By Susan M. Corcoran and Peter S. Seltzer

We are seeing a growing number of False Claims Act (“FCA”), 31 U.S.C. §§ 3729 – 3733 cases where defendants test the sufficiency of relators’ pleadings, which is the heightened pleading standard under Rule 9(b). Rule 9(b) acts as a gatekeeping function by requiring that “in alleging fraud” a “party must state with particularity the circumstances constituting fraud.”  In general terms, under Rule 9(b), courts require Relators to plead with particularity the “who, what, when, where and how” of the supposed fraudulent activity. See Kanter v. Barella, 489 F.3d 170, 175 (3d Cir. 2007).  However, the question of what constitutes such “particularity” remains an open question, as courts continue to grapple over whether “particularity” requires a relator to identify specific false claims that were submitted for payment by a federal health care program.

To state a claim under most sections of § 3729(a)(1), a relator must allege that: (1) there was a false or fraudulent claim; (2) defendants knew it was false or fraudulent; and (3) defendants made, presented, or caused to made or presented false claims to the Government for payment or approval. There is currently a deep circuit split as to what constitutes “particularity” under Rule 9(b) in the context of the FCA.

The First, Fourth, Sixth, Eighth, and Eleventh Circuits require that “a plaintiff must plead both the particular details of a fraudulent scheme and details that identify particular false claims for payment that were submitted to the government.” United States ex rel. Noah Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 455-56 (4th Cir. 2013), cert. denied, 134 S. Ct. 1759, 188 L. Ed. 2d 592 (2014) (emphasis added); United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 510 (6th Cir. 2007); United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 557 (8th Cir. 2006); United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1308, 1312 (11th Cir. 2002).  Comparatively, the Third, Fifth, and Ninth Circuits apply a more relaxed standard that allows a relator to plead “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted,” without pointing to a specific false claim. Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 156 (3d Cir. 2014); see also Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998-99 (9th Cir. 2010); United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009).

In June 2014, the Supreme Court declined the opportunity to resolve this issue, in United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 134 S. Ct. 1759, 188 L. Ed. 2d 592 (2014), further solidifying the circuit split. This left relators and defendants subject to the patchwork of decisions in each circuit and without clarity as to what sort of pleadings constitute “particularity.”

Consider two recent decisions within the healthcare context which demonstrate particularity within the Second and Third Circuits.

In United States ex rel. Ortiz v. Mount Sinai Hosp., 2015 U.S. Dist. LEXIS 153903 (S.D.N.Y. Nov. 9, 2015), Xiomary Ortiz and Joseph Gaston (the “Ortiz Relators”), who held various billing positions within their organization, alleged violations of the FCA NYS False Claims Act against their employers, Mount Sinai Hospital and related entities (collectively “Mount Sinai”).  The Ortiz Relators alleged a variety of fraudulent acts, including “doctor swapping” “upcoding,” “phantom billing,” and “double billing.”  In their pleadings, the Ortiz Relators identified numerous specific illustrative examples of alleged false claims Mount Sinai submitted to the Government for reimbursement, including details concerning, inter alia, the date of the procedure/treatment, the nature of the procedure/treatment, that the claim was submitted for reimbursement/payment, and why the claim was fraudulent.  These alleged false claims included redacted references to identified patients as part of the details of billing practices.  Moreover, the Ortiz Relators alleged specific facts to support that Mount Sinai had knowledge of the submission of false claims, including an alleged internal acknowledgment that fraud existed.

Mount Sinai sought to dismiss the Complaint on a number of bases, including that “[r]elators do not plead fraud with particularity,” under Rule 9(b), and that the Ortiz Relators failed to “plead sufficient details showing specific false claims.”  Judge Richard Berman of the Southern District of New York denied the motion.  First, Judge Berman opined that the Relators satisfied the FCA pleading requirement that: “A complaint must ‘(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.’” United States ex rel. Ortiz v. Mount Sinai Hosp., 2015 U.S. Dist. LEXIS 153903, at *12-13 (S.D.N.Y. Nov. 9, 2015), quoting United States ex rel. Kester v. Novartis Pharms. Corp., 23 F. Supp. 3d 242, 251-252 (S.D.N.Y. 2014). Judge Berman explained that while “there is no mandatory ‘checklist’ of identifying information that a plaintiff must provide, the complaint must include sufficient details about the false claims such that the defendant can reasonably ‘identify [the] particular false claims for payment’ that are issue.” Id. at *13, quoting Kester, 23 F. Supp. 3d at 256  and U.S. ex rel. Karvelas v. Melrose-Wakefield Hospital, 360 F.3d 220, 232 (1st Cir. 2004). As the Second Circuit has yet to place itself on one side of the Circuit split concerning “particularity” under Rule 9(b), Judge Berman advocated for a case-by-case approach:

“[t]he level of particularity required depends upon the nature of the case, the complexity or simplicity of the transaction or occurrence, the relationship of the parties and the determination of how much circumstantial detail is necessary to give notice to the adverse party and enable him to prepare a responsive pleading.”

