Tuesday, July 6, 2010

Pleading Medicare Fraud

Depending on where suit is filed may determine whether the complaint is subject to dismissal for failure to comply with Fed. R. Civ. P. 9(b). Circuit courts are divided in their interpretation of the specificity requirement of Rule 9(b). See Whitney, "Minimum Pleading Requirements Needed to Prosecute Alleged Medicare Fraud," BNA's Health Care Fraud Report, Vol. 14, No. 8 pages 354-59, April 21, 2010. Some courts follow the Clausen v. Lab. Corp. of Am., Inc., 290F.3d 1301, 1311 (11th Cir. 2002), approach, which subjects to dismissal qui tam complaints that fail to identify an actual false claim submitted to the government. Other courts follow an approach more faithful to the purposes underlying the False Claims Act and allow the complaint to survive if it alleges "particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." United States, ex rel. Grubbs v. Ravikumar Kanneganti, 565 F.3d 180, 195 (5th Cir. 2009).

Recently, the court in United States, ex rel. Underwood v. Genentech, 2010 U.S. Dist. LEXIS 53732 (E.D. Pa. June 2, 2010), denied the defendant's motion to dismiss premised on the relator's failure to identify in his complaint a specific false claim that was actually submitted to the government. The relator alleged that Genentech defrauded Medicare and Medicaid through an "off-label" marketing and kick-back scheme. In Underwood, the court held that such particularized pleading was not required in the Third Circuit, "especially where, as here, the Relator has alleged that the Defendant itself did not submit the false claims, but induced third parties to do so." Id. at *1.

In the alternative, the court held that the relator's complaint could be amended based on discovery obtained from the government. Id. The alternative ruling is especially significant given the government's power of issuing civil investigative demands. By the time the government completed its investigation in Underwood, it had obtained seven million documents from other federal agencies and from Genentech itself. Although the Department of Justice ("DOJ") declined to intervene, pursuant to subpoena, it provided the relator with documents it had obtained from other federal agencies. Moreover, pursuant to court order, the DOJ complied with the relator's subpoena to produce the documents it obtained directly from Genentech. The court thus permitted amendments based on evidence obtained indirectly from the qui tam defendant.

Underwood not only reinforces the importance of filing suit in district courts within circuits that do not overemphasize the specificity requirements of Rule 9(b), it also highlights an important practice pointer: injecting specificity and substantiation through amendments based on documents subpoenaed from the DOJ.


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