United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., 061118 FED6, 17-5826
|Opinion Judge:||KAREN NELSON MOORE, Circuit Judge.|
|Party Name:||United States of America ex rel. Marjorie Prather, Relator-Appellant, v. Brookdale Senior Living Communities, Inc. et al., Defendants-Appellees. Episode RAP F2F encounter signed Certification signed Final bill|
|Attorney:||Patrick Barrett, BARRETT LAW OFFICE, PLLC, Nashville, Tennessee, for Appellant. Brian D. Roark, BASS, BERRY & SIMS PLC, Nashville, Tennessee, for Appellees. Megan Barbero, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus Curiae. Patrick Barrett, BARRETT LAW OFFICE, PLLC, Nashvill...|
|Judge Panel:||Before: MOORE, McKEAGUE, and DONALD, Circuit Judges. DAVID W. McKEAGUE, Circuit Judge, dissenting.|
|Case Date:||June 11, 2018|
|Court:||United States Courts of Appeals, Court of Appeals for the Sixth Circuit|
Argued: April 25, 2018
Appeal from the United States District Court for the Middle District of Tennessee at Nashville. No. 3:12-cv-00764-Aleta Arthur Trauger, District Judge.
Patrick Barrett, BARRETT LAW OFFICE, PLLC, Nashville, Tennessee, for Appellant. Brian D. Roark, BASS, BERRY & SIMS PLC, Nashville, Tennessee, for Appellees.
Megan Barbero, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus Curiae.
Patrick Barrett, BARRETT LAW OFFICE, PLLC, Nashville, Tennessee, Michael Hamilton, PROVOST UMPHREY LAW FIRM, LLP, Nashville, Tennessee, for Appellant.
Brian D. Roark, J. Taylor Chenery, Angela L. Bergman, BASS, BERRY & SIMS PLC, Nashville, Tennessee, for Appellees.
Megan Barbero, Charles W. Scarborough, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus Curiae.
Before: MOORE, McKEAGUE, and DONALD, Circuit Judges.
KAREN NELSON MOORE, Circuit Judge.
Brookdale Senior Living Communities employed Marjorie Prather to review Medicare claims prior to their submission for payment. Many of these claims were missing the required certifications from physicians attesting to the need for the medical services that the defendants had provided. These certifications need to "be obtained at the time the plan of care is established or as soon thereafter as possible." 42 C.F.R. § 424.22(a)(2). But the defendants were allegedly obtaining certifications months after patients' plans of care were established.
In July 2012, Prather filed a complaint pleading violations of the False Claims Act under an implied false certification theory. The district court dismissed her complaint, holding that Prather did not allege fraud with particularity or that the claims were false. This panel reversed the district court in part, holding that Prather had pleaded two of her claims with the required particularity and that the claims submitted were false. United States ex rel. Prather v. Brookdale Senior Living Cmties., Inc. (Prather I), 838 F.3d 750, 775 (6th Cir. 2016). In doing so, we interpreted the phrase "as soon thereafter as possible" in 42 C.F.R. § 424.22(a)(2) to mean that a delay in certification is "acceptable only if the length of the delay is justified by the reasons the home-health agency provides for it" and held that the reason alleged for the defendants' delay was not justifiable. Id. at 765.
On remand, the district court granted Prather leave to file her Third Amended Complaint ("complaint") in light of the Supreme Court's clarification of the materiality element of a False Claims Act claim in Universal Health Services., Inc. v. United States ex rel. Escobar, U.S., 136 S.Ct. 1989 (2016). The defendants moved to dismiss again on the grounds that Prather did not plead sufficiently the materiality and scienter elements of her two alleged False Claims Act violations. The district court granted that motion, and Prather now appeals. For the reasons set forth below, we REVERSE the district court's dismissal of Prather's complaint and REMAND for proceedings consistent with this opinion.
A. Legal Background
The False Claims Act, 31 U.S.C. § 3729 et seq., imposes civil liability that is "essentially punitive in nature" on those who defraud the U.S. government. Escobar, 136 S.Ct. at 1996 (quoting Vt. Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765, 784 (2000)). Here, Prather is asserting a theory of liability under the False Claims Act known as "implied false certification." Under this theory, "liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant's non-compliance with a statutory, regulatory, or contractual requirement." Id. at 1995. This misrepresentation through omission "renders the claim 'false or fraudulent' under § 3729(a)(1)(A)." Id. "A misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government's payment decision in order to be actionable under the False Claims Act." Id. at 1996.
The claims and alleged misrepresentations at issue in this case arise in the context of Medicare and home-health services. Medicare Parts A and B provide coverage for certain home-health services. Prather I, 838 F.3d at 755 (citing 42 U.S.C. §§ 1395c and 1395k(a)(2)(A)). These services include: "skilled nursing services, home health aide services, physical therapy, speech-language pathology services, occupational therapy services, and medical social services." Id. (internal quotation marks and brackets denoting alterations omitted). "'Medicare Part A or Part B pays for home health services only if a physician certifies and recertifies' the patient's eligibility for and entitlement to those services." Id. (quoting 42 C.F.R. § 424.22).
