Posted by Jonathan Cohn and Annemarie Hillman
Last week, the Eleventh Circuit reached a decision in United States ex rel. Osheroff v. Humana, Inc., No. 13-15278 (11th Cir. 2015), which provides important guidance regarding the scope of the public disclosure bar following its amendment by the Patient Protection and Affordable Care Act (PPACA).
Humana arose from an action filed by a qui tam relator against several health clinics and health insurers in Miami. The complaint alleged that these clinics and insurers either provided, or knew others were providing, a variety of free services – including limo rides and salon services – that were used to incentivize potential clients to use the clinics. According to the relator, these actions violated both the Anti-Kickback Statute and the Civil Monetary Penalties Law, as well as the False Claims Act. After the government declined to intervene, the defendants moved to dismiss the case, and the district court granted the motion on public disclosure grounds.
On review, the Eleventh Circuit affirmed the district court’s decision to dismiss, and in doing so, addressed a number of important issues about the scope of the public disclosure bar following significant amendments made to the PPACA in 2010. First, the Eleventh Circuit held that the public disclosure bar is no longer jurisdictional due to these amendments. Instead, the Court held that the amended statute presents grounds for dismissal for failure to state a claim. This decision contradicts some earlier district court decisions, though it brings the Eleventh Circuit into agreement with the Fourth Circuit in United States ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 916-917 (4th Cir. 2013), petition for cert. filed, 82 U.S.L.W. 3586 (U.S. March 25, 2014) (No. 13-1162). The Eleventh Circuit based its decision on (among other considerations) the plain language of the amended statute and Congress’s explicit removal of jurisdictional language from the public disclosure bar section of the PPACA.
While it held that the public disclosure argument appropriately was considered under Rule 12(b)(6), the Eleventh Circuit dismissed the relator’s argument that the district court should not have considered documents extrinsic to the complaint. The Court explained that “a district court may consider an extrinsic document even on Rule 12(b)(6) review if it is (1) central to the plaintiff’s claim, and (2) its authenticity is not challenged.” The Eleventh Circuit also clarified that “a district court may consider judicially noticed documents” as well. The types of documents that the Eleventh Circuit held that the district court appropriately considered included newspaper articles, newspaper advertisements, the clinics’ own websites, and the transcript and Special Master’s Report from another case.
The Eleventh Circuit found that the district court had appropriately concluded that the post-PPACA public disclosure bar required dismissal of the relator’s claims. In so holding, the Eleventh Circuit held that “publicly available websites” qualify as “news media.” In making this decision, the Court noted that the Supreme Court had previously stated that the term had a “broad sweep” and that district courts in multiple circuits had found publicly available websites to be included in the category of “news media.” Such a decision may inform later cases about whether other documents commonly cited in public disclosure motions, such as SEC filings, can qualify as public disclosures.
The Eleventh Circuit also took the opportunity to walk back language in previous cases that relators had cited to suggest that prior disclosures do not satisfy the public disclosure bar unless they specifically disclose that the defendants engaged in wrongdoing. The public disclosure bar “itself requires only disclosures of ‘allegations or transactions,” the court explained, “suggesting that allegations of wrongdoing are not required.”
A copy of the Eleventh Circuit’s opinion can be found here.
On October 30, 2014, the Eleventh Circuit issued a 41-page unpublished opinion affirming in part the dismissal of an FCA complaint under Rule 9(b), holding that the relator failed to plead sufficient “indicia of reliability” with respect to his claims based on conduct allegedly occurring after his employment by the defendants ended.
The relator, Mastej, was the former CEO of defendant Naples Hospital, which was owned by defendant Health Management Associates. Mastej alleged that the defendants had improper financial relationships with ten physicians, and as a result falsely certified their compliance with the Stark and Anti-Kickback Statutes on interim claim forms for patients of the physicians, and in the hospitals’ cost reports. While the relator alleged the details of the alleged payments with detail, he did not allege details of specific false claims. In evaluating the relator’s allegations, the Eleventh Circuit began by reciting certain established principles: that the submission of a false claim must be pleaded with particularity, that “Rule 9(b) ‘does not permit a False Claims Act plaintiff merely to describe a private scheme in detail but then to allege simply and without any stated reason for his belief that claims requesting illegal payments must have been submitted, were likely submitted or should have been submitted to the Government,’ and that “some indicia of reliability must be given in the complaint to support the allegation of an actual false claim for payment being made to the Government.” “[W]hether the allegations of a complaint contain sufficient indicia of reliability to satisfy Rule 9(b)” is evaluated “on a case-by-case basis.” Furthermore, the court explained, “[p]roviding exact billing data—name, date, amount, and services rendered—or attaching a representative sample claim is one way a complaint can establish the necessary indicia of reliability that a false claim was actually submitted,” but “there is no per se rule that an FCA complaint must provide exact billing data or attach a representative sample claim.” With regard to the “other means” of showing the required indicia of reliability, the court noted that while “there are no bright-line rules. . . a relator with direct, first-hand knowledge of the defendants’ submission of false claims gained through her employment with the defendants may have a sufficient basis for asserting that the defendants actually submitted false claims.” “By contrast,” the court continued, “a plaintiff-relator without first-hand knowledge of the defendants’ billing practices is unlikely to have a sufficient basis for such an allegation.”
