In the

United States Court of Appeals

For the Seventh Circuit

No. 09-2167

UNITED STATES OF AMERICA,

on the relation of Kelly Baltazar,

Plaintiff-Appellant,

v.

LILLIAN S. WARDEN and ADVANCED

HEALTHCARE ASSOCIATES, S.C.,

Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 07 C 4107—Charles R. Norgle, Judge.

ARGUED OCTOBER 27, 2010—DECIDED FEBRUARY 18, 2011

Before EASTERBROOK, Chief Judge, and KANNE and

WOOD, Circuit Judges.

EASTERBROOK, Chief Judge. In this qui tam proceeding

under the False Claims Act, 31 U.S.C. §§ 3729–33, Kelly

Baltazar contends that her former employer submitted

fraudulent bills to the Medicare and Medicaid programs.

Baltazar, a chiropractor, worked for four months in

2007 at Advanced Healthcare Associates. According to
2 No. 09-2167

Baltazar’s complaint, she noticed that the firm’s staff

added to her billing slips services that had not been

rendered and changed the codes for services that had

been performed. (This latter practice, designed to

depict the procedure as one that fetches higher reimbursement, goes by the name “upcoding.”) After doing

a little digging, Baltazar concluded that this was

normal practice at the firm and that a substantial

fraction of all bills submitted to the federal government

had been fraudulently inflated on the instructions of

Lillian Warden, the firm’s owner. Baltazar quit and filed

this suit.

Qui tam suits under the False Claims Act cannot be

“based upon the public disclosure of allegations or transactions” in public agencies’ reports revealing the fraud,

unless the relator is “an original source of the information.” 31 U.S.C. §3730(e)(4)(A). See Graham County Soil &

Water Conservation District v. United States ex rel. Wilson,

130 S. Ct. 1396 (2010). (Section 3730(e)(4) was amended

in 2010, but Graham County concludes that the change

is not retroactive. 130 S. Ct. at 1400 n.1. We quote from

the version in force in 2007.) Invoking this subsection,

defendants asked the district court to dismiss the suit.

They observed that several governmental reports have

documented false claims submitted to the Medicare

and Medicaid programs. See, e.g., General Accounting

Office, Health Care Fraud: Characteristics, Sanctions, and

Prevention (1987); General Accounting Office, Medicare

Improper Payments: While Enhancements Hold Promise for

Measuring Potential Fraud and Abuse, Challenges Remain

(2000); Department of Health and Human Services Office
No. 09-2167 3

of Inspector General, Chiropractic Services in the Medicare

Program: Payment Vulnerability Analysis (2005).

The district judge, particularly impressed by the 2005

Report, granted the motion and dismissed the suit. The

2005 Report concluded that 57% of chiropractors’ claims

(in a sample of 400) were for services not covered by the

Medicare program, and another 16% were for covered

services that had been miscoded. This establishes such

prevalent fraud, the judge thought, that it is unnecessary to give private relators a piece of the action in order

to locate wrongdoers. Instead the United States should

file the suits and receive the entire recovery. The court

briefly considered the possibility that Baltazar should

be treated as an original source of the information that

led to this suit, but the judge observed that Baltazar

had not supplied any of the information underlying the

1987, 2000, or 2005 Reports and therefore is not the

“original source” of the disclosures that the judge had

found dispositive.

Section 3730(e)(4)(A) poses three questions: (i) are

“disclosures of allegations or transactions” revealing the

fraud in the public domain?; (ii) is the suit “based upon”

those disclosures?; and (iii) if so, is the relator nonetheless “an original source of the information”? The

district court resolved all three against Baltazar. Her suit

must be reinstated if she prevails on any one. We concentrate on (ii) and discuss (i) and (iii) only briefly.

