|||U.S. Court of Appeals, Fifth Circuit
|||125 F.3d 899, 1997.C05.62732 <http://www.versuslaw.com>
|||October 23, 1997
|||UNITED STATES EX REL. JAMES M. THOMPSON, PLAINTIFF-APPELLANT,
COLUMBIA/HCA HEALTHCARE CORPORATION, ET AL., DEFENDANTS-APPELLEES.
|||Appeal from the United States District Court for the Southern District
|||Before Reynaldo G. Garza, Higginbotham and Davis, Circuit Judges
|||The opinion of the court was delivered by: W. Eugene Davis, Circuit Judge:
|||Relator, James M. Thompson, M.D., a physician in private practice in Corpus
Christi, Texas, brought this qui tam action pursuant to the federal False
Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., against defendants
Columbia/HCA Healthcare Corporation and certain affiliated entities (collectively,
"Columbia/HCA") and Corpus Christi Bay Area Surgery, Ltd. The
district court dismissed Thompson's complaint for failure to state a claim
under Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons
set out below, we affirm in part, vacate in part, and remand for further
|||In his second amended complaint, at issue in this appeal, Thompson alleged
that defendants submitted false or fraudulent claims under the FCA by submitting
Medicare claims for services rendered in violation of the Medicare anti-kickback
42 U.S.C. § 1320a-7b, and two versions of a self-referral statute, 42 U.S.C.
§ 1395nn, commonly known as the "Stark" laws after the statute's
congressional sponsor, United States Representative Fortney H. "Pete"
Stark. He further alleged that defendants made false statements to obtain
payment of false or fraudulent claims in violation of the FCA by falsely
certifying in annual cost reports that the Medicare services identified
therein were provided in compliance with the laws and regulations regarding
the provision of healthcare services. Finally, Thompson alleged that defendants
violated the FCA by submitting Medicare claims for medically unnecessary
|||The district court granted defendants' motions to dismiss Thompson's second
amended complaint for failure to state a claim. The court held that Thompson's
allegations that defendants submitted Medicare claims for services rendered
in violation of the anti-kickback statute and the Stark laws were insufficient,
by themselves, to state a claim for relief under the FCA. The court also
held that Thompson's allegations that defendants falsely certified in annual
cost reports that the Medicare services identified therein were provided
in compliance with the laws and regulations regarding the provision of healthcare
services were insufficient to state a claim for release under the FCA. The
court concluded that these allegations were insufficient because Thompson
had not alleged that defendants submitted false certifications to obtain
payment of false or fraudulent claims, i.e., claims or claim amounts that
the government would not have paid but for the alleged fraud. Finally, the
court held that Thompson's allegations that defendants submitted claims
for medically unnecessary services were insufficient to state a claim because
he failed to plead his allegations with particularity as required by Rule
9(b) of the Federal Rules of Civil Procedure.
|||We review a district court's ruling on a motion to dismiss for failure
to state a claim de novo. Morin v. Caire, 77 F.3d 116, 120 (5th Cir.1996).
A district court may not dismiss a complaint for failure to state a claim
unless it appears beyond doubt that the plaintiff can prove no set of facts
that would entitle him to relief. Lowrey v. Texas A & M Univ. Sys.,
117 F.3d 242, 247 (5th Cir.1997). A dismissal for failure to plead fraud
with particularity under Rule 9(b) is treated as a dismissal for failure
to state a claim under Rule 12(b)(6). Lovelace v. Software Spectrum, Inc.,
78 F.3d 1015, 1017 (5th Cir.1996).
|||The FCA provides, in relevant part:
|||(a) Liability for certain acts.-Any person who-
|||(1) knowingly presents, or causes to be presented, to an officer or employee
of the United States Government ... a false or fraudulent claim for payment
or approval ...; [or]
|||(2) knowingly makes, uses, or causes to be made or used, a false record
or statement to get a false or fraudulent claim paid or approved by the
|||is liable to the United States Government for a civil penalty of not less
than $5,000 and not more than $10,000, plus 3 times the amount of damages
which the Government sustains because of the act of that person....
|||31 U.S.C. § 3729(a)(1), (2).
|||A. Thompson's Claims Predicated on Statutory Violations
|||Thompson alleged that defendants violated the FCA by submitting Medicare
claims for services rendered in violation of the Medicare anti-kickback
statute and the Stark laws. The Medicare anti-kickback statute prohibits
(1) the solicitation or receipt of remuneration in return for referrals
of Medicare patients, and (2) the offer or payment of remuneration to induce
such referrals. 42 U.S.C. § 1320a-7b(b).
|||The first Stark law, commonly known as "Stark I," was in effect
between January 1, 1992 and December 31, 1994. Stark I prohibited physicians
from referring Medicare patients to an entity for clinical laboratory services
if the referring physician had a nonexempt "financial relationship"
with such entity. 42 U.S.C.A. 1395nn(a)(1)(A) (West 1992). Stark I also
prohibited the entity from presenting or causing to be presented a Medicare
claim for services furnished pursuant to a prohibited referral. 42 U.S.C.A.
