On February 3, the U.S. Court of Appeals for the Fourth Circuit reversed a district court’s grant of a motion to dismiss, holding in relevant part that:

• Violations of a Corporate Integrity Agreement (CIA) can create an “obligation” to support a reverse false claim.

• A relator can satisfy the False Claims Act’s presentment requirement under Rule 9(b) without pleading the details of an actual false claim if the relator pleads the details of a fraudulent scheme in combination with “reliable indicia” leading to a “strong inference” that the defendant actually submitted false claims.

Background

In U.S. ex rel. Wheeler v. Acadia Healthcare Co., Inc., the relator, a former assistant medical director at a clinic providing substance abuse disorder treatment in North Carolina, alleged that Acadia was falsifying patient records by fabricating notes from therapy sessions that purportedly never occurred.

The relator claimed that Acadia relied on those patient records to submit claims to the government for payment for methadone-assisted treatment to patients suffering from opioid use disorder, where federal regulations required that the prescription of methadone be accompanied by therapy and counseling services. The district court granted Acadia’s motion to dismiss for failure to state a claim in its entirety, and the Fourth Circuit reversed.

Violation of CIA Can Support Reverse False Claim

The Fourth Circuit held that Acadia’s alleged violations of its CIA created an “obligation” to the government sufficient to give rise to a reverse false claim. The relator alleged the following two violations: (1) that Acadia did not provide training regarding federal healthcare program and CIA requirements, and (2) Acadia did not investigate, take remedial action, or report any of the information reported by relator to the Department of Health & Human Services Office of the Inspector General. The court held that because the alleged violations triggered stipulated monetary penalties in the event of Acadia’s breach of the CIA, the stipulated penalties had already accrued such that the “only remaining step is for the government to collect on that penalty.”

The court analogized to a contracting party’s discretion to enforce a breach of contract. The Fourth Circuit relied on reasoning from the Tenth, Sixth, and Eleventh Circuits that the government’s ability to exercise discretion “regarding whether to charge [an] authorized fee does not render an obligation ‘contingent’ in the context of a reverse false claim,” but it is the only court of appeals to apply that rule to an alleged CIA violation. This holding contrasts with the Second Circuit’s recent ruling that prior consent orders related to other claims did not give rise to an “obligation” to pay civil penalties where such penalties were subject to the government’s discretion.

Rule 9(b) Particularity

The Fourth Circuit held that the relator adequately alleged the presentment of a false claim under Federal Rule of Civil Procedure 9(b). In doing so, the court waded into a circuit split, refusing to require specific allegations regarding any actual false claim presented to the government for payment. Instead, in taking a more liberal approach than previous Fourth Circuit decisions, the court followed the Fifth Circuit’s standard for the submission of false claims under Rule 9(b), requiring only that the complaint contain “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.”

The court emphasized the relator’s specific identification of relevant staff members, dates, and descriptions of the fabricated therapy sessions, holding that “[t]here can be little doubt that, if Acadia created these false notes, it billed for those services.”

Additional Holdings on Materiality, Presentment, and Falsity

The Fourth Circuit made the following three additional noteworthy holdings:

• The Fourth Circuit held that the federal requirement to provide substance abuse disorder counseling in the provision of methadone is material to the government’s decision to pay for methadone-assisted treatment. The court noted that the very allegation that Acadia falsified records indicated that it believed the requirement to provide therapy was material.

• The court upheld relator’s claims for implied false certification and fraudulent inducement as to payments under Medicare based on the relator’s allegations that (a) Acadia’s claims were implicitly false because they falsely certified compliance with federal requirements; and (b) those claims fraudulently induced the government to continue Acadia’s Substance Abuse and Mental Health Services Administration accreditation.

• On a brighter note for defendants, the Fourth Circuit rejected the relator’s argument that facilities outside of North Carolina were falsifying group therapy notes based on the relator’s allegations that such conduct was “corporate policy” where the complaint lacked any facts to support that allegation.

Takeaways

The Fourth Circuit made it easier for relators to survive a motion to dismiss in the following two ways.

• The court expanded the scope of reverse false claims to encompass alleged violations of a CIA.

• The Fourth Circuit sided with relator-friendly circuits that do not require a relator to plead the details of an actual false claim presented to the government for payment to satisfy Rule 9(b)’s particularity requirement.

This decision from the Fourth Circuit cautions healthcare providers and businesses to strictly adhere to the terms of a CIA to avoid allegations of reverse false claims.

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