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Pleading Standards in the Eighth Circuit

By Daniel Miller

Federal Rule of Civil Procedure Rule 9(b)

Relators in qui tam cases under the False Claims Act (“FCA”) face considerable challenges in meeting pleading requirements in many circuits, including the 8th Circuit.

The Rule 9(b) standard in the Eighth Circuit is well described by the Court in United States ex rel. Joshi v. St. Luke’s Hospital, Inc., 441 F.3d 552 (8th Cir. 2006):

Because the FCA is an anti-fraud statute, complaints alleging violations of the FCA must comply with Rule 9(b).  Under Rule 9(b), the circumstances constituting fraud … shall be stated with particularity. Rule 9(b)’s particularity requirement demands a higher degree of notice than that required for other claims, and is intended to enable the defendant to respond specifically and quickly to the potentially damaging allegations. To satisfy the particularity requirement of Rule 9(b), the complaint must plead such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result.  Put another way, the complaint must identify the who, what, where, when, and how of the alleged fraud.

Id. at 556 (citations and internal quotation marks omitted).  In meeting this burden, a Relator need not plead details of any specific false claims, as long as there is sufficient indicia of reliability that false claims were submitted.  See United States ex rel. Thayer v. Planned Parenthood of the Heartland, 765 F.3d 914, 917-918 (8th Cir. 2014).  When considering a motion to dismiss, the Court must view the Complaint in the light most favorable to Relator, and the facts alleged in the Complaint must be accepted as true.  Hamm v. Gruse, 15 F.3d 110, 112 (8th Cir. 1994).

Federal Rule of Civil Procedure Rule 12(b)

Recognizing that the FCA is to be applied broadly and flexibly to reach all types of whistleblower fraud that cause financial loss to the government, the Supreme Court, when evaluating claims under the Act, has “consistently refused to accept a rigid, restrictive reading.” United States v. Neifert-White Co., 390 U.S. 228, 233 (1968).  Attempts to cabin a Relator’s claims into judicially-created categories would result in exactly the kind of “rigid, restrictive reading” Congress has cautioned against and the Supreme Court “has consistently refused” to adopt. Id. at 232.

To survive a motion to dismiss under Rule 12(b)(6), a Realtor’s complaint need only “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007)).  In making this determination, the court accepts the Relator’s allegations as true and draws all reasonable inferences in favor of Relator.  Crooks v. Lynch, 557 F.3d 846, 848 (8th Cir. 2009).  Accordingly, when reviewing a defendant’s motion to dismiss under Rule 12(b)(6), it is error to either ignore reasonable inferences supported by the allegations in the complaint or to draw any inferences in the defendant’s favor.  See Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 595 (8th Cir. 2009).

Conclusion

The pleading standards in the 8th Circuit are similar to the pleading rules in many other circuits.  In short, Relators in qui tam cases under the False Claims Act  face considerable challenges in reaching the discovery aspect of litigation.  Engaging a whistleblower lawyer with considerable experience is critical to meeting the pleading rules.

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False Claims Act Cases Based on Fraudulent Inducement

By Joy Clairmont

Liability under the False Claims Act (“FCA”) for fraud in the inducement is established when eligibility to receive funds under a government program was procured by misstatements or other misleading actions.  Courts have repeatedly held fraudulent inducement is a viable theory of liability under the FCA.  See United States ex rel. Miller v. Weston Educ., Inc., 840 F.3d 494, 498 (8th Cir. 2016) (citations omitted); In re Baycol Prods. Litig., 732 F.3d 869, 876 (8th Cir. 2013).  In these whistleblower cases, “FCA liability attaches to ‘each claim submitted to the government under a contract so long as the original contract was obtained through false statements or fraudulent conduct.” See United States ex rel. Miller v. Weston Educ., Inc., 840 F.3d 494, 498 (8th Cir. 2016) (citations omitted).

It is well established that fraud at the outset of a series of dealings with the government can render all subsequent claims false under the FCA.  See S. Rep. No. 99-345, at 9, reprinted in 1986 U.S.C.C.A.N. at 5274 (“each and every claim submitted under a contract, loan guarantee, or other agreement with was originally obtained by means of false statements or other corrupt or fraudulent conduct . . . constitutes a false claim”).

Fraudulent Inducement Qui Tam Case Examples

The fraudulent inducement theory has been used in FCA cases with regard to fraudulently inducing a variety of different government agencies’ actions:  the Department of Defense to enter into contracts for the purchase of a drug, see In re Baycol Prods. Litig., 732 F.3d 869, 876 (8th Cir. 2013); the Department of Education to obtain federal subsidies, United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166 (9th Cir. 2006); and the Department of Energy for the award of a subcontract, Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 786-87 (4th Cir. 1999).

In the 8th Circuit case of United States ex rel. Miller v. Weston Educ., Inc., 840 F.3d 494, 498 (8th Cir. 2016), relators allege that a college fraudulently induced the Department of Education to provide funding by falsely promising to keep accurate grade and attendance records.  The Miller court found that defendant’s promise to keep accurate grade and attendance records influenced the government’s decision to provide funding and denied defendant’s motion to dismiss. Id. at 503.

Fraud-on-the-FDA under the False Claims Act

In addition, the theory had been relied on to support FCA liability for fraud-on-the-FDA.  Courts have found FCA violations based on defrauding the FDA. See United States ex rel. Brown and Vezeau v. Pfizer, Inc., 2016 WL 807363, *8-10 (E.D. Pa. 2016) (relator’s allegations that defendant submitted a false and misleading application to the FDA were upheld as sufficient under the False Claims Act); United States ex rel. Krahling v. Merck & Co., Inc., 2014 WL 4407969, *6-7 (E.D. Pa 2014) (denying defendant’s motion to dismiss relator’s FCA case alleging fraud-on-the-FDA related to the efficacy of its mumps vaccine); Krahling, Statement of Interest from the United States Department of Justice (“the False Claims Act expressly authorizes private citizens to bring suits on behalf of the Government, and carving out an exception for suits arising from allegations of fraud on the FDA or conduct in violation of FDA regulations is not supported by the statutory text or case law and is inconsistent with the purposes of the False Claims Act”).