1395nn(a)(1)(B) (West 1992). With certain exceptions, "financial relationship"
was defined as (1) an ownership or investment interest in the entity, or
(2) a compensation arrangement with the entity. 42 U.S.C.A. § 1395nn(a)(2)
(West 1992). Stark I expressly prohibited payment of Medicare claims for
services rendered in violation of its provisions. 42 U.S.C.A. § 1395nn(g)(1)
|||Stark II became effective January 1, 1995, and prohibits physicians from
referring Medicare patients to an entity for certain "designated health
services," including inpatient and outpatient hospital services, if
the referring physician has a nonexempt "financial relationship"
with such entity. 42 U.S.C. § 1395nn(a)(1), (h)(6). Like its predecessor,
Stark II provides that the entity may not present or cause to be presented
a Medicare claim for services furnished pursuant to a prohibited referral,
and expressly prohibits payment of Medicare claims for services rendered
in violation of its provisions. 42 U.S.C. 1395nn(a)(1), (g)(1).
|||We agree with the district court that claims for services rendered in
violation of a statute do not necessarily constitute false or fraudulent
claims under the FCA. In United States ex rel. Weinberger v. Equifax, Inc.,
557 F.2d 456, 460-61 (5th Cir.1977), we held that claims submitted by a
government contractor who allegedly violated the Anti-Pinkerton Act *fn2
did not necessarily constitute false or fraudulent claims under the FCA.
In so holding, we observed that the FCA is not an enforcement device for
the Anti-Pinkerton Act. We recognized, however, that the FCA "interdicts
material misrepresentations made to qualify for government privileges or
services." Id. at 461.
|||The Ninth Circuit has taken a similar approach concerning the scope of
the FCA. In United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th
Cir.1996), the court held that "[v]iolations of laws, rules, or regulations
alone do not create a cause of action under the FCA." The court concluded,
however, that false certifications of compliance create liability under
the FCA when certification is a prerequisite to obtaining a government benefit.
|||Thus, where the government has conditioned payment of a claim upon a claimant's
certification of compliance with, for example, a statute or regulation,
a claimant submits a false or fraudulent claim when he or she falsely certifies
compliance with that statute or regulation.
|||Thompson alleged that, as a condition of their participation in the Medicare
program, defendants were required to certify in annual cost reports that
the services identified therein were provided in compliance with the laws
and regulations regarding the provision of healthcare services. He further
alleged that defendants falsely certified that the services identified in
their annual cost reports were provided in compliance with such laws and
regulations. Thus, Thompson fairly alleged that the government's payment
of Medicare claims is conditioned upon certification of compliance with
the laws and regulations regarding the provision of healthcare services,
including the anti-kickback statute and the Stark laws, and that defendants
submitted false claims by falsely certifying that the services identified
in their annual cost reports were rendered in compliance with such laws
|||Columbia/HCA argues that the certifications of compliance contained in
annual cost reports are not a prerequisite to payment of Medicare claims
because Medicare claims are submitted for payment shortly after services
have been rendered and well before annual cost reports are filed. Thompson
contends that such certifications are indeed a prerequisite to payment because
the retention of any payment received prior to the submission of an annual
cost report is conditioned on the certification of compliance contained
therein. We are unable to determine from the record before us whether, or
to what extent, payment for services identified in defendants' annual cost
reports was conditioned on defendants' certifications of compliance. We
therefore deny defendants' 12(b)(6) motions as they relate to this issue
and remand to the district court for further factual development.
|||Thompson also contends that, in any event, claims for services rendered
in violation of the Stark laws are, in and of themselves, false or fraudulent
claims under the FCA. Thompson bases his contention on provisions in the
Stark laws expressly prohibiting payment for services rendered in violation
of their terms. In holding that Thompson failed to allege a violation of
the FCA, the district court did not specifically consider this contention.