Defendants pay scant attention to the statutory

language, which speaks of “disclosures of allegations or

transactions” that the suit is “based upon”. There have
4 No. 09-2167

assuredly been many allegations of unwarranted claims

by health care providers in general, and chiropractors

in particular. Yet although bills for services never performed likely reflect fraud, miscoded bills need not;

the errors may have been caused by negligence rather

than fraud (which means intentional deceit). What is

more, none of the materials on which defendants

rely mentions Lillian Warden or Advanced Healthcare

Associates (or, indeed, any other provider). A statement

such as “half of all chiropractors’ claims are bogus” does

not reveal which half and therefore does not permit suit

against any particular medical provider. It takes a

provider-by-provider investigation to locate the wrongdoers. Baltazar contends in this suit that defendants

are among the providers who have submitted intentionally false claims. That allegation is not based on

public reports; it is based on Baltazar’s knowledge

about defendants’ practices. By placing defendants

among the perpetrators of fraud, Baltazar performed the

service for which the False Claims Act extends the

prospect of reward (if the allegations are correct).

Other courts of appeals have concluded that reports

documenting a significant rate of false claims by an

industry as a whole—without attributing fraud to particular firms—do not prevent a qui tam suit against

any particular member of that industry. See, e.g., In re

Natural Gas Royalties Qui Tam Litigation, 562 F.3d 1032,

1042–43 (10th Cir. 2009) (dictum); United States v. Alcan

Electrical & Engineering, Inc., 197 F.3d 1014, 1019 (9th Cir.

1999) (dictum); United States ex rel. Findley v. FPC–Boron

Employees’ Club, 105 F.3d 675, 687 (D.C. Cir. 1997) (dictum);
No. 09-2167 5

United States ex rel. Fine v. Sandia Corp., 70 F.3d 569, 572

(10th Cir. 1995) (dictum); Cooper v. Blue Cross & Blue

Shield of Florida, Inc., 19 F.3d 562, 566 & n.7 (11th Cir.

1994) (holding, and about asserted Medicare fraud in

particular). The United States could not file suit against

a chiropractor, tender copies of the 1987, 2000, and

2005 Reports, and rest its case. The chiropractor would

prevail summarily, because these reports do not so

much as hint that any particular provider has submitted fraudulent bills. It follows that these reports do

not disclose the allegations or transactions on which

a suit such as Baltazar’s is based.

This would be clear if the dispute concerned the

statute of limitations. No one would contend that the

1987, 2000, or 2005 Reports “disclosed” any given provider’s fraud and thus started the period of limitations

for suit by the United States; only information that a

particular provider had committed a particular fraud

would do that. Similarly a report by the SEC revealing

widespread securities fraud would not start the time to

sue every issuer for every fraud; again that requires a

person-specific disclosure that establishes not only

falsity but also intent to deceive, which is an element

of fraud. See Merck & Co. v. Reynolds, 130 S. Ct. 1784,

1796 (2010). If it takes specific information to start the

period of limitations, it also takes specific information

to conclude that a suit against a particular provider

was “based on” the public report, rather than being

based on other information about that provider. This

undoubtedly explains why the Department of Health

and Human Services did not stop, or reduce, payments
6 No. 09-2167

to any chiropractor based on the 2005 Report. Extra

information is essential—information of the kind that

Baltazar has provided.

As far as we can tell, no court of appeals supports

the view that a report documenting widespread false

claims, but not attributing them to anyone in particular,

blocks qui tam litigation against every member of the

entire industry. The closest is our own decision in

United States ex rel. Gear v. Emergency Medical Associates

of Illinois, Inc., 436 F.3d 726 (7th Cir. 2006). A GAO report

issued in 1997 concluded that the nation’s 125 teaching

hospitals regularly billed Medicare for medical services

performed by residents (recent medical graduates still

in training). Senior residents are allowed to act as

attending physicians and, when they do, their services

are compensable; but when they perform services as

part of their training programs, compensation to the

hospital comes through a grant for educational expenses

rather than a per-service fee. After the GAO concluded

that hospitals regularly disregarded the distinction between services that residents performed in the educational program and services that they performed as

attending physicians, the Department of Health and

Human Services began to audit all 125 of the nation’s

medical schools and their associated hospitals. Many

settlements were reached and publicly announced. While

the program of audits was under way, Gear filed a

qui tam action against one medical school and its affiliates.

