14 April 2009
The US Court of Appeals for the Fifth Circuit has issued an opinion that will likely relax the standard for whistleblowers to state their claims with particularity under Federal Rule of Civil Procedure 9(b). On April 8, 2009, in United States ex rel. Grubbs, v. Kanneganti, 2009 WL 930071 (5th Cir. 2009), the Fifth Circuit addressed the minimum pleading requirements for an alleged health care fraud scheme filed under the whistleblower provisions of the False Claims Act (31 U.S.C. 3729 et seq.,) pursuant to FRCP 9(b), which requires that allegations of fraud be set forth in the complaint with particularity.
In addition, in the wake of Allison Engine, Co. v. U.S. ex rel, Sanders, 128 S.Ct. 2123, 2129 (2008), decided by the US Supreme Court last term, the Fifth Circuit pronounced a collateral consequence of the absence of a requirement in the False Claims Act that all false claims be presented to the government to be actionable under all provisions of the False Claims Act. The court in Grubbs concluded that relators do not have to plead “the specific contents of actually submitted claims such as billing numbers, dates and amounts” in order to advance their matters to the discovery phase of litigation. This modifies and relaxes the so-called “Clausen” approach adopted by the Eleventh Circuit in U.S. ex rel Clausen v. Lab Corp. of America Inc., 290 F.3d 1301 (11th Cir. 2002), which requires that the whistleblower plead actual instances of the submission of false claims (or bills or invoices) in order to be able to proceed with the lawsuit after the initial complaint. In place of the Clausen approach, the Fifth Circuit has adopted a potentially more flexible “content specific” approach that requires whistleblowers to plead “with particularity the circumstances constituting fraud . . . by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.”
This development is significant because in the health care fraud context (similar to other government contractors), the claim procedure often involves the submission by the health care provider of a very specific form (CMS-1500), which contains such information as a patient’s identity, the date of health care service, the types of medical services provided and the specific codes utilized for reimbursement. Under the Clausen standard, courts frequently dismissed whistleblower suits pursuant to Rule 9(b) if the whistleblower could not allege with particularity the actual submission of the claims for reimbursement that were deemed to be false, including the dates of the submission, the amounts sought to be claimed, the person submitting the claims and the particular reimbursement codes utilized by the alleged wrongdoer. The impact of the Grubbs case is that it potentially shifts the focus to the specifics of the scheme and the actors involved in the scheme, and away from whether the claims were actually submitted as a result of the scheme. The level of detail required in health care cases has been a principal argument by whistleblower’s counsel for pending legislation to relax the 9(b) requirement in qui tam cases.
In Grubbs, the whistleblower, a psychiatrist who had just commenced practice at a medical center, was invited to a meal with two of the medical center’s physicians. During the meeting, the physicians allegedly provided the whistleblower with information regarding their fraudulent billing scheme to document and bill for phantom psychiatric services not actually performed by them. Later, the whistleblower met with members of the medical center’s nursing staff who not only corroborated the physicians’ scheme, but sought to assist by recording unperformed services in the physician’s name.
Grubbs ultimately filed suit against the medical center and individual doctors pursuant to the qui tam provisions of the False Claims Act, which permit private citizens to file suit on behalf of the United States and to collect a portion of any recovery. In his suit, Grubbs alleged that the defendants had violated the False Claims Act by presenting and causing to be presented false claims to the United States, making and/or using a false record to get a false claim approved and conspiring to defraud the United States by getting a false or fraudulent claim allowed. Grubbs included the specific allegations of the scheme, set forth the names of the physicians involved, the dates of particular phantom services, the false billing code that was recorded in the medical records and the federal agency that was impacted by the alleged fraud.
Upon a motion to dismiss pursuant to Rule 9(b), which requires that fraud be pleaded with particularity and include the actual details of the fraudulent conduct, the district court dismissed the complaint with prejudice.
The district court’s dismissal was based on the whistleblower’s failure to allege specifics regarding the content of individual bills which were presented to the United States under the (a)(1) of the statute (which has presentment as a statutory element). In reversing, the Fifth Circuit noted that a rule requiring the contents of the presented bill itself be pled with particular detail was too rigid of a rule which needed to remain flexible to achieve the remedial purpose of the False Claims Act. Also, the Fifth Circuit, while interpreting Allison Engine, noted that there is no presentment requirement at all pursuant to (a)(2) of the False Claims Act and, thus, the whistleblower need not set forth specific allegations in a complaint regarding the presented claim when the scheme sets forth particulars regarding the scheme related to the creation of a false record which was made with the intent to get a claim paid by the United States.
While this Grubbs case is binding only on district courts in the Fifth Circuit, it will provide ammunition to the whistleblower’s bar for the foreseeable future.
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