Failure to Comply with Rule 9(b)’s Particularity Requirement Dooms Claims under the False Claims Act

Payments by the AIDS Healthcare Foundation to an employee responsible for referring HIV-positive patients to healthcare services offered by the Foundation fall within the employee exemption to the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b)(3)(B), according to the Eleventh Circuit’s decision in Carrel v. AIDS Healthcare Foundation, Inc., 2018 WL 3734278 (11th Cir. Aug. 7, 2018).  The court also confirmed the applicability of Fed. R. Civ. P. 9(b)’s particularity requirement to qui tam actions under the False Claims Act.

The plaintiffs were three former employees of the Foundation.  One had been “Director of Public Health,” one a “Senior Program Manager,” and one a “Grants Manager.”  They alleged that the Foundation’s policies called for the payment of “incentive payments” to Foundation employees charged with making patient referrals; that the Foundation offered incentives to patients; and that the Foundation had “aggressive” patient recruitment policies.  They alleged that the patient referrals were unlawful, and that because nearly half of the Foundation’s revenue comes from public funds, the Foundation must be submitting false claims, as a matter of mathematical probability.  The complaint described two specific instances of alleged “false claims,” identifying the referring employee and the month of each referral payment.

The district court dismissed pursuant to Fed. R. Civ. P. 9(b) all of the plaintiffs’ claims except as to the two specific patients mentioned in the complaint, and later granted the Foundation’s motion for summary judgment on those two claims, holding that the alleged referral payments fell within the employment exemption to the Anti-Kickback Statute.  The district court also denied as moot the plaintiffs’ motion to amend their complaint a fourth time.

The Eleventh Circuit, in an opinion written by Judge William Pryor and joined by Judge Martin and Judge James Randal Hall visiting from the Southern District of Georgia, affirmed.  The court agreed with the district court that the two referral payments specifically identified in the complaint fell within the employee exemption.  And it agreed that the other allegations—which relied on alleged general policies and mathematical probability—lacked the particularity required for claims under the False Claims Act:  “[E]ven if the relator is an insider who alleges awareness of general billing practices, an accusation of ‘[u]nderlying improper practices alone [is] insufficient . . . absent allegations that a specific fraudulent claim was in fact submitted to the government.’” (alterations and emphasis in Carrel) (quoting Corsello v. Lincare, Inc., 428 F.3d 1008, 1014 (11th Cir. 2005)).  Setting aside the allegations as to the two specific patients, this was fatal to the plaintiffs’ claims:

Although the relators allege a mosaic of circumstances that are perhaps consistent with their accusations that the Foundation made false claims—such as that the Foundation provided incentives to certain patients and employees, that the Foundation frequently requested reimbursement from federal healthcare programs, and that Foundation policies focused on aggressive patient recruitment—the relators fail to allege with particularity that these background factors ever converged and produced an actual false claim where the Foundation both violated the Anti-Kickback Statute when it unlawfully recruited a patient and then billed the government for the services provided to that patient.

2018 WL 3734278, at *7.

The court also held that the plaintiffs waived their argument that the district court improperly denied their motion to amend.  Plaintiffs’ appellate brief included “only a single paragraph of abstract arguments” on the point, and this was insufficient to preserve the argument in the Eleventh Circuit.

Posted by Valerie Sanders.

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