## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it

N o. 09

- 2167 U NI T ED S TATE SOF A MERI CA, on th e relati on of K ell y B altazar, Plai nt i f f

-Appe l l ant, v. L I LL I AN S. W ARDEN a nd A DVA NCED H EALT HCARE A S S OC IAT ES, S.C ., D efend a nts-A pp ellees

.

A pp eal from the United S t ates Di strictC our t fo r the N o rthernDi stricto f Illino is, Eas tern Div isi on. No . 07 C4107

— Ch arl es R. N orgle, Ju dge

. A RG UE D O CT OB ER 27, 2010

— D ECI DE D F EB RU AR Y 18, 2011

Befo re E A S T E RB R OO K, Chi e f Judg e, a nd K A NNE and W OO D , C ircu it Judges . E A S T E RB R OO K, Chi e

f Judg e . In thi s q uit am pr o ce eding u n d er th e F als e C laim s A c t, 3 1 U .S.C . §§ 3 72 9– 33 , K elly Balt azarco ntends that herf or m erem plo yersubm i tte d fra ud ule nt bi l l s t o the M edi car e a nd M edi cai d progr am s. B alt az ar , a ch irop ra c to r, w or ke d for fou r m o n t h s in 2007atA dvanced H eal thcar e Associ ate s. A ccordi ng to2 N o. 09

- 2167 B altazar’s com p lai nt, she n ot ice d that the fir m ’s staff add ed to herbi l l i ng sl i ps ser vi ces that had n ot been re nd er ed and changed t h e c od es f orse rv i ces that had been perf or m ed. (T hi s l att erprac ti ce, desi gned to d e p i c tth e p r o c e d u r e a s o n e th a tfe t c h e s h i g h e r r e i mbur se m en t, g o es b y the na m e “u pco di ng . ”) Af ter do i ng a li ttle di gging, Bal taza r concl ud ed that thi s was nor m alprac ti ce a t the fi rm and th at a s ubstanti al fr ac ti o n o fa l l b i l l s su bmi tt ed to the fede r alg overn m en t had been fra ud ule n tly infl ate d on the i nstr ucti ons of Lil l i an W ar den, the firm ’s ow ner. Bal taza r quitand fi l ed thi s s uit
. Q uit am sui ts und erthe Fal se Clai m s Act cannotbe “bas ed upon the publ i c di scl osur e o fal l ega ti ons ortr ansa c t i o ns ” i n pu b l i c ag enc i e s ’ r e po r t s r e v e a l i ngthe fr a ud , unle ss the r el ato r i s “ an o ri gi nalsource o fthe i nfo rm atio n. ” 3 1 U.S

. C. §373 0( e) ( 4) ( A )

. S ee Grah am Cou n ty Soil & Wat e rCons e r vat i on D i s t r i ctv. U ni t e d S t at e s ex rel. Wi l s on , 130 S. Ct. 13 96 ( 2010 )

. ( Se cti on 3 730( e) ( 4) w as am ended i n 2 01 0, b utGraha m Co untyco ncl ud es th at the c hange i s n ot r etr oac ti ve. 13 0 S

. Ct. at14 00 n. 1. W e quot e fro m the v er si o n in fo r ce i n 2 00 7. ) Inv o k i ngthi s su bs ec ti o n, defe nd ants ask ed the dist ri ct c ourtto di sm i ss the s uit
. They o bser ved thatse ver algo vern m en talr epor ts have d ocu m en ted f alse clai m s su bm itted to the M ed icare an d M edi ca i d pr o g r ams. S ee , e . g., Ge ne r alAcco unt i ng Offi ce, He al t h CareFraud: Charac t e r i s t i cs, Sa nc t i ons, an d Pre ve nti on ( 1987 ) ; Genera l A ccounti ng Offi ce, M edic a re Im prope rPaym e nts : W hi l eEnhan ce m e nts Hol d Pr om i s ef or M easur ing Po te ntial Fraud an d Abuse, Ch alle nges R em a in ( 2000 ) ; Departm ent of H ealth and H um an S er vi ces Offi ceN o. 09

