Article by Jennifer Doherty – Full Article here.
Whistleblowers and contractors have struggled for more than a decade with inconsistent standards across the country for bringing forward fraud allegations, but the U.S. Supreme Court’s recent interest in a case that appears to overcome deficiencies in previous petitions could bring clarity.
Federal appeals courts are almost evenly divided along a spectrum from more to less rigid requirements for whistleblowers to survive defendants’ early attempts to escape their claims under Federal Rule of Civil Procedure 9(b).
The varying standards have survived multiple petitions to the high court — at least one during almost every term between 2014 and 2019, and now a whistleblower’s petition arising from the hard-line Eleventh Circuit could finally elicit some answers from the justices, according to experts watching the case.
Rule 9(b) obligates the party alleging fraud to “state with particularity the circumstances constituting fraud or mistake” at the pleading stage. Since at least 2002, judges, including those within the same circuit, have interpreted “particularity” to confer different burdens on whistleblowers.
On Tuesday, the justices asked Georgia-based Bethany Hospice and Palliative Care LLC to respond to a petition from the estate of Debbie Helmly and Jolie Johnson, former employees who say the hospice paid health care providers kickbacks to refer to them terminally ill patients and then billed the government for the ill-gotten patients, many of whom were on Medicaid or Medicare.
The petition asks the high court to determine whether Rule 9(b) requires whistleblowers to present not only the particulars of an alleged fraud scheme but specific claims for payment as well — the standard currently applied in the Eleventh Circuit.
In circuits considered more favorable for whistleblowers, courts require detailed fraud allegations coupled with reliable indicators that the government was knowingly billed for goods or services that weren’t provided as promised.
“The stakes are enormous because [a Supreme Court ruling] would, in fact, give clarity that would be certainly helpful to every practitioner, but then we’d also have an idea of, ‘OK, where can we expect the law to go? And would we expect there to be some sort of statutory change after this?'” said Jacob D. Mahle, a partner at Vorys Sater Seymour and Pease LLP who represents corporate clients in False Claims Act disputes.
The Rule 9(b) petitions before the high court in recent years were mostly rejected without an explanation, even after justices requested responses to some of them.
In one case in which they showed interest in 2014, United States ex rel. Noah Nathan v. Takeda Pharmaceuticals North America Inc. et al., then-Solicitor General Donald B. Verrilli Jr. may have dissuaded them from picking up the case by stating that while some division lingered, circuits that required whistleblowers to include specific billing information with their fraud claims “may have retreated from a rigid application of that rule.”
But courts have continued to stick to precedent requiring billing details at the pleading stage. On
Wednesday, the Sixth Circuit dismissed an Ohio nurse’s appeal, stating that even though she detailed specific instances in which a health care contractor allegedly modified or “upcoded” Medicare patient assessments to overcharge the government, she failed to provide the date or amount of a single falsified claim for payment.
Jennifer Verkamp, founding partner at Morgan Verkamp LLC, said that although most circuits have started recognizing the practical limits of requiring billing details, the split is getting wider.
“The widening gulf between the circuits creates a gap in the FCA’s enforcement mechanism because in scenarios where the billing is very complex, such as in the military contracting environments or large national health care contractors, the Eleventh Circuit’s demand for actual claims can create an effective immunity for fraud,” Verkamp told Law360, echoing Verrilli’s position that requiring whistleblowers to show up with literal receipts “is unsupported by Rule 9(b) and undermines the FCA’s effectiveness as a tool to combat fraud against the United States.”
Verrilli also waved the justices off the Takeda Pharmaceuticals case, saying Nathan’s claims that the company was inducing doctors to prescribe an acid reflux medication for off-label uses, including to patients whose treatments were billed to Medicaid and Medicare, failed not just on Rule 9(b)’s specificity grounds, but also under a separate plausibility standard.
Johnson and Helmly’s case does not appear to suffer the same shortcoming as the Nathan case. Johnson petitioned the Supreme Court after the Eleventh Circuit tossed the case on particularity grounds alone.
According to Mahle, Rule 9(b) is a vital tool for the defense bar invested in preventing meritless fraud claims that have the potential to destroy reputations from advancing into resource-draining discovery.
Another active FCA appeal in the Seventh Circuit, United States and the State of Illinois ex rel. Thomas Prose v. Molina Healthcare of Illinois et al. 
, may present a more compelling study of the bounds of Rule 9(b), Mahle said.
“Molina involves a more complicated set of issues, some of which touch upon Escobar and the reach of the FCA statute itself,” he said, referencing the high court’s unanimous 2016 ruling in Universal Health Services Inc. v. Escobar that clarified what kind of misrepresentations qualify as material in the government’s decision to pay a claim under the FCA. “It may not make its way to the Supreme Court, but I would expect its reasoning to be touted and contested in many other cases.”
A split Seventh Circuit panel in August revived the suit against Molina Healthcare, in which whistleblower Thomas Prose alleged Molina continued to bill Medicaid for skilled nursing services that he provided through his company General Medicine PC for approximately two years after their contract ended.
Prose’s case met the Seventh Circuit’s reasonable inference standard to survive Molina’s motion to dismiss under Rule 9(b), according to the panel majority, which credited him for providing “numerous details indicating when, where, how and to whom allegedly false representations were made.”
“He hardly can be blamed for not having information that exists only in Molina’s files,” Circuit Judge Diane P. Wood wrote.
However, Chief Circuit Judge Diane S. Sykes issued a strongly worded dissent, asserting her colleagues’ position broke with the circuit’s own precedent on Rule 9(b) and conflicted with the high court’s Escobar ruling. Molina went on to raise similar arguments in a petition for en banc review last month.
If Molina goes to the Supreme Court, the judges’ differing perspectives may lead justices to determine its facts are too “muddled” to serve as an appropriate vehicle for a 9(b) ruling, according to Arnold & Porter partner Craig D. Margolis.
But the Seventh Circuit’s quarrel over the rule’s nuances could also pique their interest more than the per curiam order in Johnson’s appeal, he said, pointing to the high court’s willingness to take on other FCA questions, such as materiality in Escobar.
“This has percolated pretty well, and we still have a fairly sharp split,” Margolis said.
The cases are Johnson et al. v. Bethany Hospice and Palliative Care LLC, case number 21-462, at the U.S. Supreme Court, and United States and the State of Illinois ex rel. Thomas Prose v. Molina Healthcare of Illinois et al., case number 20-2243, in the U.S. Court of Appeals for the Seventh Circuit.
–Additional reporting by Daniel Wilson and Brett Barrouquere. Editing by Jay Jackson Jr.
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