Fifth Circuit Reaffirms Applicability of Heightened Pleading Standards Post-Grubbs

Posted by Gordon Todd and Elizabeth McEachron

On April 3, 2013, the Fifth Circuit affirmed the dismissal of relator’s complaint in United States ex rel. Nunnally v. West Calcasieu Cameron Hospital, No. 12-30656, clarifying that in United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009), the Circuit had not absolved FCA relators from heightened pleading requirements.

Relator Nunnally alleged that the defendant hospital had violated the AKS and FCA by (1) charging physicians reduced laboratory test fees in exchange for the physicians’ referring patients to the hospital’s laboratory and (2) charging Medicare more than the price changed to non-Medicare patients. In affirming the dismissal, the court explained that the elements of both statutes must be pleaded with particularity.

With respect to the AKS, the relator had failed to plead the contents of the referral agreements, the identity of the physicians involved, any actual inducements provided to those individual physicians, or any particular improper referrals from those physicians. The court further explained that because “actual inducement is an element of the AKS violation,” a relator must plead “that WCCH knowingly paid remuneration to specific physicians in exchange for referrals. Nunnally at 5. Nunnally failed to allege any particular details of any actual referral by a physician who entered an agreement with WCCH, or even to offer a meaningfully relevant time period.

With respect to the FCA, Nunnally had failed “to allege with particularity an actual certification to the Government that was a prerequisite to obtaining the government benefit.” Id. Because, the Fifth Circuit has not adopted the implied certification theory of FCA liability, the court looked to the complaint for details about explicit certifications of compliance with federal law and found the complaint lacking.

The Circuit emphasized that its prior decision in Grubbs had not absolved FCA relators of the Rule 9(b) heightened pleading requirements. While Grubbs opened the door to statistical and factual evidence that supports an inference of fraud without providing details about each false claim, the Fifth Circuit clarified in Nunnally that FCA relators must still provide “reliable indications of fraud and to plead a level of detail that demonstrates that an alleged scheme likely resulted in bills submitted for government payment.” Nunnally at 3.