- 2167 3 of In sp e c t or G en er al, C hiro pra ctic S ervic es in the M edic a re P rogram : Pa ym entVulnerabil ity An alysi s ( 2005 ). The dis tr i ct j ud ge, part i cul ar l y i m press ed by the 2 005 Re po r t, g r an te d the mot i o n a nd di smi ss ed th e su i t. The 2 0 0 5 R e p o r t c o n c l u d e d th a t 5 7 % o f c h i r o p r a c t o r s ’ c l a i ms (i n a s ampl e o f4 00 ) wer e f o r s er vi ce s no t co ve r ed bythe M edi care p rogr am , and another 16% were f orco ver ed ser vi ces that had been m i sco ded

. Thi s e stabl i shes such preva l ent fra ud , t h e j ud ge thought, thati t i s unneces sar y t o gi ve pri vate r el ato rs a pie c e ofthe acti on in or der to loc at e w ro n gd oe r s . In st ea d th e U n ite d Sta te s s h ou ld fi le the su its and receive the en t ir e r e cove ry. Th e cou rt b rie fly c on sid er ed th e p os sib ility t h at B alt az ar sh ou ld be t re ate d as a n or i gi nalso urc e ofthe i nfo rm ati on that l e d t o thi s s ui t, b utthe j ud g e o b s e r v e d tha tBa l taza r ha d no t su ppl i ed an y o fthe i nf o r m at i o n un der l y i ngthe 19 87, 2 000, o r 2 00 5 Re po r ts a nd the r efo r e i s no t th e “or i gi nalso urce” o ft h e d i scl osur es that the j ud ge had f ound d i sposi ti ve. Section 3730(e)(4)( A ) p oses th r e e qu estions : ( i) are “di sc l o su r es o fa l l eg at i o ns o r t r an sa ct i o ns ” r ev ea l i ngthe fr au d i n the pub l i c do m ain?; ( i i ) i s th e su i t “b as ed upo n” thos e di scl osur es?; an d (ii i ) i fso , i s the r el ato r noneth el es s “a n o r i g i na l s o ur ce o fthe i nf o r m at i o n” ? The d ist ric t c ou rtres olv ed all th re e a ga in st B alt az ar . H er su it m us t be reinstat ed i fs he pr ev ai l s o n a ny o ne . W e co ncentr ate o n ( i i ) and dis cuss ( i ) and ( i i i ) o nl y b ri efl y. D efend an ts p ay scan t atten tion to the statu tory l anguage , wh i ch speak s o f“di scl osur es ofal l ega tio n s o r tr ansact i ons” that th e suiti s “ base d up on”. There have4 N o. 09

- 2167

a s s u r e d l y b e e n ma n y a l l e g a t i o n s o fu n wa r r a n t e d c l a i ms by h ealth ca re prov iders in gen eral, and chiro p r a c t ors in pa rticular. Y et althou gh bil ls for services nev er pe rf or m ed l i kel y r efl ect fra ud , m i sco ded bill s nee d not; the e rr or s m ay have been caused bynegl i gence r ather th an frau d (w h ich m ea n s in te n tio n al d ec eit ). W h at is m or e, none ofthe m ate ri al s o n w hi ch defendants rely m en tion s L il li an W ard en or A d van ced H ealthc are Associ at es ( o r, i nde ed, a ny o th erpr o vi der )

. A st at ement suc h a s “ ha l f o f a l l c hi r o pr a c t o r s ’ c l a i ms a r e b o g us ” does not re vealwhich half

an d th er efo re d oe s n o t p er m it s u it aga i nst a ny par ti cul arm edi calpro vi der. I t t ake s a provi der-by- provi der invest i gat i on t o loc ate the w ro ngdoer s. Bal taza r conte nd s in thi s s uitthatdefendants ar e amongthe pr o vi der s who have submi tt ed i nt en ti onal l y f al se cl aim s. T hat a l l ega ti on i s no t ba sed o n p u b li c r epor ts; i t i s ba sed o n Bal taza r’ s know l edge about defe nd ants’ prac tice s. By pla ci ng defendants amongthe pe r pet r at o r s o ffr au d, Ba l ta za r perfo r m ed th e se r vi ce f o r whi chthe F al se Cl ai m s A ct ex te nds the p rosp ect of rew ard ( ifthe allegations are correct). Other cour ts ofappeal s hav e co n c luded thatr epor ts d ocum enti ng a si gni fi cant ra te off al se cl ai m s byan in d u st ry as a w h ole