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Whistleblower Lawsuits Against Medicare Advantage Organizations

By Susan Schneider Thomas

In addition to the big qui tam case against UnitedHealth Group that has received so much press recently, there is a similar whistleblower case pending in federal court in Texas alleging False Claims Act (“FCA”) claims against a medical coding company, Censeo Health, L.L.C., and several Medicare Advantage organizations (“MAOs”).   Similar to the allegations in UnitedHealth Group, Censeo is alleged to have provided unsupported diagnostic codes and inaccurate risk adjustment data for the purpose of improperly inflating capitated payments to the coding company’s clients, Medicare Advantage organizations. U.S. ex rel. Ramsey-Ledesma v. Censeo Health, L.L.C., 3:14-CV-00118-M (N.D. Tx).

Medicare Advantage Organizations and Capitation Payments

The Censeo case follows a recognized theory of FCA liability for false claims presented to MAOs, where false claims result in MAOs receiving increased capitation payments from the government. Since capitation payments are largely driven by the diagnosis of chronic medical conditions, an MAO that claims it has a beneficiary with diabetes and relays this information to CMS will almost certainly lead to a substantially increased capitation payment to account for the anticipated increased costs of treating that beneficiary.

Falsely stating risk conditions or diagnosis codes leads to increased payments by the government because the capitated payments per member are adjusted based on what is called “risk adjustment data.”  The capitated payments are prospective, meaning CMS uses risk adjustment data from the prior year to establish payment amount for the following year. 42 C.F.R. §§ 422.308(c), (e), 422.310(g).  CMS’s model assumes that MAOs with higher-risk insureds will be required to pay more for their insureds’ medical care. Thus, MAOs with more high-risk insureds are compensated at a higher level than MAOs whose insureds are comparatively healthier.

Diagnosis Code Guidelines for Medicare Advantage Organizations

CMS guidelines require that MAOs use accurate diagnosis codes, following ICD-9-CM Guidelines for Coding and Reporting. See Medicare Managed Care Manual Ch. 7. The diagnosis codes must be supported by properly documented medical records, see 42 C.F.R. § 422.310(e), and the MAOs must certify that the risk adjustment data provided to CMS, including diagnosis codes, is accurate, complete, and truthful, based on an MAO’s “best knowledge, information, and belief.” See 42 C.F.R. § 422.504(l).

MAOs are permitted to subcontract with third-party vendors, such as medical coding companies, to ascertain and report their patients’ risk adjustment data.  As the New York Times recently reported, “[t]he realization that medical records could be mined for extra money appears to have given rise to a cottage industry of consulting firms offering to screen patient histories and look for indications of long-term health problems that could be used to increase Medicare reimbursements.” Walsh, M.W., Scheme Tied to UnitedHealth Overbilled Medicare for Years, Suit Says, New York Times, Feb. 16, 2017.

Censeo Whistleblower Allegations

As part of the scheme that the whistleblower in Censeo alleges, Censeo allegedly hired unqualified physicians to perform in-home assessments of members of Censeo’s MAO clients and diagnose high-risk conditions. The problems arise, according to this former coding employee, because Censeo pushed the doctors to identify high-risk conditions based on little more than historical data provided by the patients themselves.  U.S. ex rel. Ramsey-Ledesma v. Censeo Health, L.L.C., 3:14-CV-00118-M, 2016 WL 5661644, at *2 (N.D. Tex. Sept. 30, 2016).

The company was also alleged to have provided these inexperienced medical coders and physicians with assessment forms that had been prepopulated with patient information, including medical and prescription medication histories. Id. at *4.  Relator alleges that Censeo instructed those physicians to diagnose high-risk conditions based on information provided in the prepopulated assessment forms and during cursory physical examinations they conducted of members, which lasted only 45 minutes to an hour. Id. Some of these reported conditions were not true diagnoses, but instead simply showed the self-reported conditions or information that the coder gleaned from the medical history, which also included unconfirmed self-reported conditions and severity judgments generally not supported by laboratory results or diagnostic testing.  Id. at *5.

As one example, the whistleblower alleged that Censeo instructed physicians to diagnose chronic obstructive pulmonary disease (“COPD”) based on nothing more than the doctor’s observations that the MAO member used oxygen or had a chronic cough.  Physicians were allegedly pressured to code high-risk conditions through incentive payments and other employment conditions. Id. at *5.

Employees or patients who observe these types of fraudulent practices, which overburden government healthcare programs and potentially make those programs unsustainable, are in the best position to report these violations and allow the government to address that costly fraud and corruption in the industry.

It is free to speak with our nationally recognized whistleblower attorneys:


Senator Chuck Grassley and Seema Verma Discuss the Importance of the False Claims Act to CMS

By David Filbert and Daniel Miller 

On February 16, 2017, the Senate Finance Committee held a confirmation hearing for Seema Verma to become the nation’s next Administrator of the Centers for Medicare and Medicaid Services (“CMS”).  During her testimony, Senators raised wide-ranging questions about the best ways to maintain the quality of the Medicare and Medicaid programs while ensuring the programs’ financial stability.  Ms. Verma stated throughout the hearing that she would try all options and methods to protect and enhance the healthcare programs.

When it came time for Senator Chuck Grassley to ask questions, he wanted to know about Ms. Verma’s commitment to the False Claims Act (“FCA”) and fighting fraud in the programs.  He said, “Coming from an Administration that wants to drain the swamp, I would expect changes to be made under your leadership…”.[1]  Senator Grassley then prefaced his questions by mentioning discussions he has had with CMS in which the agency said it doesn’t have much authority to do anything against frauds in its own programs even if the frauds are in clear violation of the law.  This comment surprised the Senator, who then requested that Ms. Verma take a look into the CMS’ interpretation of its authority to stop fraud.  Grassley said that oftentimes money is taken wrongly from the programs and there is no way to get it back.

Senator Grassley said there are “a lot of tools available to the government to fight fraud…the most effective one is the False Claims Act.”[2]  He then pointed out that since 1987, the Department of Justice has used the FCA to recover almost $34 billion just from health care fraud alone, and that cooperation between the Justice Department and CMS is very important in these cases.  Senator Grassley asked Ms. Verma if she would commit to proactively cooperating with the Department of Justice in fraud cases and to fully support the use of the FCA to combat fraud on government healthcare programs.  Ms. Verma said “…I will absolutely do that.”[3]  She applauded Senator Grassley’s efforts on the FCA, which has been “…an integral component of preventing fraud and recovering dollars when there is fraud.”[4]   So it seems at the outset, even before her administration begins at CMS, that Ms. Verma will look to the FCA as one of her options to support and protect the Medicare and Medicaid programs.

