U.S. ex rel. Clausen v. Laboratory Corp., 01-13312.

• Decision Date: 09 May 2002
• Docket Number: No. 01-13312.,01-13312.
• Citation: 290 F.3d 1301
• Parties: UNITED STATES of America ex rel. Jeffrey Scott CLAUSEN, Plaintiff-Appellant, v. LABORATORY CORPORATION OF AMERICA, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

290 F.3d 1301

UNITED STATES of America ex rel. Jeffrey Scott CLAUSEN, Plaintiff-Appellant, v. LABORATORY CORPORATION OF AMERICA, INC., Defendant-Appellee.

No. 01-13312.

United States Court of Appeals, Eleventh Circuit.

May 9, 2002.

G. Mark Simpson, Mike Bothwell, Mike Bothwell, P.C., Roswell, GA, Scott A. Powell, Hare, Wynn, Newell & Newton, Don McKenna, Birmingham, AL, Jennifer M. Verkamp, James B. Helmer, Jr., Frederick M. Morgan, Jr., Helmer, Martins & Morgan Co., L.P.A., Cincinnati, OH, for Plaintiff-Appellant.

Jeffrey W. Willis, Atlanta, GA, Nicholas G. Stavlas, Joseph H. Young, Hogan & Hartson, LLP, Baltimore, MD, for Defendant-Appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before BARKETT, HULL and KRAVITCH, Circuit Judges.

HULL, Circuit Judge:

In this qui tam action, the plaintiff-relator seeks to recover damages under the False Claims Act, 31 U.S.C. § 3729 et seq., as a result of alleged overbilling of the United States Government by the defendant medical testing company. The district court, however, twice dismissed the plaintiff's complaint for failing to provide the specificity required under Federal Rule of Civil Procedure 9(b). We affirm.

I. BACKGROUND

A. The Parties

This case revolves around the billing practices of the defendant, Laboratory Corporation of America, Inc., ("LabCorp"). LabCorp is an Atlanta-based company that performs medical testing services nationwide and specializes in providing testing on a contract basis to long-term care facilities ("LTCFs").¹

LTCFs, which include nursing homes, furnish skilled and unskilled care in a residential setting to patients that are often old or disabled. Many LTCF patients participate in medical insurance programs receiving funds from the United States Government ("Government"), such as Medicaid, Medicare, and the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS). Between the late 1980s and 1998, LabCorp provided laboratory testing services on a contract basis to at least 100 LTCFs in Georgia and at least three regional or national LTCF chains — Golden Age, Beverly, and Capital Care Management.

Plaintiff Jeffrey Scott Clausen ("Clausen") works in the medical testing industry. A resident of Georgia, he is a former employee of SmithKline Beecham Clinical Laboratories and identifies himself as a current competitor of LabCorp. He does not claim to have ever worked for LabCorp. He filed this action on behalf of the United States as a relator under the False Claims Act, entitling him to a percentage of any recoveries through judgment or settlement.

B. The Allegations

In his complaint, Clausen alleges that LabCorp engaged in a multi-faceted, decade-long campaign to defraud the Government as a result of its testing services for LTCFs.² The essence of his allegations is that between the late 1980s and 1998 LabCorp performed unauthorized, unnecessary or excessive medical tests on LTCF residents who participated in Government-funded health insurance programs and then knowingly submitted bills for this work to agents of the Government, requesting taxpayer funds to which it was not entitled.³ Clausen also alleges that although LabCorp was entitled to receive payments for some work related to its testing services, such as blood draws and transportation costs, it overbilled for those services during this time period as a result of the improper tests it performed.

Specifically, Clausen asserts that LabCorp engaged in six "schemes" that led it to submit false claims, either electronically or manually, to the Government through a fiscal intermediary that processes health insurance claims on its behalf. Clausen identifies the schemes, which overlap each other to some extent, as involving (1) self-referral, whereby LabCorp employees would establish standing orders for particular tests, for example every month, three months or annually, without requiring physicians' orders or without regard to medical necessity, (2) patient screening, whereby LabCorp would perform screening tests to establish a baseline for its records, (3) duplicative and unnecessary testing of patients with multiple disorders, (4) unbundling of tests, whereby multiple tests were given when a single test that included all of those multiple tests could have been given, (5) duplicative billing for blood draws, whereby all duplicative and unnecessary tests included charges for blood draws, and (6) duplicative billing of trip charges, whereby trip charges were assessed for unnecessary or duplicative trips or in excess of the number of actual trips made for legitimate tests.