These certifications are projections about the patient's medical need and plan of care, and Medicare payments for the care provided are made on a prospective system of 60-day periods, known as an "episode of care." Id. at 756. Payments for each episode are made in two parts. The initial payment-the "request for anticipated payment" or "RAP"-is a percentage of the total expected reimbursement. Id. (citing 42 C.F.R. § 484.205(b)). The second payment-the "residual final payment"-is disbursed at the end of the episode. Id. (citing 42 C.F.R. § 484.205(b)).
"The certification of need for home health services must be obtained at the time the plan of care is established or as soon thereafter as possible and must be signed and dated by the physician who establishes the plan." 42 C.F.R. § 424.22(a)(2). This regulation "permits a home-health agency to complete a physician certification of need after the plan of care is established, but . . . such a delay [is] acceptable only if the length of the delay is justified by the reasons the home-health agency provides for it." Prather I, 838 F.3d at 765. If the required certification was not obtained in compliance with the timing requirement in 42 C.F.R. § 424.22(a)(2), the RAP and final payment claims are "impliedly false." Id. at 766-67.
B. Factual Background
Prather, the relator in this case, "was employed by Brookdale Senior Living, Inc. as a Utilization Review Nurse from September of 2011 until November 23, 2012."2 R. 98 (Third. Am. Compl. ¶ 10) (Page ID #1462). Defendant Brookdale Senior Living, Inc., along with defendants Brookdale Senior Living Communities, Inc., Brookdale Living Communities, Inc., Innovative Senior Care Home Health of Nashville, LLC, and ARC Therapy Services, LLC, "are interconnected corporate siblings who operate senior communities, assisted living facilities, and home health care providers." Id. ¶ 3 (Page ID #1460).
Prather alleges that it was the defendants' policy to "enroll as many of their assisted living facility residents as possible in home health care services that were billed to Medicare, " id., even when these treatments "were not always medically necessary or did not need to be performed by nurses who billed to Medicare." Prather I, 383 F.3d at 765; R. 98 (Third. Am. Compl. ¶¶ 70, 105, 110) (Page ID #1477, 1486, 1488). This "aggressive solicitation of their senior community and assisted living facility residents ultimately generated thousands of Medicare claims that were 'held' because they did not meet basic Medicare requirements . . . ." R. 98 (Third Am. Compl. ¶ 3) (Page ID #1460). "In September of 2011, there was a large backlog of about 7, 000 unbilled Medicare claims worth approximately $35 million." Id. ¶ 77 (Page ID #1478). To facilitate the processing of these claims, the defendants initiated the "Held Claims Project, " and Prather was hired to work on this specific assignment. Id. ¶ 77-80 (Page ID #1478-49). Prather's job responsibilities included:
(1) pre-billing chart reviews in order to ensure compliance with the requirements and established policies of Defendants, as well as state, federal, and insurance guidelines; (2) working directly with the Regional Directors, Directors of Professional Services, and clinical associates to resolve documentation, coverage, and compliance issues; (3) acting as resource person to the agencies for coverage and compliance issues, (4) reviewing visits utilization for appropriateness pursuant to care guidelines and patient condition; and (5) keeping Directors of Professional Services apprised of problem areas requiring intervention.
Id. ¶ 80 (Page ID #1479).
The Held Claims Project team "used a 'billing release checklist' to identify items that needed to be completed before [a] claim could be released for final billing to Medicare." Id. ¶ 82 (Page ID #1480). The checklist and corresponding documents for each claim were then given to the billing office. Id. Once the billing office had all the documentation required, it submitted the bill to Medicare. Id.
One of the required documents frequently missing was the physician certification. Initially, Prather and the other project members "sent attestation forms to doctors for them to sign to correct the problem of missing signatures, " but they "only received a few signed and completed forms back from the doctors." Id. ¶ 86 (Page ID #1481). Beginning in May 2012, to facilitate the process of gathering the required certifications, "Defendants paid physicians to review outstanding held claims and sign orders for previously provided care." Id. ¶ 98 (Page ID #1483). Additionally, team members visited physicians in order to obtain certifications. Id. ¶ 104 (Page ID #1818-19). Prather also alleges that the defendants repeatedly "billed RAPs without having physician certifications, and then re-billed them immediately after the RAPs were canceled in order to keep the funds received through the RAPs, while still lacking the required physician certifications." Id. ¶ 99 (Page ID #1484).
Prather alleges that she, and the other employees in the Held Claims Project, "raised concerns" about "compliance problems" with supervisors. Id. ¶ 91-92 (Page ID #24). But the defendants told the utilization review nurses to ignore problems they found and only cursorily to review the documentation. Id. ¶ 23, 91, 94-95 (Page ID #1481-83). In response to Prather's repeated comments to her supervisors that she was discovering compliance issues, she was told that the defendants could "just argue in our favor if we get audited." Id. ¶ 114 (Page ID #1489).
To support her allegations that the defendants failed to comply with the timing requirement in 42 C.F.R. § 424.22(a)(2), Prather included five examples in her complaint and incorporated by reference two exhibits containing spreadsheets listing information about hundreds of other untimely certifications. In the examples in her complaint, Prather describes physician certifications obtained from a few months to nearly a year after an episode of care began. Id. ¶ 104-13 (Page ID #1485-89). In her attached Exhibit A, Prather identifies 489 claims submitted to Medicare for which she alleges "Defendants did not obtain the required physician certification of need until after the episode was complete and/or the patient was discharged." Id. ¶ 115-17 (Page ID #1489-90); R. 98-1 (Third Am. Compl. Ex. A) (Page ID #1497-1520). Similarly, in Exhibit B, Prather identifies 771 claims that were allegedly submitted to Medicare with physician certifications of the required face-to-face encounter that were not obtained "until after the patient had been discharged and/or the episode was complete." R. 98 (Third Am. Compl. ¶ 118-20) (Page ID #1491); R. 98-2 (Third Am. Compl. Ex. B) (Page ID #1521-54).