Because the district court must determine whether the government's payment
of defendants' Medicare claims was conditioned on defendants' certifications
of compliance in their annual cost reports, we will give the district court
the opportunity to consider this argument on remand as well.
|||B. Thompson's False Statement Claims
|||As discussed above, the FCA imposes liability not only on any person who
submits a false or fraudulent claim for payment, but also on any person
who knowingly makes a false statement in order to get a false or fraudulent
claim paid. See 31 U.S.C. § 3729(a)(2). If the district court determines
on remand that claims for services rendered in violation of the Stark laws
are, in and of themselves, false or fraudulent claims under the FCA, then
the court should also consider whether Thompson has sufficiently alleged
that defendants committed separate and independent violations of the FCA
by making false statements to obtain payment of false or fraudulent claims.
|||C. Thompson's Claims Based on Medically Unnecessary Services
|||Thompson alleged that "[i]n reasonable probability, based on statistical
studies performed by the Government and others" approximately 40 percent
of claims submitted by defendants for services rendered in violation of
the anti-kickback statute or the Stark laws were for services that were
not medically necessary. Thompson made no further allegations in support
of his claim. The district court held that Thompson failed to satisfy Rule
9(b) of the Federal Rules of Civil Procedure, which requires that all averments
of fraud be pled with particularity. The court concluded that Thompson failed
to meet the pleading requirements of Rule 9(b) because he did not identify
any specific physicians who referred patients for medically unnecessary
services or any specific claims for medically unnecessary services that
were submitted by defendants.
|||Claims brought under the FCA must comply with Rule 9(b). Gold v. Morrison-Knudsen
Co., 68 F.3d 1475, 1476-77 (2d Cir.1995), cert. denied, --- U.S. ----, 116
S.Ct. 1836, 134 L.Ed.2d 939 (1996). At a minimum, Rule 9(b) requires that
a plaintiff set forth the "who, what, when, where, and how" of
the alleged fraud. Williams v. WMX Tech., Inc., 112 F.3d 175, 179 (5th Cir.1997).
Thompson argues, however, that the pleading requirements of Rule 9(b) are
relaxed where, as here, the facts relating to the alleged fraud are peculiarly
within the perpetrator's knowledge. Although we have held that fraud may
be pled on information and belief under such circumstances, we have also
warned that this exception "must not be mistaken for license to base
claims of fraud on speculation and conclusory allegations." See Tuchman
v. DSC Communications Corp., 14 F.3d 1061, 1068 (5th Cir.1994). In addition,
even where allegations are based on information and belief, the complaint
must set forth a factual basis for such belief. Kowal v. MCI Communications
Corp., 16 F.3d 1271, 1279 n. 3 (D.C.Cir.1994); Neubronner v. Milken, 6 F.3d
666, 672 (9th Cir.1993).
|||In his complaint, Thompson provided no factual basis for his belief that
defendants submitted claims for medically unnecessary services other than
his reference to statistical studies. There is no indication, however, that
these studies directly implicate defendants. Thompson's allegations, therefore,
amount to nothing more than speculation, and thus fail to satisfy Rule 9(b).
|||Defendants ask us to affirm parts of the district court's order of dismissal
on grounds raised but not considered below. Although we may consider alternative
grounds for upholding the district court's decision, Henderson v. Century
Fin. Co., Inc., 577 F.2d 997, 1002 n. 5 (5th Cir.1978), we decline to do
so in this case.
|||Accordingly, for the reasons set out above, we affirm the district court's
order to the extent it dismisses Thompson's claims based on his allegations
that defendants submitted claims for medically unnecessary services. We
vacate the remainder of the order and remand for further proceedings consistent
with this opinion.
|||AFFIRMED in part; VACATED and REMANDED in part.
alleged that defendants violated the Medicare anti-kickback statute by inducing
physicians to refer Medicare patients to Columbia/HCA hospitals in the following
ways: (1) Offering physicians preferential opportunities not available to
the general public to obtain equity interests in Columbia/HCA healthcare
operations through partnership or corporate structure arrangements; (2)
Offering loans or assistance in obtaining loans to physicians to finance
capital investments in equity interests in Columbia/HCA entities; (3) Making
payments disguised as "consultation fees" to physicians in order
to guarantee on a risk-free basis their capital investments in equity interests
in Columbia/HCA entities; (4) Paying physicians "consultation fees,"
"rent" or other monies; (5) Providing physicians with free or
reduced rent for office space near Columbia/HCA hospitals in facilities
owned or operated by Columbia/HCA; (6) Offering physicians free or reduced-rate
vacations and other recreational opportunities; (7) Offering physicians
free or reduced-cost medical training; (8) Providing physicians with income
guarantees; and (9) Granting physicians superior or exclusive rights to
perform procedures in particular fields of practice.
Anti-Pinkerton Act provides: "An individual employed by the Pinkerton
Detective Agency, or similar organization, may not be employed by the Government
of the United States...." 5 U.S.C. § 3108.
district court declined to grant Thompson leave to amend his complaint to
conform with the requirements of Rule 9(b) and entered Judgement in favor
of defendants on all claims against them. Thompson has not challenged the
district court's decision in this regard on appeal, and therefore we do
not review it. See United States v. Bigler, 817 F.2d 1139, 1140 (5th Cir.1987)
(court will not consider issues not raised on appeal except those relating
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