At the core of most of these schemes is an allegation that LabCorp breached a cardinal rule of federal health insurance reimbursement policy: providers are generally entitled to be paid for medical testing only when such testing is (1) medically necessary and/or (2) done at the direction of a patient's physician. See, for example, 42 U.S.C. §§ 1395f(a), 1395x(v)(4), 1395y(a) (regarding Medicare and Medicaid testing reimbursement).

Because Clausen's appeal turns on the sufficiency of his pleadings, we first review the evolution of his complaint.

C. Clausen's Complaint

Pursuant to the False Claims Act, which permits citizens to file suit on behalf of the United States when it is the victim of fraud and abuse, Clausen filed a complaint under seal in the United States District Court for the Northern District of Georgia on July 28, 1997. The 11-page Complaint alleged that in providing testing services to LTCFs LabCorp (1) violated the False Claims Act by knowingly submitting false claims for payment to the United States, making or using false records to do so, and conspiring to defraud the Government on such matters, 31 U.S.C. § 3729(1)-(3) (Counts I, II and III), and (2) improperly billed for services rendered through illegal kickback and self-referral schemes, 42 U.S.C. § 1320a-7b (Count IV).⁴

This version of the complaint alleged that LabCorp had engaged in the six schemes, but it did not identify any LTCFs by name, include any documentary exhibits or explain the origin of its information.⁵ After multiple requests for extensions of time and the completion of its own investigation, the Government informed the district court on January 18, 2000, that it declined to intervene in the action as a matter of right, leaving Clausen to prosecute the action on its behalf. Clausen did not serve this version of his complaint on LabCorp.

D. Clausen's First Amended Complaint

Instead, exercising his option to amend the complaint prior to causing the seal to be lifted with its service, Clausen filed and served upon LabCorp his First Amended Complaint on May 10, 2000, with his current counsel added to the pleadings. This 23-page pleading reorganized the allegations into two counts — one regarding violations of the False Claims Act (Count I)⁶ and the other regarding violations of federal anti-kickback and self-referral laws (Count II). The document offered additional support for Clausen's allegations, namely: (1) factual references to Clausen's conversations with LabCorp employees Olin Ausburn and Jofrancis Williams about the company's policies and procedures, (2) specific descriptions and (in some instances) technical codes for medical tests as examples of what the alleged false claims would have stated and a reference to the specific form on which claims would have been submitted to Medicare ("HCFA Form-1500 (electronically or manually)"), and (3) the testing histories of three patients identified by their initials (H.L., L.W. and M.A.) at two named LTCFs — A.G. Rhodes Homes, Inc., in Atlanta ("Rhodes LTCF") and Social Circle Intensive Care Facility in Social Circle, Georgia ("Social Circle LTCF").⁷

Clausen's First Amended Complaint used the patient list and standing order documents to point to specific cases of allegedly improper testing. For example, the complaint asserted that LabCorp performed "self-referred" tests on a patient at the Rhodes LTCF identified as F.C. and being in room 225 between May 1995 and March 1997. In addition, Clausen described the tests performed on patients identified as H.L., L.W. and M.A. as examples of the self-referral scheme and other schemes involving duplicative testing, annual screening and duplicative and unnecessary billing for blood draws and trip charges. These tests, along with others like them identified in the patient lists, the complaint asserted, "resulted in the submission of false claims to the United States" nationally between "the late 1980s and 1997."

While adding certain detail, the First Amended Complaint did not include any further allegations about what other unnamed LTCFs might have been involved in this arrangement, the specific dates or amounts of any claims submitted to the Government, or copies or detailed sources of information about the claims themselves.

E. LabCorp's First Motion to Dismiss

LabCorp moved to dismiss Clausen's First Amended Complaint on July 31, 2000, arguing that it failed to meet the required standard for pleading fraud under Federal Rule of Civil Procedure 9(b) ("Rule 9(b)"). The district court granted this motion as to Count I, ruling that (1) Rule 9(b)'s requirement that fraud be pleaded with particularity applies to False Claims Act actions, (2) Rule 9(b)'s pleading standard should not be relaxed here, and (3) Clausen failed to meet Rule 9(b)'s standard because he alleged no specific facts regarding the actual submission or timing of false claims and relied on conclusory statements, but that (4) Clausen could amend his complaint and attempt to come into compliance with the rule. United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 198 F.R.D. 560 (N.D.Ga.2000).⁸

The district court pointed out that Clausen's complaint makes relatively detailed statements about the alleged schemes carried out by LabCorp. The district court noted, however, that Clausen only ends the...