C. Procedural History
Prather filed her complaint in this lawsuit under seal in July 2012 asserting multiple False Claim Act violations and state-law claims. R. 1 (Sealed Compl. at 28-45) (Page ID #28-45). In April 2014, the United States declined to intervene, and Prather's complaint was unsealed and served on the defendants. R. 23 (Notice of Election to Decline Intervention) (Page ID #103-04); R. 24 (Apr. 10, 2014 Dist. Ct. Order) (Page ID #107-08). Before the defendants had responded to the initial complaint, Prather filed her First Amended Complaint. R. 52 (First Am. Compl.) (Page ID #178-211). The defendants subsequently moved to dismiss for failure to comply with Federal Rule of Civil Procedure 9(b), R. 56 (First Mot. to Dismiss at 1) (Page ID #217), and the district court granted the motion without prejudice, R. 71 (Mar. 31, 2015 Dist. Ct. Op.) (Page ID #889-922).
In June 2015, Prather filed her Second Amended Complaint. R. 73 (Second Am. Compl.) (Page ID #924-57). She alleged three claims: (1) the presentation of false claims to the United States government in violation of 31 U.S.C. § 3729(a)(1)(A); (2) the making or use of material false records or statements in the submission of claims to the government in violation of 31 U.S.C. § 3729(a)(1)(B); and (3) the wrongful retention of overpayments in violation of 31 U.S.C. § 3729(a)(1)(G). Id. at 29-32 (Page ID #952-55). The defendants again moved to dismiss for failure to comply with Federal Rule of Civil Procedure 9(b). R. 78 (Second Mot. to Dismiss at 1) (Page ID #1028). The district court granted the motion with respect to all three counts. R. 89 (Nov. 5, 2015 Dist. Ct. Op.) (Page ID #1358-1402).
Prather appealed, and this panel reversed the district court's "dismissal of Prather's claims regarding the submission of false or fraudulent claims for payment and the fraudulent retention of payments, " but affirmed the "dismissal of Prather's claim regarding the use of false records." Prather I, 838 F.3d at 775. The briefs in Prather I were filed prior to the Supreme Court's decision in Escobar, so we did not address any potential impact that decision may have had on Prather's complaint. Id. at 761 n.2. On remand to the district court: the defendants stated their intent to file a motion to dismiss the Second Amended Complaint for failure to meet the standards set forth in Escobar. Because the Second Amended Complaint was filed before Escobar was issued, the court afforded the relator an opportunity to amend her complaint again, specifically to attempt to satisfy the pleading obligations identified in that case.
United States ex rel. Prather v. Brookdale Senior Living Cmties., Inc., 265 F.Supp.3d 782, 787 (M.D. Tenn. 2017).
Prather filed her Third Amended Complaint in March 2017. R. 98 (Third. Am. Compl.) (Page ID #1459-96). She asserted two claims: (1) the presentation of false claims to the United States government in violation of 31 U.S.C. § 3729(a)(1)(A); and (2) the wrongful retention of overpayments in violation of 31 U.S.C. § 3729(a)(1)(G). Id. ¶ 121-31 (Page ID #1492-94). The defendants moved again to dismiss the complaint. R. 102 (Third Mot. to Dismiss) (Page ID #1571-73). The defendants argued that Prather had failed to plead adequately the required elements of materiality and scienter under Escobar. Id. at 1 (Page ID #1571). The district court granted the defendants' motion to dismiss with prejudice, holding that Prather had not sufficiently pleaded materiality. Prather, 265 F.Supp.3d at 801; R. 113 (June 22, 2017 Dist. Ct. Order) (Page ID #2142); R. 114 (Dist. Ct. J.) (Page ID #2143). It did not reach the issue of scienter. Prather, 265 F.Supp.3d at 801.
Prather's timely appeal from the district court's judgment is now before the same panel that heard her original appeal in Prather I.
II. STANDARD OF REVIEW
Federal Rule of Civil Procedure 9(b)'s requirement that fraud be pleaded with particularity applies to complaints alleging violations of the False Claims Act, because "defendants accused of defrauding the federal government have the same protections as defendants sued for fraud in other contexts." Prather I, 838 F.3d at 760 (quoting Chesbrough v. VPA, P.C., 655 F.3d 461, 466 (6th Cir. 2011)). "To satisfy Rule 9(b), a complaint of fraud, 'at a minimum, must allege the time, place, and content of the alleged misrepresentation on which [the plaintiff] relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.'" United States ex rel. Marlar v. BWXT Y-12, L.L.C., 525 F.3d 439, 444 (6th Cir. 2008) (quoting United States ex rel. Bledsoe v. Cmty. Health Sys., Inc. (Bledsoe I), 342 F.3d 634, 643 (6th Cir. 2003)). If the complaint "alleges 'a complex and far-reaching fraudulent scheme, ' then that scheme must be pleaded with particularity and the complaint must also 'provide examples of specific' fraudulent conduct that are 'representative samples' of the scheme." Id. at 444-45 (alteration in original) (quoting United States ex rel. Bledsoe v. Cmty. Health Sys. (Bledsoe II), 501 F.3d 493, 510 (6th Cir. 2007)).