— w it h o ut attribut ing fraud to part i c u l a r fi r ms

— do not preve nt a q uit am sui t a gainst an y p ar tic u l a r m em b er of th at ind u st ry . See , e.g., In re Nat ural Gas Royal t i e s Q uiTam Litigat i on , 56 2 F
. 3d 1032 , 1 0 42 –4 3 (1 0t h C ir. 20 09 ) (d ict u m ); Un i t e d S t a t e s v . Al ca n Ele ct r i ca l & Engi ne e r i ng, Inc . , 197 F.3d 101 4, 1 0 1 9 ( 9th Cir. 19 99 ) (d ict u m ); U ni t e d S t at e s ex r e l

. Fi ndl ey v . FPC–Boron Em pl oye e s ’Cl ub , 105 F. 3d 675, 687 (D

. C

. Cir. 1997) (dictu m );N o. 09

- 2167 5 U nited Sta tes ex rel. F i n e v. Sa nd ia C o rp . , 70 F. 3d 569, 57 2 (10 th C ir. 19 95 ) (d ict u m ); Coope r v. Blue Cros s & B lue Shi e l d of Fl or i da, Inc . , 19 F. 3d 562, 566 & n.7 ( 11th Cir. 19 94 ) (h old in g, an d ab ou t a ss er te d M ed ica re frau d in par t i c ul a r )

. T he Uni t e d S t a t e s c o ul d n o tfi l e s ui ta gai nst a ch i r o pr ac to r, t en derc o pi es o fthe 1 98 7, 2 00 0, a nd 20 05 R ep or ts , an d res t it s c as e. T h e c h i r op ra c to r w ou ld preva i l sum m ar i l y, bec ause these r eports d o not so m uch as hi nt that anypart i cul arpro vi der has submi t t e d fr a ud ule nt bi l l s . I tf o l l o ws tha tthe s e r e po r t s do not disc l ose the al l ega ti ons or tr ansact i ons on w hi ch a s ui ts uc h a s Ba l t a z a r ’ s i s b a s e d. Thi s woul d b e cl ea r i fthe di spu te c o nc erne d the st atut e o fl i m i ta ti o ns . No o ne woul d c o nt en d tha t th e 1987, 20 00, o r 2005 Repor ts “dis cl ose d” any g i ven p rovi der ’ s frau d and thus s ta r te d the pe r i o d o fl i m i ta ti o ns f orsui t bythe U ni ted S tat es; o nl y infor m at ion that a par t i cu l arp r o v i de r h a d c o mm i t t e d a par t i cu l arfr au d woul d do tha t. S i m i l ar l y a r ep ort b y the S EC r ev ea l i ng w i desprea d s ecuri ti es fra ud would not sta rtthe ti m e t o su e everyi ssuerf oreveryfraud ; ag ai n that re quir es a p er so n -sp ec ific d isc los u re th at es ta b lish es n oton ly f al si tyb uta lso int en t to de ce i ve , whi chi s ane l ement offra ud

. S ee M e r c k& C o . v . R ey nol ds , 1 30 S. Ct. 17 84, 17 96 ( 20 10 )

. I fi t ta k es s pec i fi c i nf o r m at i o n t o s ta r t th e peri od ofl i m i tat i ons, it al so tak es speci fi c i nfo rm ati on to concl ud e that a sui t a gainst a part i cul arpro vid er was “ ba se d o n” the pub l i c r epo r t, r athe r tha n b eing b as ed o n oth er info rm at ion ab ou t t h at p ro vid er . Th is und oubte dlyexplains w hy the Departm ent o fH eal th and H u m an S er vi ces did notst op, o r re du ce, paym ents6 N o. 09

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to an y ch iropract or based on th e 2005 R ep ort. E xt ra i nfo rm ati on i s e sse nti al