Turning to the specific allegations of this case, the court acknowledged that Mastej had not alleged details concerning even a single specific “false claim” relating to any patient treated by one of the physicians alleged to have had an improper financial relationship with the defendants. “Rather than submit examples or a representative false interim claim,” the panel noted, “Mastej’s complaint focuses on his personal knowledge gained in his roles and duties as Vice President of Defendant HMA for six years until February 2007 and as CEO of the Collier Boulevard campus from February 2007 until October 2007. Mastej states that his personal ‘knowledge of Defendants’ practices and actions [was] gained by his own efforts as an employee of Defendants and their affiliates, including serving as Chief Executive Officer for a hospital owned by [Defendant] Naples HMA.'” The court held that taking all of the allegations into account, “Mastej’s complaint contains sufficient indicia of reliability for his personal knowledge that the Defendants actually submitted interim claims to Medicare for patients referred to the Medical Center as part of the on-call incentive scheme during 2007.” Given his position at the time and his alleged participation in meetings in which the illegal conduct was discussed, the panel concluded that Mastej “has sufficiently articulated how he allegedly gained his direct, first-hand knowledge of the Defendants’ submission of false interim claims to the government and the government’s payment of such claims.”
In addition to relying on Mastej’s “insider” status, the court also pointed to the nature of the fraud allegations at issue. “[T]he type of fraud alleged here does not depend as much on the particularized medical or billing content of any given claim form. In other FCA cases, the allegation is that a defendant’s Medicare claim contained a false statement because the claim sought reimbursement for particular medical services never rendered to the patient, or for medical services that were unnecessary, overcharged, or miscoded, or for improper prescriptions, or for services not covered by Medicare. In those types of cases, representative claims with particularized medical and billing content matter more, because the falsity of the claim depends largely on the details contained within the claim form—such as the type of medical services rendered, the billing code or codes used on the claim form, and what amount was charged on the claim form for the medical services.” In this case, by contrast, the falsity of the claims turned upon referral activity with which Mastej claimed personally to be familiar.
Nevertheless, the Court concluded that Mastej’s complaint failed to satisfy Rule 9(b) with respect to allegations of illegal conduct after his employment ended in October 2007. “After his employment ended, Mastej was no longer privy to information about the Defendants’ business practices, Medicare patients, referrals of patients, the billing of services to Medicare, or revenue from Medicare reimbursements. The indicia of reliability that existed while Mastej served as Vice President and then CEO disappeared when he left the Defendants’ employment in October 2007.” The panel specifically stated that this holding did “not suggest, much less hold, that a qui tam plaintiff-relator can never base his case on false claims submitted after he left a defendant’s employ.” Rather, the court simply concluded that in the particular context of this case, Mastej’s allegations failed to provide “the required indicia of reliability for his general allegation” that false claims were submitted after his employment ended “because the reliability of Mastej’s general allegation derives from his highly significant employment roles and duties during 2007.” “Removed from this vantage point and from his access to critical billing and revenue information, Mastej has articulated no factual basis for his assertion that the particular doctors continued to refer patients or that the Defendants submitted interim claims for such patients after Mastej left—other than speculation that claims ‘must have been submitted, were likely submitted or should have been submitted to the Government.'”
A copy of the court’s opinion in U.S. ex rel. Mastej v. Health Management Associates, Inc., can be found here. While – as the court expressly notes – the case does not stand for the blanket proposition that relators cannot plead claims based on post-employment conduct, it does provide support for the view that such allegations must be based on more than simply an argument that conduct that occurred at one point in time likely continued indefinitely into the future.
Posted by Ellyce Cooper and Christopher Munsey
In a case decided last week, United States ex rel. Lesinski v. South Florida Water Management District, No. 12-16082, 2014 U.S. App. LEXIS 14 (11th Cir. January 2, 2014), the Eleventh Circuit Court of Appeals affirmed the dismissal of a qui tam suit against the South Florida Water Management District, holding that the District is an arm and instrumentality of the state of Florida, and therefore not a “person” under the False Claims Act. The relator alleged that the District violated the FCA by fraudulently claiming FEMA reimbursements for ineligible repairs to the area’s canals. The district court granted the District’s motion to dismiss on the ground that the District is an arm of the state of Florida. The relator appealed, arguing that the District is a municipal, rather than state, agency. Under relevant Supreme Court authority, local governments and municipalities constitute “persons” who can be sued under the FCA, but states and agencies acting as arms of the state cannot. Compare Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 780 (2000), and Cook County v. United States ex rel. Chandler, 538 U.S. 119, 134 (2003).
