Court Grants Motion to Dismiss FCA Claim for Failure Adequately to Plead Scienter
Recently a court took the rare step of granting a motion to dismiss a qui tam suit because the relator’s vague and conclusory scienter allegations failed to satisfy Rules 8 and 9(b). U.S. ex rel. Dietz v. Philips Respironics, No. 2:21-CV-00272 (W.D. Pa. Feb. 23, 2026).
Following dismissal of earlier versions of his complaint, relator’s Second Amended Complaint alleged that defendants, durable medical equipment (DME) manufacturers of CPAPs and other machines, violated the FCA by engaging in two illegal kickbacks schemes. First, the defendants allegedly offered a patient adherence program designed to help DME suppliers who bought the defendants’ CPAP machines ensure that their patients would use the CPAP machines enough to trigger Medicare and Medicaid coverage. Defendants allegedly discounted the per-patient enrollment charges to induce the DME suppliers to purchase more of the defendants’ products and required enrolled patients to use exclusively the defendants’ products. Second, the defendants allegedly offered DME suppliers and their referral sources free lectures and training sessions that qualified as Continuing Education Units (“CEUs”). Defendants moved to dismiss based on relator’s failure to adequately allege that they acted “knowingly and willfully” to violate the AKS, offered improper remuneration, or induced the DME suppliers to purchase their products. The court’s decision focused on Defendants’ scienter argument.
The court first recognized that to establish the predicate AKS violation on which the FCA claims were based, relator must adequately allege the defendants knew their conduct was unlawful. While relator alleged that the defendants knew that the adherence program and CEUs were illegal, the court held that “type of conclusory recharacterization does not cure the scienter defect.” The court similarly dispensed with relator’s allegation that unnamed sales representatives and regional sales managers knew that the supposed kickbacks violated the law, because he neither identified “these individuals, nor plead[ed] a factual basis for his belief about their knowledge.” The court also summarily rejected relator’s attempt to “invoke[] unrelated settlements” involving one of the defendants to show they knew their conduct was unlawful, concluding relator offered “no factual basis for that inference.” The court also found “insufficient” to plead AKS scienter relator’s allegation that employees “were required to undergo an annual AKS training course and that he shared concerns about the practice of providing free CEUs.” Finally, the court concluded that allegations that Defendants were “required to sign Form CMS-855B to enroll in Medicare,” which references the AKS, is “insufficient to plausibly plead that [the defendants] knew that the challenged conduct was unlawful.”
Thus, the court concluded relator satisfied neither Rule 9(b)’s heightened pleading requirements for fraud or even Rule 8’s “less rigid” requirements to state an AKS-based FCA cause of action.
The court’s opinion is available here.
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