Ortiz, 2015 U.S. Dist. LEXIS 153903, at *25-26 (internal citations omitted).

Ortiz does not definitively enumerate the Second Circuit’s standard of particularity moving forward. However, it is instructive because it provides a snapshot of a pleading that definitively clears the Rule 9(b) hurdle by providing: (1) the date of the procedure/treatment; (2) the nature of the procedure/treatment; (3) that the claim was submitted for reimbursement/payment; and (4) why the claim was fraudulent of specific false claims, while also pleading specific facts to support the scienter element of an FCA claim. The Ortiz Relators’ identification of these illustrative examples of alleged false claims was likely sufficient under any reading of Rule 9(b), as relators “may satisfy Rule 9(b) by providing sufficient identifying information about those false claims, or by providing examples of false claims that enable the defendant to identify similar claims.” Id. at *14.

Comparatively, consider Flanagan v. Bahal, 2015 U.S. Dist. LEXIS 171292 (D.N.J. Dec. 22, 2015), in which a former medical assistant and receptionist in Defendants’ medical office alleged that the Defendants engaged in eight different illegal schemes to submit false Medicare claims for reimbursement, including (1) changing the dates of service on claims in order to increase reimbursements; (2) providing medically unnecessary services; and (3) billing for various services requiring physician review or supervision that the physician never examined or did not attend.  In support, Flanagan identified: examples of ultrasounds that did not contain physician interpretation, despite being billed as such; an allegation that she performed tests in the physician’s absence that required the physician’s supervision for reimbursement; patients using monitoring devices that were billed to the Government whose data the physician failed to review; a single instance of a medically unnecessary catheterization; an allegation that the physician prescribed unnecessary medications; and an allegation that the physician ordered medically unnecessary and atypical scans for eleven patients.  Flanagan, 2015 U.S. Dist. LEXIS 171292, at *12-25.

The District Court’s analysis highlights the circuit split on particularity, noting that in the Third Circuit under Rule 9(b), a relator must state the “circumstances constituting fraud or mistake” with particularity, but “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Flanagan, 2015 U.S. Dist. LEXIS 171292, at *6 (citations omitted).  Similarly, the District Court also explicitly stated that within the Third Circuit, under 9(b) a relator does not need to “identify a specific claim for payment to state a claim for payment to state a claim for relief,” but can survive a motion to dismiss by providing “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Id. at *7-8 (citing Foglia v. Renal Ventures Management, LLC, 754 F.3d 153, 155-56 (3d Cir. 2014)).

The Court determined that under the Third Circuit’s less restrictive 9(b) standard, some of Flanagan’s allegations survived motion to dismiss. For example, although she could not cite a specific example of a false claim concerning improper supervision of testing, the District Court allowed Flanagan’s claim on this issue to proceed because her allegation that she personally administered the tests without physician supervision were “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Where Flanagan identified specific patients whose monitoring data the physician had not reviewed, she easily met the Third Circuit’s pleading standards under Rule 9(b), and likely would have met the standards applied in Ortiz.

By comparison, Flanagan’s allegations concerning medically unnecessary procedures, testing, and prescriptions all failed because she pled their lack of medical necessity in a conclusory manor, and failed to allege sufficient detail about the particular patients to demonstrate that the physician’s cause of action were in fact improper for reimbursement.

Lessons To Be Learned

Based on these decisions, defendants facing an FCA claim should evaluate where their jurisdiction lies on the Rule 9(b) issue. Should the complaint fail to point to a specific false claim submitted for payment, including potentially the date of the procedure/treatment, the nature of the procedure/treatment, that the claim was submitted for reimbursement/payment, and why the claim was fraudulent, attorneys may consider the value of a motion to dismiss for failure to plead with particularity, as Rule 9(b) functions as a gatekeeper against such claims. In the patchwork of standards on Rule 9(b) as well as the continued lack of clarity on the definition of “particularity,” Ortiz and Flanagan are useful guideposts for defense attorneys to understand when a motion to dismiss may be appropriate. In particular, Ortiz stands as a firm marker of how a relator may plead examples of a specific false claim submitted for payment, to withstand a motion pursuant to Rule 9(b). Based on the above, an identification of particular patients, if not specific submitted claims, will meet most Rule 9(b) pleading standard, so long as a relator actually explains why the treatment or claims meet the scienter requirement of the FCA and were “knowingly” false claims submitted for payment.