require more than speculation, general estimates, or so-called logical conclusions. In U.S. ex rel. Solis v. Millennium Pharm., Inc., the Ninth Circuit affirmed the dismissal of allegations that a pharmaceutical company fraudulently promoted one of its cardiovascular drugs. Though the relator alleged that Millennium had attempted to get its drug placed on formulary at two hospitals, he failed to identify a single claim submitted pursuant to that scheme, nor did he provide “reliable indicia supporting a strong inference that such claims were submitted.”

Another recent example comes from the Eighth Circuit. In U.S. ex rel. Strubbe v. Crawford County Memorial Hospital, a group of EMTs and paramedics alleged that the county hospital committed fraud by unlawfully mandating that paramedics conduct breathing treatments and blood draws for patients which previously had been conducted by nurses. The Eighth Circuit held that the allegations—which did not include any representative examples—came “close” to satisfying Rule 9(b) by including certain details of the scheme, such as the names of individuals instructing the breathing treatments and blood draws, the two-year time period when the services were provided, and statements by supervisors that the changes were “for billing and cost reimbursement purposes.” The complaint failed, however, to pair those details with reliable indicia that claims were actually submitted to the government pursuant to the alleged scheme. Specifically, the Eighth Circuit held that relators’ allegations that their supervisors told them the changes were for billing purposes raised only the “possibility” that the hospital submitted the claims, which fell short of the “strong inference” required to survive a motion to dismiss under the Grubbs standard.

Other examples include U.S. ex rel. Petrowski v. Epic Systems Corp., where the U.S. District Court for the Middle District of Florida dismissed a relator’s allegations that the defendant’s billing software allowed hospitals to set up their anesthesia billing to improperly include excessive charges, explaining that allegations that the software could be used to defraud Medicare were “woefully deficient because [they are] based on pure speculation.” Likewise, in U.S. ex rel. Park v. Legacy Heart Care, LLC, the U.S. District Court for the Northern District of Texas held that a relator’s “estimates” based on his experience working for the defendants that “80%” of patients were Medicare patients and “80%” of them did not meet the diagnostic criteria, were insufficient to create a “strong inference” that fraudulent claims were actually submitted to the government. In U.S. ex rel. Grubea v. Rosicki, Rosicki & Assocs., P.C., the U.S. District Court for the Southern District of New York similarly rejected an FCA action alleging submission of excessive mortgage servicing charges when the relator could allege only “sixty-odd examples of excessive charges” without any details about what proportion of the defendant’s total claims those examples represented or whether any of the examples had actually been submitted to the government.

While courts have continued to find that first-hand knowledge of a defendant’s billing practices and claims submissions satisfies the Grubbs standard, some courts have also permitted relators to plead “on information and belief” in cases where the details regarding the submission of claims are “peculiarly within a defendant’s knowledge and control.” For example, in U.S. ex rel. Vatan v. QTC Medical Servs., the Ninth Circuit reversed a dismissal when the specifics of the defendant’s contractual requirements with the VA were pleaded on information and belief. The Ninth Circuit noted that under the district court’s ruling, many FCA claims would be barred if a relator alleged insider knowledge of wrongdoing, but lacked “access to corporate documents outlining the precise nature of the company’s obligations.”

Courts have also permitted individuals intimately connected with the provision of services, but not the submission of claims for those services, to plead on information and belief that claims were submitted. For example, in U.S. ex rel. Ailabouni v. Advocate Christ Medical Center, the U.S. District Court for the Northern District of Illinois excused a resident physician who was able to identify specific false certifications by attending physicians from the requirement of identifying an actual claim submitted to the government because his position “d[id] not appear to include regular access to medical bills.” Similarly, in U.S. ex rel. Scalamogna v. Steel Valley Ambulance, the U.S. District Court for the Western District of Pennsylvania allowed a relator’s claims to proceed where she alleged that all billing decisions were made by the owner and CEO of the company, while at all times during her employment she was an EMT and driver.

Given the continued prevalence of qui tam actions and the significant expense associated with litigating FCA suits, litigants should expect to continue seeing challenges at the pleading stages of these cases.