Ms. Seema Verma is the President and founder of SVC, Inc., a national health policy consulting company, and was the architect of the Healthy Indiana Plan (HIP), the nation’s first consumer directed Medicaid program. She has worked for years in Indiana with Governors Mitch Daniels and Mike Pence managing the state’s Medicaid program and has been a consultant with extensive experience redesigning Medicaid programs in other states[5].  She holds a Masters of Public Health Degree from Johns Hopkins University and was nominated to serve as CMS Administrator on November 29, 2016.  CMS is the world’s largest health insurer, covering over one-third of the U.S. population through Medicare and Medicaid alone.  It has a budget of over one trillion dollars and it processes over 1.2 billion claims a year for services provided to some of our nation’s most vulnerable citizens.”[6]

Ms. Verma’s nomination was voted out of the Senate Finance Committee on March 2, 2017.  A vote for confirmation from the full Senate will occur in the coming days.

 

[1]  Senate Finance Committee Hearing, February 16, 2017.  Senator Grassley portion of video begins at time mark 46:48 https://www.c-span.org/video/?423823-1/cms-administrator-nominee-seema-verma-testifies-confirmation-hearing

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Seema Verma background  See Health Affairs Blog: http://healthaffairs.org/blog/author/verma/

[6] Senator Orin Hatch press release on Confirmation Hearing of Seema Verma, February 16, 2017. https://www.finance.senate.gov/chairmans-news/hatch-statement-at-finance-confirmation-hearing-for-cms-administrator

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Laboratories May be Liable under the False Claims Act for Submitting Claims for Screening Tests to Medicare

By Russell Paul

Laboratory tests are not medically necessary when they do not “determine a disease or illness. . . or medically or surgically manage an illness.” Strand Analytical Labs., LLC v. Burwell, 2015 WL 4603258, at *17 (S.D. Ind. July 30, 2015) (“The plain meaning of the words diagnose and treat do not include the broader concept of ‘contribute meaningfully.’ Rather, the terms ‘diagnose’ or ‘treat’ convey that the service must determine a disease or illness, which the . . . test admittedly does not; or medically or surgically manage an illness, which the Secretary concluded the . . . test did not do.”).

Screening Tests and Medicare Reimbursement

Screening, in medicine, is a strategy used to identify an unrecognized disease in individuals without signs or symptoms, and Medicare generally does not pay for screening tests.  As the Medicare Claims Process Manual clearly provides, “[t]ests that are performed in the absence of signs, symptoms, complaints, personal history of disease, or injury are not covered except when there is a statutory provision that explicitly covers tests for screening as described.”[1]   Other Medicare guidance reinforces that screening tests are generally not covered:

Services and Supplies That Are Not Medically Reasonable and Necessary

Services and supplies that are not medically reasonable and necessary to the overall diagnosis and treatment of the beneficiary’s condition are not covered. Some examples include:

****

Screening tests, examinations, and therapies for which the beneficiary has no symptoms or documented conditions, with the exception of certain screening tests, examinations, and therapies as described below under Exceptions (Items and Services That May Be Covered)[.][2]

Local Coverage Determination (“LCD”) L35000 (effective October 1, 2015 for various jurisdictions), which governs molecular pathology laboratory procedures, succinctly states the Medicare standard:

Screening services such as presymptomatic genetic tests and services used to detect an undiagnosed disease or disease predisposition are not a Medicare benefit and are not covered. Similarly, Medicare may not reimburse the costs of tests/examinations that assess the risk of a condition unless the risk assessment clearly and directly effects the management of the patient.

(emphasis added).

Thus, whenever the lab test at issue is not related to any existing symptom or complaint, it might be used to screen for existing disease or to predict the likelihood of future disease. Such a test would not be considered medically necessary and would not covered by Medicare, and a lab submitting a claim for such a test may be liable under the False Claims Act (“FCA”).

“Reasonable and Necessary” Medical Service Factors

Chapter 13 of the Medicare Program Integrity Manual (“MPIM”)[3] sets out factors for evaluating whether a specific service is “reasonable and necessary.”  MPIM § 13.5.1 provides that for a service to be considered “reasonable and necessary,” it must be “[f]urnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition or to improve the function of a malformed body member.”  MPIM § 13.7.1 states that the strongest evidence of medical necessity is, in order, of strength,

  • Published authoritative evidence derived from definitive randomized clinical trials or other definitive studies, and
  • General acceptance by the medical community (standard of practice), as supported by sound medical evidence based on:
  • Scientific data or research studies published in peer-reviewed medical journals;
  • Consensus of expert medical opinion (i.e., recognized authorities in the field); or
  • Medical opinion derived from consultations with medical associations or other health care experts.

Furthermore, Section 13.7.1 of the MPIM expressly rejects self-interested research as the basis for concluding that a service is reasonable and necessary:

Acceptance by individual health care providers, or even a limited group of health care providers, normally does not indicate general acceptance by the medical community. Testimonials indicating such limited acceptance, and limited case studies distributed by sponsors with financial interest in the outcome, are not sufficient evidence of general acceptance by the medical community. The broad range of available evidence must be considered and its quality shall be evaluated before a conclusion is reached.

MPIM §13.7.1 (emphasis added).

Thus, one must look to studies, data and recognized authorities in the field to determine whether a lab test is relevant to the diagnosis of a patient’s current condition, to medically or surgically manage an illness or to improve the function of a malformed body member.  If it is not, it may be for screening or predictive purposes and as such, is not covered by Medicare.  A lab that submits a claim for such a test may be liable under the FCA.

[1] Medicare Claims Processing Manual, CMS Pub. 100-4, Laboratory Services, Ch. 16, § 10 (Apr. 29, 2016), available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c16.pdf.

[2] CMS, Items and Services That Are Not Covered Under the Medicare Program, at 5, available at https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/Items-and-Services-Not-Covered-Under-Medicare-Booklet-ICN906765.pdf (emphasis added).

