The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we are taking a closer look at recent legal developments involving the FCA. This week, we examine recent court decisions requiring relators to plead actual claims to satisfy the requirements of Rule 9(b) in order to avoid dismissal.

Federal courts have continued to examine the particularity of the pleading required by Rule 9(b) in the context of FCA claims. Although courts generally agree that a relator must plead the “who, what, when, where, and how” of the alleged fraud, the manner in which courts have applied this standard and the types of allegations considered sufficient to satisfy Rule 9(b) continues to vary significantly.

A number of courts have continued to impose a strict requirement that relators identify and plead the specific details of a false claim, though many courts have identified limited circumstances in which application of a more flexible pleading standard may be appropriate. For example, this year, courts in the Sixth Circuit repeatedly dismissed complaints for failure to plead actual false claims; the Sixth Circuit, however, for the first time, relaxed the pleading standard when a relator alleged personal knowledge of billing practices without pleading a particular false claim. The First Circuit continued to apply a more flexible standard when a complaint alleges that the defendant caused the submission of false claims. Though these cases indicate that some courts recognize a more permissive standard for satisfying Rule 9(b) in certain circumstances, they also demonstrate that even these relaxed standards can be quite demanding.

A number of courts continued to dismiss complaints based on relators’ failure to identify an actual false claim, while leaving open the possibility that certain circumstances may warrant application of a more permissive approach. For example, in U.S. ex rel. Eberhard v. Physicians Choice Laboratory Services, LLC., the Sixth Circuit applied the Circuit’s “strict” standard to dismiss the complaint when the relator failed to identify the “time, place, and content of [the defendant’s] alleged misrepresentation.”  642 Fed. Appx. 547, 550-51, 553 (6th Cir. 2016) (citing U.S. ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493 (6th Cir. 2007) and Chesborough v. VPA, P.C., 655 F.3d 461 (6th Cir. 2011)).  District courts within the Sixth Circuit reached the same result.  See U.S. ex rel. Crockett v. Complete Fitness Rehab., Inc., 2016 WL 5476277, at *9 (E.D. Mich. Sept. 29, 2016) (failure “to identify a fraudulent claim” was “fatal to [the] complaint”); U.S. ex rel. Armes v. Garman, 2016 WL 3562062, at *9 (E.D. Tenn. June 24, 2016) (dismissing complaint because relator failed to allege false claims and did not allege any “personal knowledge of any claims or billing information” to justify the application of a relaxed standard). Consistent with prior decisions, the Sixth Circuit in Eberhard left open the possibility that certain circumstances may warrant the application of a more flexible standard, though declined to do so in this case.

In U.S. ex rel. Chase v. LifePath Hospice, Inc., the U.S. District Court for the Middle District of Florida dismissed a complaint because the relator did “not identify a single claim submitted to the government, let alone a false one.” Citing an unpublished decision from the Eleventh Circuit, the district court acknowledged that a complaint alleging “strong indicia of reliability vis-à-vis the fraudulent claim” could permit a complaint to survive Rule 9(b)’s particularity requirement. The district court concluded, however, that the complaint did not include such indicia because it lacked allegations that the relator had “first-hand knowledge of billing practices.”  2016 WL 5239863, at *8 (M.D. Fla. Sept. 22, 2016) (citing U.S. ex rel. Mastej v. Health Mgmt. Assocs., Inc., 591 Fed. Appx. 693 (11th Cir. 2014)).

At least one case this year provided a helpful illustration of the granular detail necessary to survive the stringent requirement that actual claims be pleaded with particularity. In U.S. ex rel. Lee v. Northern Adult Daily Health Care Center, 2016 WL 4703653, at *7 (E.D.N.Y. Sept. 7, 2016), the district court partially denied a motion to dismiss when the relator pleaded actual false claims by providing an annex with billing details for 16 claims. The district court held the relator pleaded actual claims with sufficient particularity by providing details such as the relevant “dates of attendance, Defendants’ misconduct, and the facts that render Defendants’ claims false.”

