The U.S. Court of Appeals for the Sixth Circuit recently heard oral argument in connection with a decision by the U.S. District Court for the Eastern District of Tennessee that primarily raised two FCA questions:

  1. Did the relator’s amended complaint satisfy the FCA’s first-to-file rule?
  2. Did the amended complaint adequately plead fraud under Rule 9(b) of the Federal Rules of Civil Procedure? U.S. ex rel. Armes v. Garman, 2016 WL 3562062 (E.D. Tenn. June 24, 2016).

Long Term Acute Care Facilities Accused of Violating False Claims Act

The underlying FCA claims were based on allegations by the relator – a respiratory therapist – that two Long Term Acute Care facilities (LTACs) engaged in a scheme whereby the LTACs:

  1.  manipulated their patients’ admissions and discharges to maintain the facilities’ “Long Term Acute Care” classification
  2. altered admissions and discharges to maximize government reimbursements
  3. admitted patients that they could not care for to increase government reimbursements
  4. kept patients on ventilators longer than medically necessary to achieve greater reimbursements
  5. improperly paid bonuses to clinical liaisons to receive patient referrals (the liaison kickback scheme).

District Court Opinion

The defendants’ motion to dismiss asserted that the FCA’s first-to-file rule barred the relator’s action because a complaint already filed in another federal district court raised allegations similar to those alleged by the relator. The defendants’ motion also asserted that the relator’s complaint failed to plead fraud with particularity as required under Rule 9(b).

FCA’s First-to-File Rule Bars Relator’s Claims

Applying the FCA’s first-to-file rule, which prevents plaintiffs from bringing successive actions raising facts similar to those in a first-filed action, the district court concluded that the relator’s FCA claims were barred as to all of the alleged schemes except for the liaison kickback scheme. (Read more on FCA’s First-to-File Bar) The district court explained that most of the relator’s allegations already had been made in a previously filed action against the LTACs’ parent corporation and one of its facilities. The district court pointed to the extensive similarities between the relator’s complaint and the first-filed action and observed that the relator even appeared to have copied language from the earlier complaint. For that reason, the district court dismissed all of the relator’s FCA claims with the exception of the FCA claims relying on the liaison kickback scheme.

Kickback Allegations Dismissed Due to Lack of Specificity under Rule 9(b)

Turning to the allegations underlying the liaison kickback scheme, the district court dismissed the relator’s remaining FCA claims as a result of the complaint’s failure to plead those claims with particularity. While the district court acknowledged that the complaint described the liaison kickback scheme, the complaint fell short because it simply alleged that fraudulent claims must have been submitted as a result of that scheme. The relator likewise made no specific allegations that would have identified a particular patient who received kickback-tainted care and made no allegations detailing the presentment of a claim to the government based on that care. According to the district court, these shortcomings doomed the relator’s complaint under Rule 9(b). The relator sought to bypass that pleading deficiency by seeking application of a more “relaxed” pleading standard than the particularity required under Rule 9(b). The district court, however, rejected that request, reasoning that cases applying such a standard did so when the relator had specific reason to know of a particular claim or billing information.

Relator’s Arguments in the Sixth Circuit

On appeal, the relator has argued:

  1. His action is not barred by the first-to-file rule because his allegations are dissimilar to those in the first-filed action.
  2. He pleaded his FCA allegations with sufficient particularity under Rule 9(b).

Relator Claims Complaint Is Unique & First-to-File Rule Is Irrelevant

With respect to the first-to-file rule, the relator contends that his complaint is sufficiently dissimilar to the first-filed action because his complaint alleges “no material facts outside two hospitals in Tennessee” and that the complaint in the first-filed action alleges “no facts in Tennessee or by Tennessee actors.” In further support of that position, he lists several allegations purportedly distinguishing his complaint and notes that the liaison kickback scheme was unique to his complaint. Finally, relying on the U.S. Court of Appeals for the District of Columbia’s decision in U.S. ex rel. Heath v. AT&T, Inc., the relator asserts that the first-filed action raised allegations about only a “limited scheme” concerning one Indiana hospital and should not be construed as raising allegations about a nationwide scheme that includes LTACs in Tennessee.

Relator Contends Kickback Details Provided Are Sufficient

As to the dismissal of his FCA claims regarding the liaison kickback scheme under Rule 9(b), the relator argues that he need not plead specific examples of actual false claims to satisfy Rule 9(b). Rather, he asserts that specific allegations providing details of a scheme to submit false claims should be sufficient. Moreover, relying on the Sixth Circuit’s recent decision in U.S. ex rel. Prather v. Brookdale Senior Living Communities, Inc., the relator requests that the Sixth Circuit apply a more relaxed pleading standard because he has alleged personal knowledge of the fraudulent schemes and that those schemes generated information used in the submission of false claims. Finally, the relator argues that his FCA claims regarding the liaison kickback scheme are based on a violation of the amended Anti-Kickback Statute, which requires no heightened pleading, and therefore, he need not meet Rule 9(b)’s particularity standard.

Defendants Highlight Similarities in Previous Claims

The defendants have made three primary arguments as to why the district court’s dismissal of the relator’s FCA claims should be affirmed. First, as they did in the district court, the defendants assert that the complaint alleges the same facts as those in the first-filed action and cite numerous similarities between the complaints in the two actions. They also attempt to distinguish the relator’s reliance on the D.C. Circuit’s decision in U.S. ex rel. Heath v. AT&T, Inc., by arguing that, unlike in Heath, the two complaints at issue here raise similar factual allegations and the first-filed complaint alleged nationwide schemes.

Defendants Argue Rule 9(b) Was Correctly Applied

Second, the defendants maintain that the district court correctly applied Rule 9(b) in dismissing the FCA claims regarding the liaison kickback scheme. They reiterate the district court’s conclusion that the complaint failed to allege a specific claim connected to the alleged scheme and note that this pleading failure supports dismissal of the entire complaint, not just the claims related to the liaison kickback scheme. They further argue that the Sixth Circuit’s decision in Prather is inapplicable because:

  1. As a respiratory therapist, the relator has no personal knowledge of specific claims or billing information.
  2. Mere knowledge of an underlying scheme is insufficient.

The defendants also respond that the Sixth Circuit has specifically foreclosed the relator’s reliance on the Anti-Kickback Statute to bypass Rule 9(b)’s heightened pleading standard.

Defendants Contend Public Disclosure Bar Should Halt Relator’s Claims

Finally, the defendants offer an additional ground for dismissal of the relator’s complaint not relied upon by the district court. They contend that the public disclosure bar, which precludes the filing of actions based on certain publicly disclosed information, prevents the relator’s action from going forward.

More specifically, they state that the following three independent public sources of information bar the relator’s action: the previously filed action, a separate Ohio action, and a securities filing by one of the Defendants.

With Sixth Circuit Decision Pending, What’s Next?

The Sixth Circuit heard oral argument on October 12, 2017. A decision by the Sixth Circuit addressing these FCA issues is now pending and is expected soon . In the meantime, the parties should prepare for the possibility of discovery or, alternatively, a petition for a writ of certiorari in the U.S. Supreme Court.