[3] Medicare Program Integrity Manual (Mar. 7, 2014), available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/pim83c13.pdf.

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A Laboratory’s Liability for Medically Unnecessary Lab Tests under the False Claims Act, Part II

By Russell Paul

In Part I of this blog series, we discussed when lab tests are considered “reasonable and necessary” under the False Claims Act (“FCA”) and therefore reimbursable by government health insurers such as Medicare and Medicaid, as well as a laboratory’s responsibility for ensuring that lab tests submitted for reimbursement are properly justified by the patient’s diagnosis. In this blog post, we will discuss the documentation that labs are required to maintain and supply in order to prove that the claims they submit for payment are covered under government health insurer regulations and the FCA.

Government Healthcare Regulations for Lab Test Documentation

Medicare regulations require a lab to document that its tests for a given patient are medically necessary and allow it to request more information from the doctor in order to meet this requirement.  The relevant regulation provides:

(i) Ordering the service. The physician . . .  who orders the service must maintain documentation of medical necessity in the beneficiary’s medical record.

(ii) Submitting the claim. The entity submitting the claim must maintain the following documentation:

(A) The documentation that it receives from the ordering physician or nonphysician practitioner.

(B) The documentation that the information that it submitted with the claim accurately reflects the information it received from the ordering physician or nonphysician practitioner.

(iii) Requesting additional information. The entity submitting the claim may request additional diagnostic and other medical information to document that the services it bills are reasonable and necessary. If the entity requests additional documentation, it must request material relevant to the medical necessity of the specific test(s), taking into consideration current rules and regulations on patient confidentiality.

42 C.F.R. § 410.32(d)(2) (emphasis added).

Sub-section (iii) above authorizes a lab to “request additional diagnostic and other medical information to document that the services it bills are reasonable and necessary.” 42 C.F.R. § § 410.32(d)(2)(iii) (emphasis added).  This provision plainly requires that labs review the ICD diagnostic codes submitted by physicians to ensure that the ordered tests(s) are medically necessary.  If a lab was not required to review the information provided by the ordering physician, then there would be no reason for an express authorization to request additional information to substantiate medical necessity.  Sub-section 410.32(d)(2)(iii) plainly contemplates the demand for further information to ensure that the documentation explicitly evidences the medically necessity of the tests.  Indeed, this requirement set forth in 42 C.F.R. § 410.32(d)(2)(iii) is repeated verbatim under the heading “Medical necessity” in § 410.32(d)(3)(iii), showing that the lab, which is the entity submitting the claim, must ensure the medical necessity of that claim.

Furthermore, Local Coverage Determination (“LCD”) L35000 (effective October 1, 2015 for various jurisdictions) also requires a lab to review the diagnosis given and ensure that its tests are warranted:

. . . the medical record must contain documentation that the testing is expected to influence treatment of the condition toward which the testing is directed. The laboratory or billing provider must have on file the physician requisition which sets forth the diagnosis or condition (ICD10-CM code) that warrants the test(s).

(emphasis added). Thus, if the ICD code assigned to the patient does not justify the test, then the lab necessarily does not have on file “the physician requisition…that warrants the test.”

“Medical Necessity” Case Examples

Courts around the country have confirmed that Government healthcare programs may require labs and other billing entities to maintain and supply documentation that justifies payment of the lab test or other service provided when a separate provider, such as a doctor, orders the test or service.  In KGV Easy Leasing Corp. v. Sebelius, 2011 WL 490990 (9th Cir. 2011), a medical diagnostic testing lab appealed the district court’s decision upholding the Secretary of the Department of Health and Human Services’ (the “Secretary”) determination that its lab tests were not reimbursable by Medicare because it failed to demonstrate that the tests were medically reasonable and necessary. The Ninth Circuit affirmed, holding that the lab never “established medical necessity.”  Id. at *1. The lab “never presented evidence that supplemented the information contained on its order forms” and “provided no evidence that the referring physician was also the treating physician, or that the test results were later used to help manage the patient’s medical conditions.”  Id. (emphases added).

Likewise, in Gulfcoast Med. Supply, Inc. v. Sec’y, Dep’t of Health & Human Servs., 468 F.3d 1347 (11th Cir. 2006), a motorized wheelchair supplier brought an action against the Secretary challenging the Secretary’s decision that Medicare had overpaid that supplier for wheelchairs. The supplier argued that the “certificate of medical necessity” (CMN) signed by a physician was by itself sufficient to establish that the wheelchair was necessary for the patient and that the supplier need not submit any additional medical documentation beyond the CMN to prove medical reasonableness and necessity of the wheelchairs and be paid. The Eleventh Circuit disagreed, holding that “when the Medicare Act is read as a whole, it unambiguously permits carriers and the Secretary to require suppliers to submit evidence of medical necessity beyond a CMN.”  Id. at 1352; see also Maximum Comfort Inc. v. Sec’y of Health & Human Servs., 512 F.3d 1081, 1087-1088 (9th Cir. 2007) (“[T]he Secretary may require, as a condition of reimbursement to an equipment supplier, information in addition to that provided by the certificate of medical necessity” to substantiate supplier’s claims for Medicare reimbursement); MacKenzie Med. Supply, Inc. v. Leavitt, 506 F.3d 341, 347 (4th Cir. 2007) (same); Druding v. Care Alternatives, Inc., 164 F. Supp. 3d 621, 631 (D.N.J. 2016) (“[E]ven if Defendant [hospice] has provided for each patient a certification signed by a physician, the claim [by the hospice] is not reimbursable if the patient’s medical record does not contain clinical information that supports the terminal prognosis.”).

Thus, when the lab test performed by the lab is wholly unrelated to and not justified by the diagnosis given by a doctor, the lab cannot submit a claim for payment for that test to the Government, and the lab may be liable under the FCA for doing so.

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A Laboratory’s Liability for Medically Unnecessary Lab Tests under the False Claims Act, Part I

By Russell Paul

This article addresses the liability of a diagnostic testing laboratory under the False Claims Act (“FCA”) for conducting lab tests that are ordered by a doctor and submitting claims for payment to government health insurers, such as Medicare and Medicaid, for those lab tests when those tests are not medically necessary to diagnose an illness in the patient or treat the patient’s current medical condition.