"This Court reviews de novo a district court's dismissal of a complaint for failure to state a claim, including dismissal for failure to plead with particularity under [Rule] 9(b).'" United States ex rel. Ibanez v. Bristol-Myers Squibb Co., 874 F.3d 905, 914 (6th Cir. 2017) (alteration in original) (quoting United States ex rel. Eberhard v. Physicians Choice Lab. Servs., LLC, 642 Fed.Appx. 547, 550 (6th Cir. 2016)), cert. denied, No. 17-1399, 2018 WL 1697046 (U.S. May 29, 2018). We "must construe the complaint in the light most favorable to the plaintiff, accept all factual allegations as true, and determine whether the complaint contains 'enough facts to state a claim to relief that is plausible on its face.'" Bledsoe II, 501 F.3d at 502 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
To plead a claim under the False Claims Act, the plaintiff must sufficiently allege that: (1) the defendant made a false statement or created a false record; (2) with scienter; (3) that was "material to the Government's decision to make the payment sought in the defendant's claim"; and (4) that the defendant submitted to the U.S. government causing it to pay the claim. United States ex rel. Sheldon v. Kettering Health Network, 816 F.3d 399, 408 (6th Cir. 2016) (quoting United States ex rel. SNAPP, Inc. v. Ford Motor Co., 618 F.3d 505, 509 (6th Cir. 2010)); see also United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890, 902 (9th Cir. 2017), petition for cert. filed, 86 U.S.L.W. 3361 (U.S. Dec. 26, 2017) (No. 17-936). In Prather I, we resolved in Prather's favor the issue of whether Prather had sufficiently pleaded facts supporting the first element. 838 F.3d at 762. The parties are now contesting whether Prather sufficiently pleaded the second and third elements: scienter and materiality. Appellant Br. at 12; Appellees Br. at 14-15. These two elements are integral to both of Prather's alleged claims and therefore Count One and Count Two of Prather's complaint rise or fall together. Prather, 265 F.Supp.3d at 801. Because the district court addressed only materiality and not scienter, we will discuss the two elements in that order.
"[A] misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government's payment decision in order to be actionable under the False Claims Act." Escobar, 136 S.Ct. at 2002. The Act defines "material" as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." 31 U.S.C. § 3729(b)(4). In Escobar, the Supreme Court clarified this materiality requirement and emphasized that the "standard is demanding." 136 S.Ct. at 2003.
"[M]ateriality 'look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.'" Escobar, 136 S.Ct. at 2002 (second alteration in original) (quoting 26 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 69:12 (4th ed. 2003)). Something is material if a reasonable person "would attach importance to [it] in determining his choice of action in the transaction" or "if the defendant knew or had reason to know that the recipient of the representation attaches importance to the specific matter 'in determining his choice of action, ' even though a reasonable person would not." Id. at 2002-03 (alteration in original) (quoting Restatement (Second) of Torts § 538 (Am. Law Inst. 1977)).
The analysis of materiality is "holistic." United States ex rel. Escobar v. Universal Health Servs.,
Inc., 842 F.3d 103, 109 (1st Cir. 2016). Relevant factors include: (1) "the Government's decision to expressly identify a provision as a condition of payment"; (2) whether "the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement" or if, with actual knowledge of the non-compliance, it consistently pays such claims and there is no indication that its practice will change; and (3) whether the "noncompliance is minor or insubstantial" or if it goes "to the very essence of the bargain." Escobar, 136 S.Ct. at 2003 & n.5. None of these considerations is dispositive alone, nor is the list exclusive. Id. at 2001-04.
1. Express Condition of Payment
"A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment." Escobar, 136 S.Ct. at 2003. But such a designation is a relevant factor in determining materiality. Id.
The parties vigorously dispute whether the timing requirement in 42 C.F.R. § 424.22(a)(2) is an express condition of payment for RAPs and residual final payments.Appellant Br. at 25-27; Appellees Br. at 28-35; Appellant Reply Br. at 4-6. The district court concluded that the timing requirement was an express condition of payment for both, Prather, 265 F.Supp.3d at 796, and we agree.
Medicare Parts A and B condition payment for services on a physician's certification regarding the necessity of such services. 42 U.S.C. §§ 1395f(a)(2) & 1395n(a)(2); 42 C.F.R. § 424.10. Thus, "[i]n order for home health services to qualify for payment under the Medicare program, " 42 C.F.R. § 409.41 mandates that "[t]he physician certification and recertification requirements for home health services described in [42 C.F.R.] § 424.22" be met. 42 C.F.R. § 409.41(b). The timing requirement at issue in this case is located in 42 C.F.R. § 424.22.
Prather argues that this analysis answers the question. Section 409.41(b) expressly conditions payment on meeting the certification requirements in § 424.22. Section 424.22(a)(2) contains the timing requirement for the certification Prather alleges the defendants violated. Thus, Prather argues, § 424.22(a)(2) must be an express condition of payment. Appellant Br. at 26.