We held that this action was barred by §3730(e)(4)(A)

for two principal reasons: first, the GAO had concluded

that the practice it described was normal, if not universal,
No. 09-2167 7

among teaching hospitals; second, Gear was unable to

describe any other facts underlying the suit, which therefore must have been “based on” the published report. (If

it was not based on the GAO’s work, and Gear had not

done any independent investigation, then its filing

violated Fed. R. Civ. P. 11(b)(3).)

Defendants rely heavily on Gear, but to say that

a report identifying a uniform practice activates

§3730(a)(4)(A) does not imply anything about the effect

of a report disclosing that some but not all firms use

a practice. Once the GAO concluded that teaching

hospitals routinely disregarded the required distinction

between work in the teaching program and work as an

attending physician, the only extra fact required was

that the defendant is a medical school or teaching hospital. That’s public knowledge. Gear’s suit did not

add one jot to the agency’s fund of information; the

panel rightly called it “parasitic.” 436 F.3d at 728.

Baltazar’s suit, by contrast, supplied vital facts that were

not in the public domain: that Advanced Healthcare

Associates not only was submitting false claims but

also was submitting them knowing them to be false,

and thus was committing fraud. Baltazar’s suit is “based

on” those defendant-specific facts, not on the public

information that false or mistaken claims are common.

We concluded in Glaser v. Wound Care Consultants, Inc., 570

F.3d 907, 920 (7th Cir. 2009), that a qui tam suit is “based

on” a published report if its allegations are “substantially

similar” to the report’s. (The 2010 amendment added

this rule to the statutory text.) A complaint “substantially

similar” to the published reports would be dismissed
8 No. 09-2167

summarily; Baltazar’s complaint goes beyond those

reports.

Our conclusion that Baltazar’s suit is “based on” her own

knowledge rather than the published reports makes it

unnecessary to decide whether those reports disclosed

the “allegations or transactions” underlying the suit. That

is a more difficult question, because the answer depends

on whether we understand the reports to allege widespread fraud (that is, intentional deceit) or only errors:

fraud is actionable under the False Claims Act, while

negligent errors are not. It is similarly unnecessary to

decide whether Baltazar qualifies for the original-source

exception. If the complaint is accurate, Baltazar was the

original source of the information that defendants committed fraud. The question is whether the relator is an

original source of the allegations in the complaint and

not, as the district court supposed, whether the relator

is the source of the information in the published reports. “ ‘[O]riginal source’ means an individual who has

direct and independent knowledge of the information on

which the allegations are based”. 31 U.S.C. §3730(e)(4)(B).

See generally Rockwell International Corp. v. United States,

549 U.S. 457 (2007).

Being an original source of the allegations is not

enough to take advantage of the exception. An original

source also must have “voluntarily provided the information to the Government before filing an action

under this section”. §3730(e)(4)(B). Baltazar says that she

complied with this requirement by alerting an Assistant

United States Attorney that a False Claims Act suit was
No. 09-2167 9

soon to be filed. Yet Baltazar’s letter narrates the complaint’s conclusions without specifics. A relator need

not have seen the claims submitted to the federal government, see United States ex rel. Lusby v. Rolls-Royce

Corp., 570 F.3d 849 (7th Cir. 2009), but must know

enough to make fraud a likely explanation for any

overbilling, id. at 854—and under §3730(e)(4)(B) must

furnish that information to the United States, not just

assert that there is a basis to be revealed eventually. We

need not decide whether the letter to the AUSA suffices.

The judgment of the district court is reversed, and the

case is remanded for further proceedings consistent

with this opinion.

2-18-11