On September 1, 2016, the U.S. Court of Appeals for the Seventh Circuit reversed the dismissal of an FCA lawsuit by the U.S. District Court for the Eastern District of Wisconsin, and in doing so, evaluated the particularity required to survive a motion to dismiss under Rule 9(b) as it relates to both a relator’s obligation to plead specific claims and the specifics of the underlying fraudulent conduct at issue.
In U.S. ex rel. Presser v. Acacia Mental Health Clinic, LLC, the relator worked at a mental health clinic as an independent contractor nurse practitioner and alleged that the clinic fraudulently billed for medically unnecessary services. The relator alleged that the FCA violations resulted from four types of conduct: (1) requiring patients to see four clinicians and incur separate charges from each in order to be provided with medications; (2) mandating that the receptionist and medical nurse practitioner use a billing code for full psychological assessment by a therapist or a psychiatric medical evaluation by a psychiatrist or psychiatric nurse practitioner; (3) performing mandatory urine screens for each patient on each visit; and (4) requiring patients to come in to the clinic for refills or to speak with a physician.
The district court had dismissed relator’s allegations largely due to the relator’s failure to plead the specifics of the actual billing of government federal or state healthcare programs for medically unnecessary services. The Seventh Circuit, however, rejected any requirement that the relator plead actual claims in order to satisfy Rule 9(b). The Seventh Circuit stated that Rule 9(b) does not require a relator to “present or even include allegations about a specific document or bill that the defendants submitted to the Government,” and concluded that generalized allegations that “almost all” of the defendants’ patients were on Medicare or Medicaid and that the alleged procedures were applied to all patients at the clinic were sufficient. The Seventh Circuit’s relaxed application of Rule 9(b) was bolstered by its observation that the relator apparently otherwise lacked access to billing information.
The Seventh Circuit then analyzed whether the relator pleaded the alleged fraudulent schemes with sufficient particularity to satisfy Rule 9(b). Only one of the four types of conduct alleged by the relator was pleaded with sufficient detail to avoid dismissal. In evaluating the relator’s allegations regarding the use of the psychiatric assessment billing code, the Seventh Circuit concluded that those allegations were pleaded sufficiently because the relator had alleged that the defendants provided non-psychiatric evaluations and then “falsely presented those services on bills” to the government.
The other three types of misconduct alleged by the relator did not survive scrutiny under Rule 9(b) because those allegations were based largely on the relator’s factually unsupported opinion of medical necessity. The Seventh Circuit explained that the relator provided “no medical, technical, or scientific context which would enable a reader of the complaint to understand why [the defendants’] alleged actions amount to unnecessary care forbidden by the statute.” The Seventh Circuit noted that Rule 9(b) requires something more and that “subjective evaluation, standing alone, is not a sufficient basis for a fraud claim.”
What is to be made of the Seventh Circuit’s opinion in Presser? Let’s call it a split decision. On the one hand, the Seventh Circuit’s willingness to relax the particularity required by Rule 9(b) and require only an “inference” that bills were submitted to government healthcare programs is certainly a win for relators. Indeed, the Seventh Circuit went so far as to excuse her inability to include greater detail because of the fact that her “position … does not appear to include regular access to medical bills” and the Seventh Circuit “[did] not see how she would have been able to plead more facts pertaining to the billing process.”
On the other hand, the Seventh Circuit’s opinion draws a very hard line regarding the relator’s failure to plead specific facts about the underlying conduct at issue. The Seventh Circuit articulated a “higher standard of specificity for fraud compared to other civil litigation” because of the “heightened possibility of mistake or bias” by relators and the possibility that relators could be a disgruntled former employees whose “perspective may be colored by considerable bias or self-interest.”
Such language led the dissenting opinion to question whether the majority was applying an “unusually demanding interpretation of Rule 9(b),” that more resembled the heightened pleading standard from the Private Securities Litigation Reform Act to which plaintiffs in securities fraud actions are held. Indeed, the majority opinion was strongly critical of the relator’s allegations for their lack of “additional context” that rendered the allegations “too indefinite” and entirely dependent on the relator’s “personal estimation – an estimation that is not supported in any concrete manner.”
How lower courts within the Seventh Circuit choose to interpret the scrutiny applied by the Seventh Circuit in Presser will be the true mark of whether this opinion is used to bolster complaints lacking in allegations of specific false claims or whether it amounts to an even higher hurdle for relators in pleading the specifics of the underlying fraudulent conduct than previously applied under Rule 9(b). For now, there appears to be a little something for both sides in FCA cases.