Not so fast argue the defendants. Section 409.41(b) directs the reader to the requirements "described in § 424.22." So the reader must then look to the language in § 424.22 itself. Appellees Br. at 30. Section 424.22 states: "Medicare Part A or Part B pays for home health services only if a physician certifies and recertifies the content specified in paragraphs (a)(1) and (b)(2) of this section, as appropriate." The defendants argue that this language limits the broader language of 42 C.F.R. § 409.41 by making only the requirements in 42 C.F.R. § 424.22(a)(1) and (b)(2) express conditions of payment. Appellees Br. at 29.
The defendants are correct that § 409.41(b) incorporates the requirements in § 424.22, and thus it is necessary to examine the latter section to understand the scope of the former. For example, if § 424.22 contained a provision that stated "certifications may be submitted via U.S. mail" then § 409.41(b) could not be read as to make it an express condition of payment that the certification must be submitted via U.S. mail merely by reference to § 424.22 as a whole. But the defendants' reading of the introductory clause in § 424.22 is overly crabbed.
The prefatory language states that payment requires the physician to certify (or recertify) the contents specified in § 424.22(a)(1) and (b)(2). Section 424.22(a), entitled "[c]ertification, " then explains in further detail what a certification requires. Thus, § 424.22(a) gives meaning to the word "certifies" in the introductory clause. The required certification is not a certification unless it complies with all provisions of § 424.22(a), both (a)(1) and (a)(2). And § 424.22(a)(2) states that the certification "must be obtained at the time the plan of care is established or as soon thereafter as possible and must be signed and dated by the physician who establishes the plan."Cf. Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 1000-01 (9th Cir. 2010) (holding that 42. C.F.R. § 424.22(d), which limits which physicians may certify or recertify the need for home-health services, is an express condition of payment), cert. denied, 562 U.S. 1102 (2010).
Consequently, we agree with the district court that the timing requirement in 42 C.F.R. § 424.22(a)(2) is an express condition of payment. Thus, this factor weighs in favor of the conclusion that a misrepresentation with respect to this requirement is material.5
Escobar, 136 S.Ct. at 2003.
Another relevant factor in determining materiality is the government's past response to claims violating the same requirement. As the Supreme Court explained: [P]roof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on non-compliance with the particular statutory, regulatory, or contractual requirement. Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.
Escobar, 136 S.Ct. at 2003-04.
Prather made no allegations regarding the government's past practice with respect to claims that the government knew did not comply with 42 C.F.R. § 424.22(a)(2). Rather, she only alleged facts regarding the government's reactions to claims submitted by the defendants: "The United States, unaware of the falsity of the claims that Defendants submitted, and in reliance on the accuracy thereof, paid Defendants and other health care providers for claims that would otherwise not have been allowed." R. 98 (Third. Am. Compl. ¶ 125) (Page ID #1493). Without allegations regarding past government action taken in response to known non-compliance with 42 C.F.R. § 424.22(a)(2), this factor provides no support for the conclusion that the timing requirement is material.
In its analysis, the district court went one step further and drew a negative inference from the absence of any allegations about past government action. It held that Prather's "inability to point to a single instance where Medicare denied payment based on violation of § 424.22(a)(2), or to a single other case considering this precise issue, weighs strongly in favor of a conclusion that the timing requirement is not material." Prather, 265 F.Supp.3d at 797. This is one step too far.
Although a relator in a qui tam action faces a demanding standard at the motion-to-dismiss stage with respect to pleading materiality, she is not required to make allegations regarding past government action. The Supreme Court was explicit that none of the factors it enumerated were dispositive. Escobar, 136 S.Ct. at 2003. Thus, it would be illogical to require a relator (or the United States) to plead allegations about past government action in order to survive a motion to dismiss when such allegations are relevant, but not dispositive. Escobar, 842 F.3d at 112 ("We see no reason to require Relators at the Motion to Dismiss phase to learn, and then to allege, the government's payment practices for claims unrelated to services rendered to the deceased family member in order to establish the government's views on the materiality of the violation. Indeed, given applicable federal and state privacy regulations in the healthcare industry, it is highly questionable whether Relators could have even accessed such information."); see also Campie, 862 F.3d at 907 (holding that although discovery may reveal "that the government regularly pays this particular type of claim in full despite actual knowledge that certain requirements were violated, such evidence is not before us" and the relator had sufficiently alleged facts supporting that the requirement at issue was material).
Furthermore, we "must construe the complaint in the light most favorable to the plaintiff." Bledsoe II, 501 F.3d at 502. Inferring from the absence of allegations regarding past government action, as the district court did, that this means the timing requirement is not material is an inference adverse to the relator and in favor of the defendant. This improperly inverses the pleading standard.
Prather alleges that the government did not know that the claims the defendants submitted were false. R. 98 (Third. Am. Compl. ¶ 125) (Page ID #1493). Without actual knowledge of the alleged non-compliance, the government's response to the claims submitted by the defendants-or claims of the same type also in violation of 42 C.F.R. § 424.22(a)(2)-has no bearing on the materiality analysis.
3. Essence of the Bargain
Another factor relevant to materiality is whether the "non-compliance is minor or insubstantial" or if it goes "to the very essence of the bargain." Escobar, 136 S.Ct. at 2003 & n.5. The defendants concede that the physician certification does go to the essence of the bargain between themselves and the government-and therefore is material-but argue that the timing of the certification does not. Appellees Br. at 35. In response, Prather makes two arguments for why the timing requirement goes to the essence of the bargain. She first argues that the timing requirement is necessary to prevent fraud. Appellant Br. at 32-34; Appellant Reply Br. at 6-10. Prather next contends that the federal government's guidance as to the importance of the certification's timeliness demonstrates materiality. Appellant Br. at 35-37; Appellant Reply Br. at 10-14.
