Ex Rel. USA. v. Lungwitz

• Decision Date: 09 August 2010
• Docket Number: No. 09-16122.,09-16122.
• Citation: 616 F.3d 993
• Parties: Sadek R. EBEID, M.D., ex rel. UNITED STATES of America, Plaintiff-Appellant, v. Theresa A. LUNGWITZ; Edward C. Irby (Mrs.), aka Margaret Irby, individually and DBA Health Resource Center; Home Health Resources, Inc., an Arizona corporation; The Crossing Hospice Care, Inc., an Arizona corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

616 F.3d 993

Sadek R. EBEID, M.D., ex rel. UNITED STATES of America, Plaintiff-Appellant,

v.Theresa A. LUNGWITZ; Edward C. Irby (Mrs.), aka Margaret Irby, individually and DBA Health Resource Center; Home Health Resources, Inc., an Arizona corporation; The Crossing Hospice Care, Inc., an Arizona corporation, Defendants-Appellees.

No. 09-16122.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted March 9, 2010.

Filed Aug. 9, 2010.

Michael J. Khouri, Law Offices of Michael J. Khouri, Irvine, CA, for the plaintiff-appellant.

Paul G. Ulrich and Noel C. Capps, Renaud Cook Drury Mesaros, PA, Phoenix, AZ, for the defendants-appellees.

Astrid G. Meghrigian, California Medical Association, Sacramento, CA, for the amicus curiae.

Appeal from the United States District Court for the District of Arizona, Susan R. Bolton, District Judge, Presiding. D.C. No. 2:08-cv-00544-SRB.

Before: J. CLIFFORD WALLACE, SUSAN P. GRABER, and M. MARGARET McKEOWN, Circuit Judges.

OPINION

McKEOWN, Circuit Judge:

In this appeal under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-3731, Sadek Ebeid claims that Theresa Lungwitz submitted false certifications to the federal government in connection with Medicare payments for three health care businesses: Health Resource Center, LLC (the “Clinic”), Home Health Resources, Inc. (the “Home Healthcare Agency”) and The Crossing Hospice Care, Inc. (the “Hospice”). (We refer to the defendants collectively as “Lungwitz,” except where it is necessary to identify individual defendants.) Central to Ebeid's claims are the allegations that Lungwitz engaged in the “unlawful corporate practice of medicine” and that referrals among the health care businesses were unlawful, which allegedly makes fraudulent every claim for Medicare reimbursement during that period.

“The FCA was enacted during the Civil War with the purpose of forfending widespread fraud by government contractors who were submitting inflated invoices and shipping faulty goods to the government.” United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1265-66 (9th Cir.1996). To encourage insiders to disclose fraud and thereby bolster enforcement, the FCA contains a qui tam provision that permits private persons (known as “relators”) to bring civil actions on behalf of the United States and claim a portion of any award. See 31 U.S.C. § 3730(b), (d) (2008); Hopper, 91 F.3d at 1266 n. 7. At the time that Ebeid filed his Second Amended Complaint, ¹ the FCA imposed liability on anyone who, inter alia:

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval;

(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;

(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid....

31 U.S.C. § 3729(a) (2008).

Ebeid, a private physician in Arizona, is not an insider in Lungwitz's businesses and does not raise a typical FCA claim that Lungwitz overcharged the government for services provided, or that she made express false certifications to the government to receive payment. Instead, Ebeid alleges that all of the Medicare billing submitted by Lungwitz was unlawful under a theory of implied false certification. Ebeid alleges that the illegal corporate structure of the health care businesses gave Lungwitz a prohibited amount of control over the medical decisions of physicians employed in the various enterprises and that the health care businesses illegally referred patients amongst themselves.

Ebeid raises a theory of implied false certification, “based on the notion that the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are a precondition to payment.” Mikes v. Straus, 274 F.3d 687, 699 (2d Cir.2001). Although we reserved the issue of whether this theory was viable in United States ex rel. Hendow v. University of Phoenix, 461 F.3d 1166, 1172 n. 1 (9th Cir.2006), we now join our sister circuits in recognizing a theory of implied certification under the FCA. See United States ex rel. Conner v. Salina Reg'l Health Ctr., Inc., 543 F.3d 1211, 1217-18 (10th Cir.2008); McNutt ex rel. U.S. v. Haleyville Med. Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir.2005); United States ex rel. Augustine v. Century Health Services, Inc., 289 F.3d 409, 415 (6th Cir.2002); Mikes, 274 F.3d at 699. Nonetheless, even under this theory of implied false certification, Ebeid fails to plead fraud with sufficient particularity to satisfy the pleading standard under Federal Rule of Civil Procedure 9(b). Thus, on de novo review, we affirm the district court's dismissal of his Second Amended Complaint. ² See United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1051 (9th Cir.2001).

