1

United States Court of Appeals,

Fifth Circuit.

No. 96-40868.

UNITED STATES ex rel. James M. THOMPSON, Plaintiff-Appellant,

v.

COLUMBIA/HCA HEALTHCARE

CORPORATION, et al.,

Defendants-Appellees.

Oct. 23, 1997.

Appeal from the United States District Court for the Southern

District of Texas.

Before REYNALDO G. GARZA, HIGGINBOTHAM and DAVIS, Circuit Judges.

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 proceedings.

I.

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
 

1Thompson 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. 

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rendered in violation of the Medicare anti-kickback statute,1 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
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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 services.

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.

II.

We review a district court's ruling on a motion to dismiss
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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 Government ...

 * * * * * *

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
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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) (West

1992).

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
 

2The 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. 

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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 Act2 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 AntiPinkerton 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
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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 and regulations.

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
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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
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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
 

3The district court declined to grant Thompson leave to amend

his complaint to conform with the requirements of Rule 9(b) and

entered judgment 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 to

jurisdiction). 

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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).3

III.

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
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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.