In Prather I, we discussed the timing requirement's connection to fraud prevention when interpreting the phrase "as soon thereafter as possible" in 42 C.F.R. § 424.22(a)(2). 838 F.3d at 764. We noted that the timing requirement makes it more difficult to defraud Medicare. Absent a deadline, a home-health agency might be able to provide unnecessary treatment absent a doctor's supervision and take the time to find doctors who are willing to validate that care retroactively. A deadline allowing only a short-and justified-delay between the beginning of care and the completion of the physician certification could make such a scheme difficult to pull off.
Id. at 764.7 Whether the party on the other side of a transaction complied with the regulations aimed at preventing unnecessary or fraudulent certifications is a fact that a reasonable person would want to know before entering into that transaction.8 Escobar, 136 S.Ct. at 2002-03; cf. United States v. Luce, 873 F.3d 999, 1007-08 (7th Cir. 2017) (holding material a misrepresentation that none of the officers of a loan-originating company were currently subject to criminal proceedings on a certification that "addressed a foundational part of the Government's mortgage insurance regime, which was designed to avoid the systemic risk posed by unscrupulous loan originators").
In her complaint, Prather referred to numerous guidance documents issued by the Department of Health and Human Services that she argues shows that the timing requirement goes to the essence of the bargain between the defendants and the government. R. 98 (Third Am. Compl. ¶ 47-52) (Page ID #1471-73); Appellant Br. at 35-36. Although this guidance was over ten years old at the time of the alleged false claims, it does provide some support for Prather's assertion that the timing requirement is material. Prather references three publications issued by the Office of Inspector General for the Department of Health and Human Services which emphasize the timing requirement for physician certifications and highlight 'untimely and/or forged physician certifications on plans of care" as an "area of special concern." OIG Compliance Program Guidance for Home Health Agencies, 63 Fed. Reg. 42, 410, 42, 414 (Aug. 7, 1998); OIG Special Fraud Alert on Physician Liability for Certifications in the Provision of Medical Equipment and Supplies and Home Health Services, 64 Fed. Reg. 1813, 1814 (Jan. 12, 1999); Office of Inspector Gen., U.S. Dep't of Health & Human Servs., OEI-02-00-00620, The Physician's Role in Medicare Home Health 2-4 (2001). Prather also cites 2015 guidance from the Centers for Medicare and Medicaid Services, which states: "It is not acceptable for HHAs to wait until the end of a 60-day episode of care to obtain a completed certification/recertification." R. 86-2 (Medicare Benefit Policy Manual (2015) § 30.5.1- Physician Certification at 32) (Page ID #1270). This specific manual was not in effect at the time of the defendants' alleged conduct, but it provides some support for Prather's allegation that the government has consistently emphasized the importance of the timing requirement and its longstanding policy has been to mandate that home-healthcare providers complete the physician certification prior to the end of the episode of care.9 R. 98 (Third Am. Compl. ¶ 51) (Page ID #1473).
The defendants argue that the government's decision not to intervene in this case indicates that the timing requirement is not material. Appellees Br. at 37-38. This argument is unpersuasive. In Escobar itself, the government chose not to intervene, and the Supreme Court did not mention this as a relevant factor in its materiality analysis. 136 S.Ct. at 1998. On remand, the First Circuit held that the relators had sufficiently pleaded materiality, without reference to the government's declination of intervention. Escobar, 842 F.3d at 112. Furthermore, the False Claims Act is designed to allow relators to proceed with a qui tam action even after the United States has declined to intervene. 31 U.S.C. § 3730(d)(2). If relators' ability to plead sufficiently the element of materiality were stymied by the government's choice not to intervene, this would undermine the purposes of the Act. See Trevor W. Morrison, Private Attorneys General and the First Amendment, 103 Mich. L. Rev. 589, 600-01 (2005) (describing how the False Claims Act is structured such that it encourages private citizens to pursue enforcement actions on behalf of the government).
After considering the factors implicated in this case that Escobar identified as indicative of materiality, we conclude that Prather has sufficiently alleged the required materiality element. The timing requirement in 42 C.F.R. § 424.22(a)(2) is an express condition of payment. Furthermore, Prather alleges that the government paid the claims submitted by the defendants without knowledge of the non-compliance, thus making the government's payment of the claims irrelevant to the question of materiality. Lastly, § 424.22(a)(2) is a mechanism of fraud prevention, which the government has consistently emphasized in its guidance regarding physician certifications.
The defendants also argue that Prather failed to plead sufficiently the element of scienter. Appellees Br. at 41. The district court did not reach this issue in its decision. Prather, 265 F.Supp.3d at 801.
