In U.S. ex rel. Health Choice Alliance, LLC v. Eli Lilly & Co. , the Fifth Circuit assumed but did not decide, that the standard articulated in Sequoia Orange should apply. 89 There, the government moved for dismissal of the relator’s FCA claims based on concerns that there was not sufficient factual and legal support to prove AKS violations; the substantial cost and burdens for the United States if the qui tam actions were to continue; policy interests of Medicare and other federal healthcare programs; and the investigative methods employed by the relator’s parent organization. The Fifth Circuit affirmed the district court’s granting the government’s motion to dismiss, determining that dismissal was appropriate under the Sequoia Orange standard. None of the competing appellate court standards has served as a serious impediment to the government’s ability to intervene and dismiss a relator’s qui tam lawsuit. But, it is worth continuing to watch how courts grapple with this issue as the government continues to exercise this statutory authority. 90 DEVELOPMENTS IN PLEADING STANDARDS At the pleading stage, FCA complaints are subject to Rule 8(a)’s plausibility standard and Rule 9(b)’s heightened pleading standard for fraud. This requirement is meant to shield defendants from frivolous lawsuits and provide meaningful notice of alleged wrongdoing. In applying Rule 9(b), all courts demand specific allegations of a fraudulent “scheme”
to support a plausible claim of fraud will depend on the facts of the case.” 91 In that case, Molina, a managed care organization, contracted with a state health department to provide various healthcare services, including skilled nursing, for Medicaid beneficiaries on a capitated payment basis. Molina subcontracted with GenMed to provide the skilled nursing services. In less than a year, Molina terminated the contract with GenMed and did not find another contractor to provide the services, but continued to keep the payments for those services from the state. The district court dismissed the relator’s resulting
While a relator does not have to prove its case in a complaint, conclusory allegations of fraud are often found to fall short under Rule 9(b).
FCA suit, finding that the complaint failed to allege the majority of his bases for liability adequately and that Molina knew that the provision of skilled nursing services was material. The Seventh Circuit reversed, holding that the relator had sufficiently pleaded an FCA claim, explaining that “Rule 9(b) requires specificity, but it does not insist that a plaintiff literally prove his case in the complaint.” The Seventh Circuit concluded that the relator pleaded numerous details about the when, where, how, and to whom allegedly false representations were made, plausibly supporting the inference that the defendant included false information about the services being provided to new enrollees in its claims. In making this inference, the Seventh Circuit asked, “How else could [Molina] have asked for its capitation payments based on these additional beneficiaries?” While a relator does not have to prove its case in a complaint, conclusory allegations of fraud are often found to fall short under Rule 9(b). In U.S. ex rel. Paul v. Biotronik, Inc. , the district court dismissed the relator’s second amended complaint that contained only conclusory allegations that Biotronik, a medical device company, engaged in a kickback scheme by inducing physicians to use products and services through prohibited incentives. 92 For instance, the district court found that the complaint alleged Biotronik generally engaged in fraudulent acts between 2014 and 2019, or cited specific dates gifts were bought for referral physicians without stating when the referral physician was given the gift. Because the relator failed to plead sufficient facts that provided details as to “who, what, when, or how” the payment of money was given to the referring physicians, the district court determined that the complaint failed to meet Rule 9(b)’s heightened pleading standard. As in years past, certain relators attempted to use statistical analysis to meet Rule 9(b)’s pleading requirements. For example, in U.S. ex rel. Integra Med Analytics LLC v. Mariner Health Care, Inc. , the relator alleged that Mariner, a SNF operator, violated the FCA by engaging in a scheme to falsify information about the amount of rehabilitation needed for patients and failing to report and return overpayments from Medicare. 93 To support these allegations, the relator relied on testimony from former employees and patients of the SNFs and data from algorithms and statistical analysis. In its motion to dismiss, Mariner
carried out by the defendant, but courts differ as to how detailed the allegations must be to connect that scheme to actual claims submitted to the government for payment. FCA complaints that fail to meet the hurdles established by Rule 9(b) are routinely dismissed.
At the pleading stage, FCA complaints are subject to Rule 8(a)’s plausibility standard and Rule 9(b)’s heightened pleading standard for fraud. This requirement is meant to shield defendants from frivolous lawsuits and provide meaningful notice of alleged wrongdoing.
Pleading the Details of a Fraudulent Scheme
To survive a motion to dismiss under Rule 9(b), complaints asserting FCA claims must identify the particular details of the defendant’s fraud – the “who, what, when, where, and how” of the alleged fraudulent scheme. This does not mean the relator is required to prove its case in the complaint, but Rule 9(b) certainly requires some level of factual specificity.
For instance, in U.S. ex rel. Prose v. Molina Healthcare of Illinois, Inc . , the Seventh Circuit reiterated that district courts should not “take an overly rigid view” of Rule 9(b)’s requirements, and “the specific details that are needed
91
17 F.4th 732 (7th Cir. 2021).
89
4 F.4th 255 (5th Cir. 2021).
92 93
2021 WL 211474 (M.D. Fla. Jan. 21, 2021). 2021 WL 4259907 (N.D. Cal. Aug. 5, 2021).
90 See also U.S. ex rel. Vanderlan v. Jackson HMA, LLC , 2021 WL 41310 (S.D. Miss. Jan. 5, 2021) (applying the Swift standard and granting the government’s motion for dismissal).
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