I. Implied False Certification

We address first whether the FCA contemplates an implied false certification claim. The first court to recognize implied false certification was the Court of Federal Claims in Ab-Tech Construction, Inc. v. United States, 31 Fed.Cl. 429 (Fed.Cl.1994), aff'd mem., 57 F.3d 1084 (Fed.Cir.1995) (table). There, to participate in a government program, the defendant signed a “Statement of Cooperation,” promising to comply with “the program's requirements for continuing eligibility.” Id. at 432. The court found that claims for payment submitted to the government “represented an implied certification ... of [the defendant's] continuing adherence to the requirements for participation,” even though individual claims for payment did not require a certification of compliance. Id. at 434. Thus, the defendant's non-compliance rendered the claims “false,” and liability attached under the FCA. Id.

Since Ab-Tech, the Second, Sixth, Tenth, and Eleventh Circuits have endorsed the implied false certification theory. See Mikes, 274 F.3d at 699-700; Augustine, 289 F.3d at 415; Conner, 543 F.3d at 1217-18; McNutt, 423 F.3d at 1259. The Second Circuit in Mikes observed that “[f]oundational support for the implied false certification theory may be found in Congress' expressly stated purpose that the Act include at least some kinds of legally false claims and in the Supreme Court's admonition that the Act intends to reach all forms of fraud that might cause financial loss to the government.” 274 F.3d at 699 (citations omitted).

In Mikes, the plaintiff argued that by submitting Medicare reimbursement forms, the defendant implicitly certified compliance with two Medicare statutes: 42 U.S.C. § 1395y(a)(1)(A), which prohibited payments for medical procedures that were “not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member,” and 42 U.S.C. § 1320c-5(a), which mandated a qualitative standard of care. Mikes, 274 F.3d at 700-01. The court held “that in submitting a Medicare reimbursement form, a defendant implicitly certifies compliance with § 1395y(a)(1)(A), but not § 1320c-5(a).” Id. at 702. The court reasoned that, in the Medicare context, “implied false certification is appropriately applied only when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid.” Id. at 700 (emphasis in original). Section 1395y(1)(A) expressly conditioned payment on compliance; however, § 1320c-5(a) did not because it established “conditions of participation, rather than prerequisites to receiving reimbursement.” Id. at 701-02 (emphases added). Thus, § 1320c-5(a) established a condition of participation because it was prospective in nature, “directed at the provider's continued eligibility in the Medicare program, rather than any individual incident of noncompliance,” as evidenced by its requirement that the Secretary of Health and Human Services may impose sanctions only after a peer review organization finds evidence of violations in “a substantial number of cases” and recommends sanctions. Id. at 702.

Although we have not addressed directly the viability of the implied false certification theory, our precedent regarding express false certification is instructive. Prior to our decision in Hendow, the leading case in this circuit on false certification was Hopper, 91 F.3d at 1266. In Hopper, we held that “[v]iolations of laws, rules, or regulations alone do not create a cause of action under the FCA. It is the false certification of compliance which creates liability when certification is a prerequisite to obtaining a government benefit.” Id. Under this standard, we concluded that FCA liability cannot attach “where regulatory compliance was not a sine qua non of receipt of state funding.” Id. at 1267. Thus, Hopper failed to state a viable claim where the forms on which his claims were submitted did “not contain any certification concerning regulatory compliance” and the statute at issue did “not require funding recipients to certify their compliance with federal law and regulations.” Id.

Later, in Hendow, we clarified the four elements of a false certification claim: “(1) a false statement or fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due.” Hendow, 461 F.3d at 1174. To establish the materiality element, “the false statement or course of conduct must be material to the government's decision to pay out moneys to the claimant.” Id. at 1172. To establish materiality, we pointed out that the term “certification” had no special significance; rather, “the question is merely whether the false certification-or assertion, or statement-was relevant to the government's decision to confer a benefit.” Id. at 1173.

The defendant in Hendow argued that the materiality element was not satisfied because the incentive compensation ban under Title IV and the Higher...