“Reasonable and Necessary” Medical Services

The keystone requirement for reimbursement under federal healthcare programs is that only claims for “reasonable and necessary” medical services are covered.  42 U.S.C. § 1395y(a)(1)(A) (“[N]o payment may be made under part A or part B of this subchapter for any expenses incurred for items or services. . . which. . . are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”).  This general rule applies to tests performed by laboratories. See generally United States. ex rel. Hobbs v. MedQuest Assocs., Inc., 711 F.3d 707, 715 (6th Cir. 2013) (applying the “reasonable and necessary” standard to diagnostic tests); United States v. Palin, 2016 WL 5941931, at *6 (W.D. Va. Aug. 2, 2016) (same).

A physician includes a diagnostic code, previously known as an ICD-9 code and currently known as an ICD-10 code, on a test requisition form to indicate the current health status of the patient in an attempt to justify the medical necessity of the ordered test(s).[1]  An ICD-10 code correlates with a specific condition from which the patient is currently suffering that purportedly warrants performance of the ordered test(s).

Medicare rules and regulations make it clear that tests that are not justified by an appropriate diagnosis are not considered medically necessary and are not reimbursable.  For example, the Medicare Claims Process Manual clearly provides, “[t]ests that are performed in the absence of signs, symptoms, complaints, personal history of disease, or injury are not covered except when there is a statutory provision that explicitly covers tests for screening as described.”[2]  Additionally, Medicare regulations provide that diagnostic lab tests “must be ordered by the physician who is treating the beneficiary, that is, the physician who furnishes a consultation or treats a beneficiary for a specific medical problem and who uses the results in the management of the beneficiary’s specific medical problem.” 42 C.F.R. § 410.32(a) (emphasis added).  Likewise, the Medicare Benefit Policy Manual provides that “[c]linical laboratory services must be ordered and used promptly by the physician who is treating the beneficiary.”[3] These requirements make clear that only tests performed in connection with an appropriate diagnosis (correlated with a specific ICD code) and whose results will be used to treat the patient are reimbursable as “reasonable and necessary” by Medicare.

Lab Tests Must Be Justified By the Diagnosis

In order to ensure that labs do not submit claims for reimbursement for tests when the patient has diagnoses that are random or unrelated to the test and, thus, do not support the medical necessity of the test, the Centers for Medicare and Medicaid Services (“CMS”) publishes a comprehensive guide that provides the specific ICD code “for which Medicare provides the presumption of medical necessity,” i.e. codes for which Medicare provides the presumption of coverage.[4]  For example, a presumption of medical necessity exists for certain HIV testing (CPT codes 87536 and 87539) when performed on patients for whom various ICD codes that correlate with HIV, hepatitis, or other similar illnesses are submitted.  Id. at 33-34.  While CMS has not published required diagnosis codes for the many thousands of tests that labs may administer, the fact that is has done so for certain tests exemplifies its requirement that the diagnosis (conveyed in the form of an ICD code) must specifically justify the test performed for the lab to be reimbursed.

The Lab Is Responsible for Ensuring that the Diagnosis Justifies the Test

The lab – and not the physician or other medical provider who ordered the test – is the entity that actual submits claims to the Government and receives reimbursements.  Providers may only bill Government healthcare programs for “reasonable and necessary” medical services, and in submitting claims, providers must certify the medical necessity of the services for which they are seeking reimbursement.  In submitting reimbursement claim form CMS-1500 to obtain reimbursement from Medicare or other Federal health care programs, laboratories expressly certify on the back of the form “that the services shown on [the] form were medically indicated and necessary for the health of the patient.”  Thus, each time a claim for payment is submitted to a Federal healthcare program, the provider expressly certifies that the services performed were medically justified. See United States ex rel. Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004) (“[C]aims for medically unnecessary treatment are actionable under the FCA.”).

A lab cannot submit to the Government and be paid for a test no matter what diagnosis the doctor gave the patient.  See generally United States ex rel. Merena v. SmithKline Beecham Corp., 205 F.3d 97, 99 (3d Cir. 2000) (explaining that the Government reached a settlement agreement with a lab to resolve FCA claims based on allegations that the lab  “submitted bills—and received payment—for tests that were medically unnecessary”); Garcia v. Sebelius, 2011 WL 5434426, at *7 (C.D. Cal. Nov. 8, 2011) (“The Secretary’s regulatory scheme places the burden of establishing the medical necessity of diagnostic tests on the entity submitting the claim.”).  A lab – like all providers – may only submit claims that satisfy Medicare’s “reasonable and necessary” standard.  See Meridian Lab. Corp. v. Sebelius, 2012 WL 3112066, at *1 (W.D.N.C. July 31, 2012) (explaining that “tests are subject to the ‘reasonable and necessary’ requirements found in the Medicare Act”).

Labs are not just pass through entities for a doctor’s orders.  If the doctor gives a diagnosis to justify the test that is unrelated to and disconnected from the test, and if the results of the test are not specifically used by the doctor in treating the patient, then the lab cannot perform and bill for the test.  In fact, CMS has adopted a comprehensive regulatory scheme that governs laboratory testing (except research) performed on humans through the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”).[5]  CLIA, in 42 C.F.R. § 493.1249, which describes quality assurance requirements for labs, imposes an affirmative pre-analytic obligation on laboratories to monitor the medical necessity and completeness of test request information solicited and obtained by the laboratory.  CMS describes this laboratory obligation as “monitoring the medical necessity and completeness of test request information solicited and obtained by the laboratory.”  Medicare, Medicaid, and CLIA Programs; Laboratory Requirements Relating to Quality Systems and Certain Personnel Qualifications, 68 FR 3640-01, 2003 WL 158514, at 3641 (Jan. 24, 2013) (emphasis added).  Thus, CLIA ensures that the lab is not simply a pass through entity for a doctor’s order without any obligations of its own to ensure the medical necessity of its tests.  Labs have an affirmative obligation to examine the doctor’s test ordering information and only perform and bill for the test if it is properly justified by the diagnosis.