The Eleventh Circuit, joining the Fourth, Fifth, Ninth, and Tenth Circuits, held that the Eleventh Amendment “arm of the state” analysis is the proper test for determining whether a state entity is a “person” under the FCA. After analyzing the test’s four factors – (1) how state law defines the entity; (2) what degree of control the state maintains over the entity; (3) where the entity derives its funds; and (4) who is responsible for judgments against the entity – the court concluded that the District is an arm of the state of Florida, and affirmed the dismissal. The court placed particular weight on the fact that the state’s control of the District was “pervasive and substantial.” 2014 U.S. App LEXIS 14 at *11. The circuit court declined to address the District’s argument that it was immune from suit in federal court under the Eleventh Amendment, although it specifically noted that the analysis is identical to that for the FCA “person” question. Id. at *18 n.9.
Last week, the U.S. Court of Appeals for the Eleventh Circuit reinstated two relators’ $69 million claims against Medco Health Solutions, Inc. (“Medco”) and several of its subsidiaries and officers, holding that the claims were alleged with sufficient particularity to satisfy Federal Rule of Civil Procedure 9(b). Among other things, this decision confirms the significant implications of the recent expansion of FCA liability to require that any “overpayments” be returned to the government within 60 days of the date they are “identified.” 42 U.S.C. § 1320a-7k(d).
In United States ex rel. Matheny v. Medco Health Solutions, Inc., No. 10-15406 (11th Cir. Feb. 22, 2012), the relators were former employees of Medco subsidiaries who alleged that Defendants had knowingly concealed overpayments from Medicare, Medicaid, and other federal healthcare programs. The root of the allegations was a 2004 Corporate Integrity Agreement (“CIA”) with HHS’s Office of the Inspector General (“OIG”), pursuant to which Defendants were required to remit any payments from the government that “lacked sufficient documentation or were received in duplicate or in error.” Slip Op. 3-5. The CIA dubbed these “Overpayments” and, critically, required that they be returned within 30 days of their identification. Id. at 4.
Rather than return such funds as was required, the complaint alleged, Defendants engaged in various schemes to conceal and retain them. Id. at 5. Relators claimed, for example, that Defendants transferred the Overpayments to unrelated or fictitious patient accounts or eliminated them altogether through a “datafix” computer program. Id. Count I was premised on the CIA’s certificate of compliance requirement; according to the relators, when Defendants swore to the government that they were in compliance with the agreement, such certification was knowingly false and intended to avoid remitting the Overpayments. Id. at 5-6. Count II was based on a separate obligation under the CIA requiring Defendants to submit to the government so-called Discovery Samples, which were supposed to be random samples of patient accounts that could be checked for compliance with the CIA. If five percent or more of the accounts were in violation, then a full audit was required; otherwise, that was the end of the matter. Id. at 6. The relators alleged that Defendants rigged the deck by removing any accounts containing evidence of Overpayments from the samples in order to generate a perfect error rate of 0%, thereby avoiding an audit that would have uncovered the hidden Overpayments. Id. at 6-7.
Suit was brought under the FCA’s reverse false claim provision, 31 U.S.C. § 3729(a)(7), and the Eleventh Circuit held that both counts were sufficiently pled for purposes of Rule 9(b). Generally speaking, the Court found that the CIA imposed an obligation to pay money to the government and that the relators had sufficiently pled the requisite who, what, when, where, and why of the suspected fraud. In that regard, the relators benefited from their alleged personal awareness because the court is “more tolerant toward complaints that leave out some particulars of the submissions of a false claim if the complaint also alleges personal knowledge or participation in the fraudulent conduct.” Id. at 17, 27.
Particularly noteworthy, the court held that it was enough to plead that the CIA required remittance of all Overpayments within 30 days and that Defendants did not do so. Id. at 17-23. The Eleventh Circuit rejected the district court’s ruling that the relators’ failure to demonstrate that the money was not eventually repaid was fatal to their complaint. Id. at 17-18 n.13. Instead, the court held that all that mattered was that the CIA had been violated at the time of the certification: “The failure to [remit Overpayments] within the thirty day deadline is itself a violation of the CIA, regardless of whether the Overpayments were eventually repaid.” Id. Given that recent FCA amendments also require the return of overpayments to the government shortly after their identification at the risk of FCA liability, the Eleventh Circuit’s decision confirms the significant implications of this expansion of liability.