— i nfo rm ati on of the kind that Ba l t a z a r h a s p r o v i de d. A s fa r as we can te l l, no cour t o fappeal s s up port s the v i ew thata re portdocum enti ng widespre ad f al se cl ai m s, b utno t at tr ibut i ngthe m t o a ny o ne i n pa r ti cul ar, bl ock s q uit am l i ti g at i o n a g ains t ev ery mem be r o fthe en tir e in d u s t r y. T h e c los es t is ou r ow n d ec isio n in U nited Sta tes ex rel. G ear v . E m ergen cy M e dic a l A ssoc ia tes of Il l i nois , Inc . , 436 F.3d 726 (7th Cir. 2006). A GA O report issue d i n 1 99 7 co nc l ude d tha t th e na ti o n’ s 12 5 te ac hi ng hospi tal s r egul ar l y b i l l ed M edi car e form edi calse rv i c es p er for m ed b y re sid en ts (rec en t m ed ica l gra d u at es st ill i n tr ai ni ng)

. S eni orr esi dents ar e a l l ow ed to actas att ending physi ci ans a nd , wh en the y do, thei r ser vices ar e co m pensabl e; but w h en theyper f or m se rv i ces as par t o fthei r t r aini ngpr o g r ams, c o m pen sa ti o n t o the hospi talco m es thro ugh a g ra nt f oreducati onalexpenses ra therthan a per - ser vi ce fee. A fterthe GA O concl ud ed that hospi tal s r egul arly d i sr ega rded the dist i ncti on be

tw een s ervic es that re si dents per f or m ed i n the educati onal prog ra m and s er vi ces that they perf orm ed as at te ndi ngphy si ci an s, the De par tmento fHea l tha nd H um an Services began to au d it al l 125 of the n ation’s m edi ca l s ch o o l s an d the i r a ss o ci at ed ho spi ta l s. M an y se tt lem en ts w e re rea c h ed an d p u b licly an n ou n c ed . W h ile the p r o g r a m o fau di t s wa s u nd e r wa y, Ge a r fi l e d a q uit am acti on aga i nst one m edi cal schoo l and i ts affi l i ate s. We h e l d th a tth i s a c t i o n wa s b a r r e d by § 3 7 3 0 ( e ) ( 4 ) ( A) f ortwo pri nci pal r eas ons: fi rs t, the GA O had concl ud ed th at th e pr ac tic e it d es c rib ed w as n or m al, if no t u n ive rs al,N o. 09

- 2167 7

am ong tea chi ng hos pit als; second, Gearwas unabl e t o de s c r ib e any o therf acts underl yi ng the sui t, wh i ch ther efor e m u st h av e b e en “b as ed on ” t h e p u b lish ed rep or t. (If i t w as not base d o n the GA O’s w or k, and Gear had n ot do ne a ny i nde pen den t i nv es ti g at i on, the n i ts fi l i ng vio lat ed Fe d . R. C iv. P . 11(b )(3) .) Defe nd an ts rel y hea vi l y o n Ge ar, but to saythat a r e po r t i de nt i fyi ng a un ifo rm p ra c tice act i vate s §373 0( a) ( 4) ( A ) doe s n ot i m plyanythi ng ab out the e ffect of a re p or t di scl osing tha t s om e but not al l fi rm s use a pr a c t i c e . O n c e th e G AO c o n c l u d e d th a tt e a c hi ng hos pi t a l s r o ut i ne l y di s r e g a r de d the r e qu i r e d d i s t i nc t i on betwee n wo r k i n the t e a c hing pr o g r a m a nd wo r k a s a n att endin g p h ysi ci an, the onl y e xtra f act re quir ed w as th at th e d efe n d an t is a m e d i c al s c h oo l or te ac h in g h os p ital

. That’ s publ ic know l edge. Gear ’ s s uitdi d not add o ne j o t to the a g en cy ’ s fund o fi nf o r m at i o n; the panel r i ghtl y c al l ed i t “ paras i ti c. ” 4 36 F. 3d at 72 8. B altazar’s suit, by con trast, sup p li ed vitalf acts that w ere not i n th e pu bli c d om ain: th at A d van c e d H ealthc are Asso ci at es no t o nl y was s ubmi tt i ngf al se c l ai m s but al so w as subm i tting the m kno w i ng the m to be f al se, and thus w as com m itt i ng fra ud

. Bal taza r’ s s uiti s “ base d on ” t h os e d efe n d an t-s p ec i f i c f ac ts , no t o n th e p u b lic i n f o r ma t i o n th a tf a l s e o r mi s t a k e n c l a i ms a r e c o m m o n. W e co nc l ude d i n Glas e rv. Woun d CareCons ul t ants , Inc . , 57 0 F. 3d 907, 92 0 (7t h Cir