"False Claims Act liability for failing to disclose violations of legal requirements" will not attach unless "the defendant knowingly violated a requirement that the defendant knows is material to the Government's payment decision." Escobar, 136 S.Ct. at 1996. The Act "defines 'knowing' and 'knowingly' to mean that a person has 'actual knowledge of the information, ' 'acts in deliberate ignorance of the truth or falsity of the information, ' or 'acts in reckless disregard of the truth or falsity of the information.'" Id. (quoting 31 U.S.C. § 3729(b)(1)(A)). "Knowing" and "knowingly" does not require "proof of specific intent to defraud." 31 U.S.C. § 3729(b)(1)(B). And, at the motion-to-dismiss stage, a plaintiff need only allege the scienter element generally. Fed.R.Civ.P. 9(b).
"[A]n aggravated form of gross negligence (i.e. reckless disregard) will satisfy the scienter requirement for an FCA violation." United States ex rel. Wall v. Circle C Constr., L.L.C., 697 F.3d 345, 356 (6th Cir. 2012) (alteration in original) (quoting United States ex rel. Burlbaw v. Orenduff, 548 F.3d 931, 945 n.12 (10th Cir. 2008)). Congress added the "reckless disregard" prong to the definition of knowledge in the False Claims Act "to target that defendant who has 'buried his head in the sand' and failed to make some inquiry into the claim's validity." United States ex rel. Williams v. Renal Care Grp., Inc., 696 F.3d 518, 530 (6th Cir. 2012) (quoting S. Rep. 99-345, at 21 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5286). This inquiry must be "reasonable and prudent under the circumstances." Id. (quoting S. Rep. 99-345, at 21 (1986), reprinted in 1986 U.S.C.C.A.N. at 5286).
In her complaint, Prather alleges sufficient facts that support the reasonable inference that the defendants acted with "reckless disregard" with respect to their compliance with 42 C.F.R. § 424.22(a)(2). First, Prather alleges that she and the other nurses employed to review claims were instructed to review the claims only cursorily. R. 98 (Third Am. Compl. ¶ 87) (Page ID #1481). Those working for the Held Claims Project were told that they needed to release claims more quickly. Id. ¶ 88 (Page ID #1481-82). To that end, Prather and her co-workers were instructed not to review the content of much of the documentation. Id. ¶ 94-95 (Page ID #1483).
Second, Prather alleges that both she and the other nurses raised concerns about the defendants' compliance with Medicare regulations, but were told to ignore any problems. Id. at ¶ 91-92 (Page ID #1482). Prather states that her concerns were repeatedly dismissed and she was told that "there is such a push to get the claims through." Id. ¶ 92, 96 (Page ID #1482, 1483). Additionally, Prather was told on multiple occasions that "[w]e can just argue in our favor if we get audited" as a solution to any compliance issues. Id. ¶ 114 (Page ID #1489).
Lastly, Prather alleges facts demonstrating that the defendants knew that their practices with respect to claims were potentially in violation of governing regulations. The defendants sent an email acknowledging that not all physicians would be "comfortable" with signing untimely certifications and that the defendants could not "force" them to sign. Id. ¶ 98 (Page ID #1484). Drawing all inferences in favor of Prather, as we must, this email suggests that the defendants knew that their conduct was, at least, perilously close to noncompliance such that doctors might refuse to be complicit in the defendants' billing practices.10 Furthermore, Prather alleges that a supervisor in the billing office alerted the employees that the defendants' practice of cancelling and re-submitting RAPs because of a lack of physician certifications might prompt an audit from Medicare. Id. ¶ 100 (Page ID #1484-85).
All these factual allegations support the inference that the defendants were on notice that their claim-submission process was resulting in potential compliance problems. Once the defendants had been informed by the employees explicitly hired to review these claims that there may be compliance issues, they had an obligation to inquire into whether they were actually in compliance with all appropriate regulations, including 42 C.F.R. § 424.22(a)(2). According to Prather, however, the defendants did not conduct such an inquiry and instead repeatedly pushed their employees to ignore problems, which they knew might trigger an audit, in a rush to get the claims submitted. In doing so, the defendants acted with "reckless disregard" as to the truth of their certification of compliance and to whether these requirements were material to the government's decision to pay.11
These factual allegations suffice, at the motion-to-dismiss stage, to demonstrate scienter. Discovery may reveal that the defendants did conduct an inquiry into their compliance with 42 C.F.R. § 424.22(a)(2) that was "reasonable and prudent under the circumstances." Williams, 696 F.3d at 530 (quoting S. Rep. 99-345, at 21 (1986), reprinted in 1986 U.S.C.C.A.N. at 5286). But, at this stage in the litigation, Prather has alleged sufficient facts supporting the inference that the defendants deliberately ignored multiple employees' concerns about their compliance with relevant regulations, and instead pressured their employees only cursorily to review claims for compliance problems so that they could be quickly submitted for reimbursement.
Prather has sufficiently pleaded that the defendants misrepresented their compliance with the material timing requirement in 42 C.F.R. § 424.22(a)(2), and that they acted with "reckless disregard" as to whether they had complied with this requirement and whether this requirement was material. For the foregoing reasons, we REVERSE the district court's judgment and REMAND for proceedings consistent with this opinion.
DAVID W. McKEAGUE, Circuit Judge, dissenting.
For the second time, this panel has reversed a well-reasoned decision by the district court to dismiss Prather's complaint. See United States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., 838 F.3d 750, 775 (6th Cir. 2016) (Prather I) (McKeague, J., concurring and dissenting). Two years ago, the majority invented a more stringent timing-and-explanation requirement out of whole cloth and grafted it onto the Medicare regulations. Today, the majority decides both that this requirement (created by the court in 2016) was somehow material to the government's decision to pay claims in 2011 and 2012, and that the defendants knew, seven years ago, that it was material-even though Prather identifies no authority in support of that position. Since Prather's complaint does not satisfy Rule 8 or Rule 9(b), I respectfully dissent from the majority's opinion.