 

[1] See also 42 C.F.R. § 410.32(d)(3)(i) (providing that upon request, a lab must provide CMS with the ICD code provided by the ordering physician); CMS, Clinical Diagnostic Laboratory Services, at 3-4 (Jan. 2016) available at www.cms.gov/Medicare/Coverage/CoverageGenInfo/Downloads/manual201601_ICD10.pdf (providing “codes for those lab test services for which Medicare provides the presumption of medical necessity”).

[2] Medicare Claims Processing Manual, CMS Pub. 100-4, Laboratory Services, Ch. 16, § 10 (Apr. 29, 2016), available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c16.pdf.

[3] Medicare Benefit Policy Manual, Covered Medical and Other Health Services Ch. 15 § 80.1 (Oct. 13, 2016), available at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/bp102c15.pdf.

[4] See CMS, Clinical Diagnostic Laboratory Services (Jan. 2016), available at https://www.cms.gov/Medicare/Coverage/CoverageGenInfo/Downloads/manual201601_ICD10.pdf.

[5] The CLIA regulations include federal standards applicable to all U.S. facilities or sites that test human specimens for health assessment or to diagnose, prevent, or treat disease.  The Division of Laboratory Services, within the Survey and Certification Group, under the Center for Clinical Standards and Quality (CCSQ), has the responsibility for implementing the CLIA Program.  CLIA considers all entities that perform even one test on “materials derived from the human body for the purpose of providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of the health of, human beings” to be governed by CLIA and must register with the CLIA program. See https://wwwn.cdc.gov/clia/.

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“Medically Necessary” Ambulance Services Under the False Claims Act

By Shauna Itri

A non-intervened False Claims Act case filed against Medstar, an ambulance company, settled for $12.7 million on January 17, 2017.  The qui tam case was filed on October 4, 2013 in the Federal District Court of Massachusetts under the caption United States ex rel. Dale Meehan v. MedStar et als, Civil Action No. 13-12495-IT.

Many whistleblower cases brought under the False Claims Act (“FCA”) against ambulance companies involve determining if the ambulance transports were “medically necessary.”

Ambulance Services and Medicare

Medicare does not pay for any and all services furnished to beneficiaries, but only those which are “reasonable and necessary for the diagnosis or treatment of illness or injury . . . .” 42 U.S.C. § 1395y(a)(1)(A). With respect to ambulance services in particular, Medicare covers such services only “where the use of other methods of transportation is contraindicated by the individual’s condition, but only to the extent provided in regulations.” 42 U.S.C. § 1395x(s)(7).

The Medicare regulations regarding ambulance transport are set forth in 42 C.F.R. § 410.40, which is entitled “Coverage of ambulance services.”  Accordingly, the regulations in effect for ambulance transportation services  for the entire period of time covered by this Complaint provide, in relevant part:

(d) Medical necessity requirements—

1) General rule. Medicare covers ambulance services, including fixed wing and rotary wing ambulance services, only if they are furnished to a beneficiary whose medical condition is such that other means of transportation are contraindicated. The beneficiary’s condition must require both the ambulance transportation itself and the level of service provided in order for the billed service to be considered medically necessary. Nonemergency transportation by ambulance is appropriate if either: the beneficiary is bed-confined, and it is documented that the beneficiary’s condition is such that other methods of transportation are contraindicated; or, if his or her medical condition, regardless of bed confinement, is such that transportation by ambulance is medically required. Thus, bed confinement is not the sole criterion in determining the medical necessity of ambulance transportation. It is one factor that is considered in medical necessity determinations. For a beneficiary to be considered bed-confined, the following criteria must be met:

(i) The beneficiary is unable to get up from bed without assistance.

(ii) The beneficiary is unable to ambulate.

(iii) The beneficiary is unable to sit in a chair or wheelchair.

42 C.F.R. § 410.40(d)(1).

In addition, CMS established a requirement that “nonemergency, scheduled ambulance services,” such as maintenance dialysis, are covered if “the ambulance provider or supplier, before furnishing the service to the beneficiary, obtains a written order from the beneficiary’s attending physician certifying that the medical necessity requirements of paragraph (d)(1) of this section are met.” 42 C.F.R. § 410.40(d)(2).

The Medicare Benefit Policy Manual

The Medicare Benefit Policy Manual (“MBPM”), which sets forth the rules and regulations for Medicare reimbursement, further describes the requirements for coverage of ambulance transport. For example, the MBPM states:

Medical necessity is established when the patient’s condition is such that use of any other method of transportation is contraindicated. In any case in which some means of transportation other than an ambulance could be used without endangering the individual’s health, whether or not such other transportation is actually available, no payment may be made for ambulance services. In all cases, the appropriate documentation must be kept on file and, upon request, presented to the carrier/intermediary. It is important to note that the presence (or absence) of a physician’s order for a transport by ambulance does not necessarily prove (or disprove) whether the transport was medically necessary. The ambulance service must meet all program coverage criteria in order for payment to be made.

MBPM at § 10.2.1.

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Can You Sue A Company Under the False Claims Act If You Don’t Have Copies of Claims for Payment?

By Susan Schneider Thomas

A common problem for potential whistleblowers trying to start a case under the False Claims Act (“FCA”) is that they do not always have access to individual claims for payment made by the target defendant. Often this results because the employee does not work in the finance or billing division of the company and does not have access to this type of documentation.  In some instances, however, the employee might be aware of the negotiations and documentation that led to the initial contract or grant award and might be able to identify falsities or misrepresentations at that phase of the interaction.  In that situation, there may be a basis for a qui tam case under what is called the fraudulent inducement theory.

Fraudulent Inducement Theory

A cause of action for fraudulent inducement exists if a contractor makes a false statement to induce a government entity to award a grant or contract to that contractor, and the contract or grant is awarded in reliance on this false statement. E.g., United States ex rel. Marcus v. Hess, 317 U.S. 537, 542, 63 S.Ct. 379, 87 L.Ed. 443 (1943)(contractors could be liable under the False Claims Act for claims submitted under government contracts which the defendants obtained via collusive bidding); Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir.2008) (recognizing fraudulent inducement claim under the FCA based on obtaining a government contract through false statements); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 785 (4th Cir. 1999)(rejecting district court’s determination that FCA liability could not rest on false statements submitted to the government to gain approval for a subcontract); United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1420 (9th Cir.1991)(contract obtained based on false information or fraudulent pricing).

