As appeared in the American Health Lawyers Association's Healthcare Liability & Litigation Health Briefs, on February 17, 2010.

The federal False Claims Act ("FCA")[1] is particularly onerous for defendants because of the risk of potential triple damages and fines up to $11,000 per claim.[2] Compounding this burden on defendants is an unfavorable, and albeit unpublished, decision from the Eleventh Circuit in Hill v. Morehouse Medical Associates, Inc., in which the "indicia of reliability" pleading standard under Rule 9(b)[3] was relaxed for so called, "insiders."[4] In so doing, the court permitted a FCA claim to go forward solely upon a relator's "information and belief" based on first-hand knowledge of alleged fraudulent activity, even though the relator failed to identify a specific false claim.[5] By relaxing the "indicia of reliability" standard, the Eleventh Circuit opened the door to numerous FCA actions in which the relator failed to plead the details of the alleged fraudulent activity. However, a recent decision by the Middle District of Georgia, United States ex rel. Angela Parato v. Unadilla Health Care Center, et al., Civil Action No. 5:07-CV-76,[6] within the very Circuit that handed down the Hill decision, recently limited the effect of the Hill decision by requiring the "insider" relator who relies "on information and belief" to still plead the factual basis for her belief.[7] According to the Court, regardless of the relator's status, she must provide critical details giving rise to her alleged beliefs, in other words, the who, what, when, where and why.[8]

In the Parato decision, the court granted, in part, and denied, in part, the various defendants' motions to dismiss ("January Dismissal Order").[9] Although the court did not grant the defendants' motions to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim, the court dismissed the relator's Medicare/Medicaid billing fraud allegations underlying her FCA action on Rule 9(b) grounds.[10] In reaching its decision to dismiss the relator's Medicare/Medicaid billing fraud allegations, the court found that the relator failed to provide specific details concerning actual false claims allegedly submitted to the government, including the billing personnel allegedly involved, copies of the bills or reimbursement at issue, dates of the bills, and services which allegedly were billed, among other details.[11] The court found that the relator was required under the Clausen decision to provide the above details for at least some of the alleged false claims, and yet failed to do so.[12] Furthermore, the court noted that the relator based many of her Medicare/Medicaid billing fraud allegations on "information and belief," not personal observations of alleged fraudulent activity.[13] Because the relator did not provide the factual basis for her beliefs, the court concluded that the relator failed to meet the pleading standards under Rule 9(b).[14] In reaching this decision, the court correctly pointed out that the Hill decision is not binding precedent, and that to the extent Hill and Clausen are deemed inconsistent, the published Clausen decision is the precedential decision.[15]

As the January Dismissal Order reveals, the Hill decision will most likely have limited effect in future litigation, which in turn, may result in defendants having greater success in dismissing FCA actions on Rule 9(b) grounds. By increasing the number of successes in dismissing FCA actions at the Rule 9(b) stage, defendants will be able to avoid expensive, protracted discovery, and in turn, significantly reduce the cost of defense. 

ENDNOTES:

[1] The federal FCA is set forth in 31 U.S.C. §§ 3729 et seq. Please note that because of the financial incentives set forth in the Deficit Reduction Act of 2005, many States have enacted false claims statutes that, generally speaking, impose liability for false or fraudulent claims submitted to the States' respective Medicaid programs.

[2] See 31 U.S.C. § 3729. Also troubling for potential defendants is the realization that the number of FCA actions will most likely increase dramatically in the future, in part, because the Budget for FY2011 increases the federal funds dedicated to fight fraud from $250 million to $561 million.

[3] See United States ex rel. Clausen v. Laboratory Corp. of Am., Inc., 290 F.3d 1301, 1308-9 (11^th Cir. 2002).

[4] See Hill v. Morehouse Medical Associates, Inc., No. 02-14429, 2003 WL 22019936 (11^th Cir. Aug. 15, 2003), in which the court denied defendant's motion to dismiss on Rule 9(b) grounds because the relator, a coder and biller, had firsthand knowledge through observations of the alleged fraudulent activity plead in her amended complaint.

[5] See id.

[6] For purposes of disclosure, the author of this article and Rebekah N. Plowman, Esq. with Epstein Becker & Green, P.C. represent one of the defendants named in this action.

[7] See January Dismissal Order [Doc. 51] issued in United States ex rel. Angela Parato v. Unadilla Health Care Center, et al., Civil Action No. 5:07-CV-76, at p.28.

[8] See id.

[9] See id.

[10] See id. The court did not address the Rule 12(b)(6) argument because the court had already concluded to dismiss the Medicare/Medicaid billing fraud allegations on Rule 9(b) grounds. See id. at 16.

[11] See id. at 25.

[12] See id., citing, Clausen, 290 F.3d at 1312 n.21.

[13] See id. at 27.

[14] See id. Interestingly, and quite telling, the court did not provide the relator a second opportunity to amend her complaint. See id. at 29.

[15] See id. at 28 n.6.

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