. 20 09) , thata q uit am sui t i s “ base d on ” a p u b lish ed rep or t if its alleg at ion s a re “s u b st an tia lly si m i l ar ” t o the r epor t’ s. ( The 2010 am endm ent a dd ed th is ru le to th e s ta tu to ry te x t.) A co m p lain t “ su b st an tia lly sim i l ar ” t o the publ i shed re port s would be di sm i sse d8 N o. 09

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sum m ar i l y; Bal taza r’ s co m pla i nt go es b eyo nd tho se re port s. O u r c o n c l u s i o n th a tB a l t a z a r ’ s s u i ti s “ b a s e d o n ” h e r o wn kn ow led ge rat h er th an th e p u b lish ed rep or ts m ak es it unnece ss ar y t o deci de w hethertho se re port s di scl ose d the “al l ega ti ons ortr ansact i ons” und er l yi ng the sui t. That i s a mo r e di ffi c ul t qu e s t i o n, b e c a us e the a ns we r de pe nd s on wh etherwe und er sta nd the re port s t o a l l ege widesprea d fr aud (that i s, i ntenti onal d ecei t) o r onl y e rr or s: fra u d is ac tio n a b l e u n d er th e F als e C laim s A c t, w h ile negl i gent er ro rs ar e no t. I t i s sim i l ar l y unneces sar y t o deci de w hetherBal taza r quali fies f orthe or i gi nal

- sour ce ex ce pti o n. I fthe c o m pl ainti s ac cur at e, Ba l tazarwas the o r i g i n a l s o u r c e o fth e i n f o r ma t i o n th a td e fe n d a n t s c o mm i tte d fr aud. The questi on i s whether the r el ato r i s a n o r i g i na l s o ur ce o fthe a l l eg at i o ns in th e co m pl ainta nd not, as the dist ri ct c ourtsupposed, wh etherthe re l ato r i s the so urce ofthe i nfo rm ati on in the p u b lish ed re

por t s . “ ‘ [ O] r i g i na l s o ur c e ’ me a ns a n i nd i v i du a l wh o h as dir ect and i nd ependent knowle dge o fthe i n form ati on o n w hich the allegations are base d ”. 31 U
. S. C

. §3730 (e)( 4)(B). Se e g ener al l y R o ck w e l l Interna tio na l C o rp. v. U nited Sta tes , 549 U
. S. 457 (2007). Bei ng an or i gi nalso urce ofthe al l ega ti ons i s no t enough t o tak e a dvantage o fthe excep tion. A n or i gi nal sour ce a l so m us t hav e “volun taril y prov ided the inform a t i o n t o the Go v e r nme ntb e f o r e fi l i nga n a c ti on unde r th i s se ct i o n”

. §3 73 0( e) ( 4) ( B)

. Bal ta za r sa y s that she co m pli ed w i ththi s r equi r ementb y a l er tinga n Ass i st an t U ni ted S tat es A tto rneyth at a Fal se Clai m s Act sui t wasN o. 09

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s o o n t o b e fi l e d

. Y e tB a l t a z a r ’ s l e t t e r n a r r a t e s th e c o mpla i nt’ s co ncl usi ons w i thout speci fi cs. A r el at or need not have see n the cl ai m s s ubm i tte d to the federa l go ver nm ent, se e U nite d State s ex rel. Lusb y v. R olls -Ro yce C o rp . , 5 7 0 F
. 3 d 8 4 9 ( 7 th Ci r . 2 0 0 9 ) , b utmus tkno w en o ug h t o ma k e fr a u d a l i k e l y e x p l a n a t i o n f o r a ny ov erb illi n g, id

. at85 4

— and und er§3 730( e) ( 4) ( B) m ust furn i sh thati nfo rm ati on t o the Unite d Sta tes , notj ust a s s e r tth a tth e r e i s a b a s i s t o b e r e v e a l e d e v e nt ua l l y . We need not deci de w hetherthe l ett erto the A U SA suffi ces. T he ju dgmento fthe di st r i ctc o ur t i s r ev er se d, a nd the ca se i s r emande d f o r fur th erpr o ce eding s co ns i st en t wi ththi s o pi ni o n.

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