As the court found in U.S. ex rel. Danielides v. Northrop Grumman Sys. Corp., 09 CV 7306, 2014 WL 5420271 (N.D. Ill. Oct. 23, 2014), allegations of fraud in the inducement can include promising the government “to do work that it never intended to do” and “promising to do so, [but] never intend[ing] to provide its best efforts in performing the contract and fraudulently inducing the government to enter into the contract.” Id .at *6 n. 6.

If the government or relator can demonstrate that a contract or grant[1] was procured by fraud, all resulting requests for payment can then be deemed fraudulent because they are based on the original false statement.  E.g., United States ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458, 467–68 (5th Cir.2009) (where a contract was procured by fraud, even when subsequent claims for payment under the contract were not literally false, they became actionable FCA claims because they “derived from the original fraudulent misrepresentation”); United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1173 (9th Cir.2006) (“liability will attach to each claim submitted to the government under a contract, when the contract was originally obtained through false statements or fraudulent conduct”); United States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 916 (7th Cir.2005); United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d 1321, 1326 (D.C.Cir.2005) (“[C]ourts have employed a ‘fraud-in-the-inducement’ theory to establish liability under the Act for each claim submitted to the Government under a contract which was procured by fraud, even in the absence of evidence that the claims were fraudulent in themselves”) (citation omitted).

Fraudulent Inducement Theory Case Examples

The availability of a claim under the FCA based on invoices submitted to the government for payment pursuant to contracts that were fraudulently induced has been upheld many times.  This type of claim is referenced in the legislative history of the 1986 amendments to the FCA.  S.Rep. No. 99–345, at 9 (1986), reprinted in 1986 U.S.C.C.A.N. at 5266, 5274 (“[E]ach and every claim submitted under a contract, loan guarantee, or other agreement which was originally obtained by means of false statements or other corrupt or fraudulent conduct, constitutes a false claim.”) (emphasis added).  Indeed, even prior to the 1986 amendments, these claims had been recognized.  See, e.g., United States v. Veneziale, 268 F.2d 504, 505 (3d Cir.1959) (“[A] fraudulently induced contract may create liability under the False Claims Act when that contract later results in payment thereunder by the government ….”) (citing United States ex rel. Marcus v. Hess, 317 U.S. 537, 543–44, 63 S.Ct. 379, 87 L.Ed. 443 (1943)).

In any particular case, proof in support of allegations of fraudulent inducement would focus on promises and representations made by the target defendant at various times before the government entity awarded the initial contract, awarded any optional years or extended the contract to include different projects, or extended the entire contract at the end of the planned base and optional years. The government’s decision to contract with the target defendant for option years and extensions are all points at which the defendant can be found liable for fraudulent inducement as long as there was either an independent contract award or the situation otherwise involved representations and commitments by the defendant to procure the additional work.  In Danielides, for example, the court sustained FCA claims based on allegations that defendant’s “lies induced the government to enter the phase three contract.”  U.S. ex rel. Danielides v. Northrop Grumman Sys. Corp., 2014 WL 5420271, at *6 (N.D. Ill. Oct. 23, 2014) (describing how phase three of the contract had been separately awarded, even though it was contemplated from the beginning of the overall project).  In U.S. v. Bae Sys. Tactical Veh. Sys., LP,  2016 WL 894567, at *4 (E.D. Mich. Mar. 9, 2016), the court rejected defendant’s argument that there could be no fraud in the inducement claims based on statements made after the initial contract award, reasoning as follows:

The Court does not find this argument availing. As Defendant admits, the September price agreement was a modification of the Contract. (See, e.g., Dkt. 19, at 16-17 (referring to the “price modification”).) The fraudulent inducement theory may apply not only when fraud is used to obtain a contract, but also when used to obtain sub-contracts or modifications to contracts. See, e.g., United States ex rel. Frascella v. Oracle Corp., 751 F. Supp. 2d 842, 855 (E.D. Va. 2010) (FCA claim sufficiently pleaded where false statements were made “with the intent to induce [the government] to enter into contract modifications”); [U.S. ex rel.] Woodlee [v. Science Applications Intern. Corp.], 2005 WL 729684, at *1-2 (master contract awarded prior to individual delivery orders, the negotiations of which were the basis of the FCA fraudulent inducement claims).

The usual materiality and scienter requirements would still apply, meaning that the relator would have to be able to allege (and ultimately prove) that 1) the commitments or information that was misrepresented during the negotiation phase and that were the predicate for the contract award were material to the government’s decision to grant the award, and 2) that the information or misrepresentations were knowingly false when made.

[1] To avoid repetition, this article will refer only to contracts, but the same theories apply to government grants or other awards of government business.

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Using Differences in Geographic Scope to Avoid the First-to-File Rule in False Claims Act Whistleblower Cases

By Sherrie Savett and Jonathan DeSantis

As recounted in our previous blog entry, the federal False Claims Act (“FCA”) contains a first-to-file rule, which provides that “[w]hen a person brings an action under [the False Claims Act] no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”  31 U.S.C. § 3730(b)(5).  Our previous blog entry provided an overview of various factors that courts consider when evaluating whether the first-to-file rule applies.  This blog entry provides a detailed analysis of one of the most important factors: the geographic scope of the alleged fraud.

An Earlier-Filed Local Fraud Does Not Preclude a Later-Filed National Fraud

A very strong and often effective argument for a later-filed case to avoid the first-to-file rule is that the later case alleges both a nationwide scheme and fraud at one or more specific locations, whereas the first-filed complaint alleges a fraud at only one or two specific locations.  This argument is more potent in a qui tam case where the defendant is a large nationwide company with multiple facilities.  An example would be a hospital chain with tens or hundreds of hospitals in many different states.

