Posted by Scott Stein and Brad Robertson
A recent decision by a federal district court clarifies the Rule 9(b) standard for pleading violations of other laws that underlie false certification FCA claims. Readers of this blog may recall our previous post on an earlier decision in United States ex rel. Osheroff v. Tenet Healthcare Corporation, No. 09-cv-22253 (S.D. Fla.), in which the Court dismissed the Relator’s first amended complaint for failure to plead the alleged violations of the Anti-Kickback Statute and Stark law with particularity. The Court has now ruled on the motion to dismiss Relator’s second amended complaint and found that Relator’s newly pled facts pass muster.
In its previous decision, the Court provided specific guidance on what a Relator must allege for a claim of unlawful remuneration. Relator alleged that Tenet Healthcare Corporation and its affiliated companies leased office space to physicians at below-market rates in violation of AKS and Stark and had falsely certified compliance with those statutes in violation of FCA. The Court found Relator’s allegations too conclusory and held that an allegation of improper remuneration based on below-market-value pricing must also “allege a benchmark of fair market value” and “particular examples of rent being charged . . . in a comparable unit.”
With its second amended complaint, the Court found that Relator sufficiently pled the Stark and AKS violations to satisfy Rule 9(b), although Relator did not literally “allege a benchmark of fair market value” as the Court directed. Instead, Relator alleged details of Tenet “systematically misrepresent[ing] the square footage of the office space” so that referring physicians paid for less square footage than they actually received. In addition, Relator provided examples of “non-standard lease benefits” that Tenet allegedly provided to referring physicians, including excessive allowances for improving the rental space. The Court found that the additional factual allegations could enable someone to reasonably infer that Tenet used below-market-rate leases with referring physicians.
In its motion, Tenet attacked Relator’s assessment of the proper measure and valuation of square footage, which Relator had supported in part by its own empirical analysis of rental rates in various markets around the United States. But the Court made clear that it would not assess the methodology of Relator’s calculations at the motion to dismiss stage, stating “[T]he Court’s role is only to determine whether Relator plausibly alleges that Tenet was charging its physician-tenants rent that was inconsistent with fair market value—not to determine definitively whether the figure Relator advances, in fact, represents fair market value.”
The Court similarly found that Relator pled the Anti-Kickback Statute’s scienter requirement with the proper particularity. In its previous decision, the Court found Relator’s allegations deficient in part because there were “no allegations that any particular physicians were induced to alter their referral decisions on account of their financial relationship with the Defendants.” (emphasis added). However, in its latest opinion, the Court held that “Relator need not allege that Tenet’s physician-tenants referred Medicaid or Medicare patients to Tenet on account of Tenet’s offer or payment of remuneration.” Instead, the Court found scienter satisfied by the inference that Tenet knowingly sought to induce referrals, as it could “reasonably infer that a landlord would not enter into a lease agreement for a price that fell below the fair market rate if some other consideration [(here, patient referrals)] were not involved.”
This decision also joins the body of caselaw holding that representations made in hospital cost reports and Medicare provider applications may form the basis of false certification claim under the FCA. In deciding that the cost report certification of compliance “easily qualif[ies] as a misrepresentation of material fact,” the Court elected not to decide whether statements in Tenet’s Corporate Integrity Agreements could form the basis of a false certification FCA claim.
While the Court may have clarified aspects of the pleading standard it set in its first opinion, it continues to hold that violations of other laws underlying FCA claims must be pled with Rule 9(b) particularity. There may be no bright line rule for pleading the facts constituting fraud in a false certification FCA case, but Relators must nonetheless plead sufficient facts to demonstrate that inferences of violations of the underlying laws are warranted.
Sidley lawyers Kristin Graham Koehler and Brian Morrissey have authored a monograph published by the Washington Legal Foundation. The monograph is entitled “The View From the Front Lines: Litigation Under the False Claims Act in a New Era of Enforcement,” and provides a concise overview of the FCA, its qui tam provisions, the latest trends in FCA enforcement, and anticipated future developments. It also assesses enforcement trends in particular industries, such as government contracting, healthcare, and pharmaceuticals, and explains seven key issues affecting future False Claims Act litigation:
- The FCA’s Applicability to “Legally False” Claims
- Scope of FCA’s First-to-File Bar
- Increased Pursuit of “Reverse” False Claims
- Constitutionality of Mandatory Damages
- Increase in False Claims Act Suits Brought against Numerous Defendants in the Same Industry
- Increased Use of Civil Investigative Demands in False Claims Act Investigations
- Sanctions over Privileged Documents Obtained by Qui Tam Relators
A copy of the full monograph can be ordered here.