Circumstances Permitting Application of a More Permissive Standard. When courts applied a more permissive pleading standard last year, they did so in two limited circumstances. Some courts relaxed the Rule 9(b) standard when a complaint pleaded facts that support a “strong inference” that claims were actually submitted, such as the relator’s personal knowledge of the submission of claims or regarding the relevant billing practices.

This year, the Sixth Circuit applied a relaxed standard for the first time.  In U.S. ex rel. Prather v. Brookdale Senior Living Communities, Inc., 838 F.3d 750, 770 (6th Cir. 2016), the relator alleged, in relevant part, that she was hired to work through a back log of final Medicare claims, that she had been responsible for “reviewing the documentation for those Medicare claims, in anticipation of them being submitted to Medicare[,]” and that she “received confirmation that the final claims that she reviewed were submitted for payment.” Because these allegations, which were “based on her personal billing-related knowledge,” supported a “strong inference that specific false claims were submitted for payment,” the Sixth Circuit determined that it was appropriate to relax the requirement that a relator identify an actual false claim and held the relator had satisfied Rule 9(b).  See id. at 773; see also U.S. ex rel. Schramm v. Fox Valley Physical Servs., 2016 WL 537951, at *5-6 (complaint satisfied Rule 9(b) because “the defendants are adequately on notice of the false claims and misconduct alleged” by allegations that identified ten patients who received the allegedly non-compliant services at issue during a four-month timeframe and claimed an employee responsible for billing stated the allegedly fraudulent claims would be submitted).

A series of First Circuit cases continued to apply a “more flexible” Rule 9(b) standard in circumstances involving allegations that the defendant caused third parties to submit false claims. Under these circumstances, the First Circuit would allow a relator to overcome a Rule 9(b) challenge by providing “factual or statistical evidence to strengthen the inference of fraud beyond possibility without necessarily providing details as to each false claim.”  U.S. ex rel. Kelly v. Novartis Pharms. Corp., 827 F.3d 5, 13 (1st Cir. 2016) (citing U.S. ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 29-30 (1st Cir. 2009)). To satisfy this standard, a relator must provide details such as the providers involved in submitting the allegedly false claims, the “rough time periods, locations, and amounts of the specific false claims,” and the government programs to which claims were submitted. Id. (quoting U.S. ex rel. Ge v. Takeda Pharm. Co., Ltd., 737 F.3d 116, 121, 124 (1st Cir. 2013)).

Despite applying this lower threshold, the First Circuit held the relators failed to satisfy Rule 9(b) in all four cases it considered last year. See Hagerty ex rel. U.S. v. Cyberonics, Inc., 2016 WL 7321224, at *4 (1st Cir. 2016) (complaint did not satisfy Rule 9(b) by failing to specify approximate volume of affected claims, how the claims were false, whether relevant patients were covered by federal healthcare programs, and whether providers submitted claims for these services); Lawton ex rel. U.S. v. Takeda Pharm. Co., Ltd., 842 F.3d 125, 131 (1st Cir. 2016) (complaint failed to provide the requisite amount of particularity because it failed to specify “who submitted false claims to the government, how many false claims were submitted to the government, or how the Defendants’ actions resulted in the submission of false claims”); Kelly, 827 F.3d at 14-15 (allegations that certain doctors who (1) received incentives from the defendants, (2) prescribed the medication at issue, and (3) were enrolled in federal reimbursement programs did not satisfy Rule 9(b) because the relator did not “tie these independently unexceptional allegations together into particularized charges about specific fraudulent claims for payment.”); see also D’Agostino v. ev3, Inc., 2016 WL 7422943, at *8 (1st Cir. Dec. 23, 2016).

Thus, while the First Circuit applies a “more flexible” standard to complaints alleging that a defendant caused another party to submit false claims, even under these circumstances the particularity requirements remain fairly rigid.