Sept. 2, 2016 – In a case claiming violations of the False Claims Act, the U.S. Court of Appeals for the Seventh Circuit recently concluded that allegations of fraudulent medical billing were sufficient to survive a motion to dismiss, but other fraud allegations were not.

In Presser v. Acacia Mental Health Clinic LLC, No. 14-2804 (Sept. 1, 2016), a three-judge panel ruled that plaintiff Rose Presser alleged facts with sufficient particularity on a claim that her former employer, Acacia Mental Health Clinic in Milwaukee, miscoded bills on purpose to receive bigger Medicare-based reimbursements.

Presser, a former nurse practitioner at Acacia, filed her False Claims Act claims on behalf of the U.S. Department of Health and Human Services and the Wisconsin Department of Health and Family Services Mental Health Clinic in Milwaukee.

Presser also alleged that Acacia engaged in practices that were medically unnecessary to increase the clinic’s billings. On that claim, however, two judges concluded that Presser did not meet the heightened pleading requirements for cases alleging fraud.

On this point, Judge David Hamilton dissented. He explained the difficulties in complying with pleading requirements under Federal Rule of Civil Procedure 9(b), which sets heightened pleading requirements for parties alleging fraud or mistake.

Allegations of Fraud

Presser, holding 20 years of experience as a nurse and nurse practitioner, filed the qui tam action under the federal False Claims Act and the Wisconsin False Claims Act (note: the Wisconsin False Claims Act, Wis. Stat. § 20.931, was repealed in 2015).

Under the False Claims Act, it is unlawful to knowingly present fraudulent billing claims to the government for payment under government programs like Medicare. Qui tam suits provide “whistleblowers,” such as employees, with incentives to file the suits because the whistleblower may collect a substantial percentage of any funds recovered.

But the whistleblower must meet the heightened pleading standards associated with fraud. In this case, Presser alleged that Acacia management told employees, including receptionists and nurses, to bill under codes reserved for therapists or psychiatrists.

In addition, Presser alleged that Acacia was billing for work that was medically unnecessary. That is, she challenged a four-step patient evaluation process, mandatory drug screening procedures, and Acacia’s in-person prescription refill policies.

Fraudulent Billing

The three-judge panel agreed that Presser survived a motion to dismiss on allegations of fraudulent billing, noting that her amended complaint met the pleading requirements.

Presser alleged that superiors told her and others to bill on a code reserved for therapists and psychiatrists performing psychological evaluations that Presser and others did not perform, meaning bills were generated for services not rendered.

She also alleged that her superior told her that almost all of Acacia’s patients were on Medicare, and the billing practices were applied to all the clinic’s patients.

Although Presser did not present an actual billing document or invoice that showed that Acacia billed Medicare for treatment services the clinic did not provide, the panel ruled that such allegations contained the particulars necessary to survive a motion to dismiss.

“Considering Ms. Presser’s position as a nurse practitioner, a position that does not appear to include regular access to medical bills, we do not see how she would have been able to plead more facts pertaining to the billing process,” wrote Judge Kenneth Ripple for the panel, reversing the district court’s decision to dismiss the claim.

But the panel (2-1) affirmed the district court’s decision to dismiss other allegations of fraud that were based on Presser’s claim that Acacia performed unnecessary services, such as a four-step evaluation process involving four employees, mandatory urine screens, and procedures that required patients to refill prescriptions in-person.

The panel said Presser’s complaint on these allegations, “lack[ed] a concrete basis.” That is, she relied on her own experience as a nurse practitioner to assert that such policies and procedures were medically unnecessary and amounted to fraud.

Presser did not compare Acacia’s policies to other clinics, the panel noted, and Acacia’s policies could be innocent. “A four-step evaluation process may be in place to ensure that patients are diagnosed properly and receive proper treatment,” Judge Ripple noted.

Judge Ripple, joined by Judge Joel Flaum, noted that personal experience is not a sound basis for allegations, especially when some relators may be disgruntled or have subjective disagreements about proper policies or procedures to be employed.

Thus, the majority concluded that Presser’s allegations of fraud based on billings under policies or procedures that were medically unnecessary were properly dismissed.

Hamilton Dissents

Judge Hamilton agreed that Presser met the pleading requirements on her billing code claims. But he disagreed with the majority’s conclusions on other allegations, arguing “the circumstances of the alleged fraud have been alleged with particularity here.”

Judge Hamilton noted that Presser alleged practices and policies that led to much higher billings. And she alleged that Acacia was aware of it, which the majority acknowledged. In Hamilton’s view, that was all that was required.

“Yet the majority concludes … that Presser failed to allege something else essential, apparently some additional factual basis to support her contention that these other challenged practices are in fact fraudulent rather than innocent,” he wrote.

Requiring Presser to allege “an ascertainable standard or more context” showing that Acacia probably committed fraud goes beyond the requirements of Rule 9(b), he noted.

“[B]y suggesting innocent explanations for the challenged practices and criticizing the relator’s failure to negate them in her complaint, the majority applies something very close to the ‘strong inference’ standard from the PSLRA,” wrote Hamilton, referring to fraud allegations under the federal Private Securities Litigation Reform Act.

Judge Hamilton noted that the district court granted Presser just one chance to amend her complaint, unreasonable given the uncertainties involved in pleading facts of fraud.

“Variations among district judges and appellate panels can be substantial, suggesting that the Iqbal and Twombly project is leading not to more clarity and less litigation, but to more litigation and less clarity,” he wrote.

“The best approach is to let the plaintiff try her best, and then to be liberal in allowing amendments (“when justice so requires”) once the court has indicated what is required.”

He also noted that if Presser requested to amend her complaint on remand, “the case for allowing it would be very strong because of a mistake the district court made at the outset of the case.” That is, he said the district court abused its discretion.

The district judge ruled that the complaint failed to state a claim because it was based on the wrong statute, but allowed Presser to fix it with one amended complaint.

Presser had cited an old version of the statute, which had been renumbered. But it contained the same language, which Presser included. “The complaint was not required to include a legal theory, let alone a correct citation,” wrote Hamilton.