This case involves home-health services billed to Medicare by the defendants (collectively, "Brookdale"). Id. at 755. Brookdale is a Home-Health Agency ("HHA") that coordinates the provision of care and the billing of those services to Medicare.
Medicare covers the cost of certain home-health services for patients who are confined to the home and need in-house medical care. 42 U.S.C. § 1395f(a)(2)(C); 42 C.F.R. § 424.22. Before Medicare will pay for these services, a physician must (among other things) certify that the patient is eligible for the home-health benefit, must establish a plan of care, and must complete a face-to-face encounter with the patient. 42 C.F.R. § 424.22(a). The signatures on these certifications "must be obtained at the time the plan of care is established or as soon thereafter as possible." Id. § 424(a)(2); Prather I, 838 F.3d at 762-63.
Billing for home-health services occurs in sixty-day cycles. In other words, Medicare pays the HHA a fixed amount, designed to reimburse it for all costs associated with sixty days of covered services. Prather I, 838 F.3d at 756. The sixty-day period is known as the "episode of care." Reimbursement under this prospective payment system is done in two steps. First, the HHA submits a Request for Anticipated Payment ("RAP"), which prompts Medicare to transmit a percentage of the total payment to the HHA. Id. Once care is completed, the provider submits a final bill to Medicare. Medicare then settles the account and submits the balance of the payment. Id. Medicare itself is not directly involved in these transactions-the agency contracts with Medicare Administrative Coordinators ("MACs"), companies who handle the process on Medicare's behalf. For the purposes of this case, a false statement to a MAC is a false statement to Medicare.
A HHA can submit a RAP even if the certifications have not been signed. See Medicare Claims Processing Manual, Ch. 10, § 10.1.10.3 (stating that a RAP may be billed once "the OASIS assessment is complete, " "verbal orders for home care have been received and documented, " "[a] plan of care has been established and sent to the physician, " and "[t]he first service visit under that plan has been delivered"). Thus, while the provider must have the plan of care in place to bill a RAP, it need not have all the signatures squared away before billing the RAP. See id. However, the same guidance prohibits HHAs from submitting a final bill "until after all services are provided for the episode and the physician has signed the plan of care and any subsequent verbal order." Id. § 10.1.10.4. The signed certifications must be kept on file with the provider and must be produced if the MAC or Medicare requests them. 42 C.F.R. § 424.22(c).
In Prather I, the court held that late signatures, if unexplained, could be "impliedly false" under the False Claims Act ("FCA"). 31 U.S.C. § 3729(a)(1)(A); Prather I, 838 F.3d at 765-66. Specifically, the court held that "delay [is] acceptable only if the length of the delay is justified by the reasons the home-health agency provides for it." Prather I, 838 F.3d at 765. If those reasons are inadequate, then the claim is false, and a relator or the United States can recover damages under the FCA. Id. at 765-66. Between the briefing and the decision in Prather I, however, the Supreme Court held that implied-false-certification claims that rely on a misleading omission are only actionable if the omission is material. Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989, 1999-2001 (2016). We declined to address materiality in Prather I, opting to leave that issue for the parties on remand. Prather I, 838 F.3d at 761 n.2.
After Prather amended her complaint on remand to better comply with Escobar, Brookdale moved to dismiss. The district judge granted the motion, reasoning that Prather failed to plead materiality. Prather appeals that order.
I will not belabor the facts, which are addressed in detail elsewhere. However, it is important to understand what Prather has not claimed. Her complaint does not allege that Brookdale backdated the certifications so that they only appeared to be signed in a timely manner (which would be fraud). She does not allege that the certifications were not signed before final bills were submitted to Brookdale's MAC (which would also be fraud). Neither does she allege that Brookdale withheld information from the MAC or from Medicare, nor does it appear any request was ever issued (if that were true, this would be a fraudulent-concealment case, rather than a fraud-by-omission case). Compare Restatement (Second) of Torts § 550 (Liability for Fraudulent Concealment) with § 551 (Liability for Nondisclosure). Finally, it does not appear that the certification forms were part of the billing package sent to the MAC. Stated differently, the mechanics of the billing process would not inherently disclose to the MAC that the certification signatures were late.1
Instead, Prather alleges that the defendants submitted over 1, 000 claims where the certifications or other crucial documents were not signed until long after the episode of care had ended. She offers up four patients as exemplars:
|Episode||RAP||F2F encounter signed||Certification signed||Final bill|
|Patient A||12/14/11 - 2/11/12||12/14/11||2/24/12 (+14 days)[*]||6/29/12 (+4.5 months)||7/10/12|
|Patient B||9/9/11 - 11/7/11||9/9/11||6/4/12 (+7 months)||7/10/12 (+8 months)||7/12/12|
|Patient C||7/25/11 - 9/22/11||7/25/11||12/11/11 (+2.5 months)||12/11/11 (+2.5 months)||7/5/12|
|Patient D||1/10/12 - 3/9/12||1/10/12||6/12/12 (+3 months)||6/12/12 (+3 months)||6/22/12|
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