Seventh Circuit Holds Allegations of Specific Claims Not Required to Satisfy Rule 9(b), but Sets High Bar For Pleading Claims Based on Allegations of Medically Unnecessary Services

In another recent False Claims Act (“FCA”) case decided on Rule 9(b) grounds, the Seventh Circuit rejected the contention that allegations regarding specific claims submitted are necessary to survive a motion to dismiss, but set a very high bar for pleading FCA claims premised on a lack of medical necessity.

The relator in United States, et al. ex rel. Presser v. Acacia Mental Health Clinic, LLC, et al., No. 14-2804 (7th Cir. Sept. 1, 2016), alleged that the defendants had engaged in a scheme of “upcoding” and providing unnecessary medical procedures, and billing the federal and Wisconsin government for the expenses. Specifically, the relator alleged four practices and policies comprised the scheme: (1) a mandated, four-step assessment process that required patients be assessed by multiple health care professionals and other Acacia staff in order to receive medication; (2) the use by a receptionist and a medical nurse practitioner of a billing code intended for full psychological assessments by therapists or psychiatric medical evaluations by a psychiatrist or psychiatric nurse practitioner; (3) mandatory urine drug screening for patients during each visit; and (4) required office visits for patients seeking to refill prescriptions or speak to a physicians.

The district court granted defendants’ motion to dismiss, holding that the relator had “fail[ed] to identify with specificity to whom bills for Acacia’s services were allegedly presented” and to “definitively allege that at least one patient’s bill was submitted” to the state or federal government. The court denied leave to amend the complaint.

On appeal, the Seventh Circuit affirmed in part and reversed in part.  First, the court explained that Rule 9(b) does not require a plaintiff “to present or even include allegations about a specific document or bill that the defendants submitted to the Government.”  Thus, the court held that the relator’s allegations—that (1) defendants’ patients were on Medicaid and Medicare and (2) the policies and practices at issue were applied to all patients—were sufficient to survive a motion to dismiss.

Second, the Seventh Circuit addressed whether the fraudulent practices were alleged with sufficient detail.  Comparing the upcoding allegations to those presented in the recent Escobar case, the court determined that the complaint adequately alleged that defendants misused the billing code, resulting in an express false statement to the government.  However, turning to the medical necessity allegations, the court found the complaint deficient.  Specifically, the relator’s allegations did not reference practices at other clinics, regulations or publications, but relied solely on relator’s personal views of medical necessity to support the claim that defendants’ practices and policies resulted in medically unnecessary care. The court held, “without an ascertainable standard or more context,” relator’s “allegations of fraud do not suffice.”

This opinion is the third FCA decision from the Seventh Circuit since the Supreme Court’s Escobar decision, and the second in which the Seventh Circuit has endorsed a high bar for pleading requirements.  See also United States ex rel. Hanna v. City of Chicago, No. 15-3305 (7th Cir. Aug. 22, 2016) (suggesting a heightened pleading standard for implied certification claims to discourage vague allegations of a defendant’s failure to comply with statutory or regulatory obligations and fail to put defendants on notice of the specific claims at issue).

A copy of the court’s opinion can be found here.