Several whistleblower cases support this position.  For example, in U.S. ex rel. Heath v. AT & T, Inc., 791 F.3d 112 (D.C. Cir. 2015), an earlier-filed complaint asserted FCA claims against Wisconsin Bell, a wholly-owned subsidiary of AT&T, based on allegations that Wisconsin Bell engaged in improper billing practices with respect to a federally subsidized telecommunications program.  A later-filed complaint asserted FCA claims against AT&T on an entity-wide national basis based on similar fraudulent practices.  While the earlier complaint had only alleged fraud in Wisconsin against AT&T’s Wisconsin subsidiary, the second complaint alleged fraud across the country against AT&T and various other subsidiaries.  The district court granted AT&T’s motion to dismiss on first-to-file grounds, but the D.C. Circuit reversed.  The D.C. Circuit noted that the greater fraud often includes the lesser” but “the lesser fraud does not, without more, include the greater.”  Id. at 122 (emphasis added).  In language that is extremely helpful to our position, the D.C. Circuit explained:

There simply is no hint in the [first-filed] Complaint of a country-wide, institutionalized corporate practice of [engaging in the underlying fraud] . . . To hold, as AT & T suggests, that the first-to-file bar kicks in every time an initial complaint alleges that a subsidiary of a national company violated a national law would erase a broad swath of False Claims Act coverage. The point of the first-to-file bar is not to allow isolated misconduct to inoculate large companies against comprehensive fraud liability. The point, instead, is to prevent copycat litigation, which tells the government nothing it does not already know. Because [the] complaints go after two materially distinct fraud schemes, the first-to-file bar does not apply.

Id. at 123.[1]

In U.S. ex rel. Hutcheson v. Blackstone Medical, 694 F. Supp. 2d 48 (D. Mass. 2010), rev’d on other grounds by United States ex rel. Hutcheson v. Blackstone Med., 647 F.3d 377, 394 (1st Cir. 2011), a first-filed complaint alleged that a defendant engaged in a fraudulent kickback scheme in Arkansas and also made a passing “upon information and belief” allegation that the defendants engaged in the same scheme in other states without providing any factual support with respect to the allegation of fraud outside Arkansas.  A later-filed complaint alleged, in detail, a similar kickback scheme between the defendants and doctors across the country.  The district court concluded that the later-filed complaint was not barred under the first-filed rule because it did not allege the same material facts as the first-filed complaint in that the later-filed complaint alleged a nationwide fraud while the earlier-filed complaint alleged only a fraud in Arkansas.

An Earlier-Filed National Fraud Likely Precludes a Later-Filed Local Fraud

The inverse is also true.  In U.S. ex rel. Chovanec v. Apria Healthcare Grp. Inc., 606 F.3d 361, 365 (7th Cir. 2010), the Seventh Circuit held that the first-filed rule is implicated when an earlier-filed complaint alleges a nationwide fraud and a later-filed complaint alleges fraud in only a particular locality.   In that case, the Seventh Circuit recognized that fraud alleged in a specific location would not necessarily implicate the first-filed rule with respect to other locations. The court said: “Allegations about a scam in California or Kansas . . .  would not reveal to the United States any risk of a scam in Illinois.” However, the Seventh Circuit found that allegations of a nationwide fraud necessarily subsume allegations of fraud in a particular locality in explaining that “[f]raud in Illinois . . . is within the scope of a national, continuing, scheme.”

Because the first-filed complaint referred to a nationwide fraud and the later-filed complaint only referred to fraud in a specific location, the Seventh Circuit concluded that the first-filed rule precluded pursuit of the later-filed case.

Merely Alleged Fraud at a Different Location May Implicate the First-to-File Rule

There are qui tam cases holding that alleging the same fraud at a different geographic location is insufficient to avoid application of the first-to-file rule.  However, these cases are distinguishable from the situation where the first-filed case alleges a fraud against a subsidiary or entity in one location and the later case sets forth a national scheme.

In U.S. ex rel. Branch Consultants v. Allstate Ins., 560 F.3d 371 (5th Cir. 2009), the first-filed complaint alleged that four insurance companies defrauded the government by improperly characterizing damage in connection with federally subsidized insurance policies and specifically alleged instances of the fraud in Mississippi.  The second-filed complaint alleged a very similar fraud at locations in Louisiana.  The district court dismissed the second-filed complaint as barred under the first-filed rule, and on appeal, the Fifth Circuit affirmed the dismissal.   The Fifth Circuit explained that “a relator cannot avoid [the] first-to-file bar by simply adding factual details or geographic locations to the essential or material elements of a fraud claim against the same defendant described in a prior compliant.”  Id. at 378.  It held: “Because [the second relator] cannot avoid the preclusive effect of [the first-filed case] by focusing on additional instances of fraud occurring in other geographic locations, § 3730(b)(5) applies to bar its allegations against [the defendant].” Id.

Other courts have reached similar conclusions. See U.S. ex rel. Ortega v. Columbia Healthcare, Inc., 240 F. Supp. 2d 8, 13 (D.D.C. 2003) (“If the later-filed complaint alleges the same type of wrongdoing as the first, and the first adequately alleges a broad scheme encompassing the time and location of the later filed, the fact that the later complaint describes a different time period or geographic location that could theoretically lead to a separate recovery does not save it from the absolute first-to-file bar.”) (emphasis added); Palladino ex rel. U.S. v. VNA of S. New Jersey, Inc., 68 F. Supp. 2d 455, 478 (D.N.J. 1999) (applying the first-to-file bar to a later-filed complaint alleging a similar fraud in Runnemede, New Jersey as an earlier-filed complaint had alleged in Philadelphia).

These cases involve circumstances where a later-filed complaint alleged a materially similar fraud as an earlier-filed complaint but simply alleged that the fraud occurred at a different geographic location.  This is very different from a later-filed complaint alleging a broad, nationwide scheme relative to an earlier-filed complaint’s allegations of a narrow, localized scheme.  As the D.C. Circuit explained, the greater fraud often includes the lesser” but “the lesser fraud does not, without more, include the greater.”  Heath, 791 F.3d at 122 (emphasis added).

Conclusion

In sum, differences in the geographic scope of the alleged fraud may assist whistleblowers in avoiding application of the first-to-file rule.  Specifically, there is substantial authority in support of the proposition that a later-filed case is not barred by the FCA’s first-to-file rule when it alleges a broad, nationwide scheme relative to a narrow scheme alleged at a few discrete locations in an earlier-filed complaint.

[1] See also United States v. Sanford-Brown, Ltd., 27 F. Supp. 3d 940, 948 (E.D. Wis. 2014) (finding that the first-to-file rule does not apply when an earlier-filed complaint alleges “geographically disparate” fraud, among other reasons).

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