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From Health Law Daily, June 9, 2014

False Claims Act pleading with “particularity” standard relaxed

By Harold M. Bishop, JD

The dismissal of a qui tam action against a dialysis care company for failure to plead with a heightened level of particularity was reversed on appeal. The relator alleged that his former employer charged Medicare for the full contents of drug vials even though it only used a portion of the vial on each patient and re-harvested the unused portion for use in other patients. The Third Circuit rejected the heightened pleading standard of the Fourth, Sixth, Eighth, and Eleventh Circuits, which require “representative samples” of the alleged fraudulent conduct, specifying the time, place, and content of the acts and the identity of the actors. Instead, the Third Circuit applied the relaxed standard of the First, Fifth, and Ninth Circuits, which have held that it is sufficient to allege “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” The case was remanded to the district court (Foglia v Renal Ventures Management LLC, June 6, 2014, Sloviter, D).

Background. Thomas Foglia (Foglia), a registered nurse, was employed with Renal Ventures Management LLC (Renal), a dialysis care services company, from March 13, 2007, until November 7, 2008, when he was terminated. Foglia filed a qui tam complaint against Renal on behalf of himself as a relator and on behalf of the United States under the False Claims Act (FCA) (31 U.S.C. Sec. 3729 et seq.) in April 2009. The United States did not intervene. After Foglia filed an amended complaint, the district court granted Renal’s motion for judgment on the pleadings and Foglia filed a second amended complaint (SAC).

Foglia’s SAC claimed that Renal violated the FCA by falsely certifying that it was in compliance with state regulations regarding quality of care, by falsely submitting claims for reimbursement for the drug Zemplar®, and by reusing single-use Zemplar vials. The district court granted Renal’s motion to dismiss the SAC under Federal Rule of Civil Procedure 12(b)(6) because it determined that Foglia had failed to state his claim with the heightened level of particularity required by Federal Rule of Civil Procedure 9(b) for fraud claims. Foglia appealed the dismissal of his claim in relation to over-billing on Zemplar. A retaliation claim was not considered by the district court and was not relevant to the appeal. Foglia also sued under the New Jersey False Claims Act for the same violations and under the New Jersey Conscientious Employee Protection Act. However, because Renal did not move to dismiss Foglia’s state law claims, the district court did not exercise supplemental jurisdiction over those claims and dismissed them without prejudice. The Third Circuit therefore did not consider them in this appeal.

Rule 9(b) pleadings. According to the Third Circuit, to satisfy the pleading with “particularity” requirement of Rule 9(b) in the context of a claim under the FCA, the Fourth, Sixth, Eighth, and Eleventh Circuits have held that a plaintiff must show “representative samples” of the alleged fraudulent conduct, specifying the time, place, and content of the acts and the identity of the actors. The First, Fifth, and Ninth Circuits, however, have held that it is sufficient for a plaintiff to allege “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” The Third Circuit found that it has never “held that a plaintiff must identify a specific claim for payment at the pleading stage of the case to state a claim for relief.” To do so, according to the court, would be “one small step shy of requiring production of actual documentation with the complaint, a level of proof not demanded to win at trial and significantly more than any federal pleading rule contemplates.”

Analysis. Having adopted the relaxed pleading standard of the First, Fifth, and Ninth Circuits, the Third Circuit then analyzed whether Foglia’s allegations satisfied the Rule 9 requirements. Foglia’s complaint alleged that Renal over-charged the government for Zemplar; that Zemplar comes in vials of three sizes, with Renal only using 5 microgram (mcg) vials; that the vials were originally designed to be single-use only, with any unused medicine discarded; that when Foglia used the Zemplar vials in this single-use fashion, Medicare was charged by Renal for the full content of the vial, no matter how much of the content was actually used; and that Renal then harvested unused portions from vials and used this harvested amount on other patients.

The Third Circuit noted that HHS originally required that Zemplar be used in a single use fashion, but in September of 2002, HHS issued a memorandum allowing for the multiple use of individual Zemplar vials and other injectable medicines if six conditions were followed, so as to ensure the safe use of the medicine. According to Foglia, however, Renal “continued multiple use of single use vials of injectable medications such as Zemplar consistently without regard to complying with the conditions set forth by HHS.” Because it was at the complaint stage, the Third Circuit found that it must accept as true all allegations in the complaint, and therefore accepted the allegation that Renal did not, in fact, comply with the required recommendations by HHS for the safe re-use of Zemplar vials. This alleged failure to follow HHS recommendations, however, only provided Renal with an opportunity to commit fraud. Sufficient facts to establish “a plausible ground for relief” still needed to be alleged, according to the court.

According to Foglia’s SAC, because Renal orders Zemplar in only 5 mcg vials, it would have needed 50 vials of Zemplar per day for the number of patients actually seen each day, if the 5 mcg vials were used in the single use fashion. Foglia contends that because renal was using only 29-35 vials of Zemplar per day, it must have been harvesting unused Zemplar from previously used vials.

Conclusion. The Third Circuit concluded that at the pleading stage it must assume that Foglia is correct in alleging that Renal did not follow the HHS procedures that it should have followed if it was to harvest the “extra” Zemplar from the used vials. The court recognized that while this hypothesis may ultimately be proved incorrect, it gave Renal notice of the charges against it, as required by Rule 9(b). The court felt that its decision was further supported by the fact that only Renal has access to the billing records that could prove the claim one way or another. As such, the court found that Foglia provided sufficient facts to meet the requirements under Rule 9(b), and has therefore also met the requirements to state a claim under 12(b)(6).

The case number is 12-4050.

Attorneys: Ross Begelman (Begelman, Orlow & Melletz) for Thomas Foglia. R. James Kravitz (Fox Rothschild) for Renal Ventures Management.

Companies: Renal Ventures Management

MainStory: TopStory QuiTamNews CMSNews BillingNews DrugBiologicalNews ESRDNews FCANews FraudNews LabelingNews PaymentNews PrescriptionDrugNews ProgramIntegrityNews QualityNews DelawareNews NewJerseyNews PennsylvaniaNews

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