Opinion ID: 4438745
Heading Depth: 1
Heading Rank: 7

Heading: the relators plead false claims act viola-

Text: TIONS The relators plead their Stark Act claims as violations of the False Claims Act. So their pleadings must satisfy all the elements of the False Claims Act. They do. And they satisfy Rule 9(b)’s heightened pleading standard. Last, we hold that the Stark Act’s exceptions are not additional elements of a prima facie case. But even if they were, the relators have plausibly pleaded that no exception applies here. A. The pleadings satisfy all three elements of the False Claims Act To make out a prima facie case, the relators must plead three elements: “ ‘(1) the defendant presented or caused to be presented to an agent of the United States a claim for payment; (2) the claim was false or fraudulent; and (3) the defendant knew the claim was false or fraudulent.’ ” Schmidt, 386 F.3d at 242 (quoting Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 182 (3d Cir. 2001)). They have alleged enough facts to plead all three elements. 34 First, by submitting claims to Medicare and other federal health programs, the defendants presented claims for payment to the government. Second, the relators allege that these claims were false. A Medicare claim that violates the Stark Act is a false claim. Kosenske, 554 F.3d at 94. And we have already explained at length why the Medicare claims here plausibly violated the Stark Act. Third, the relators’ allegations plead scienter. Just like the Stark Act, the False Claims Act requires that the defendants know, deliberately ignore, or recklessly disregard the falsity of their claim. 31 U.S.C. § 3729(b)(1)(A). But it does not require a specific intent to defraud. Id. § 3729(b)(1)(B). The claims are false because they allegedly violated the Stark Act. The question is whether the defendants at least recklessly disregarded that possibility. The defendants had a centralized billing department and were familiar with the Stark Act itself, so they knew that they submitted Medicare claims for referred designated health services. That leaves only whether the defendants knew that the hospitals and surgeons had an indirect compensation agreement. The complaint alleges that the defendants at least recklessly disregarded that possibility. They knew their own corporate structure. We have already explained how they knew or recklessly disregarded that the surgeons’ pay varied with their referrals. And we have also explained how they knew or recklessly disregarded that their surgeons’ pay exceeded fair market value and thus plausibly took referrals into account. So the 35 relators have pleaded a prima facie claim under the False Claims Act. B. The pleadings satisfy Rule 9(b) The relators’ complaint also satisfies Rule 9(b)’s particularity requirement. This requires a plaintiff to allege “ ‘all of the essential factual background that would accompany the first paragraph of any newspaper story—that is, the who, what, when, where, and how of the events at issue.’ ” Majestic Blue Fisheries, 812 F.3d at 307 (quoting In re Rockefeller Ctr. Props., Inc. Secs. Litig., 311 F.3d 198, 217 (3d Cir. 2002)). The complaint gives us all these necessary details: • Who? The defendants: the Medical Center and Pittsburgh Physicians. • What? The defendants submitted or caused to be submitted false Medicare claims. • When? From 2006 until now. • Where? The Medicare claims were submitted from the Medical Center’s centralized billing facility, while the referred services were provided at the Medical Center’s twenty hospitals. • How? When the Medical Center submitted a claim, it certified compliance with the Stark Act. The complaint makes all the allegations discussed above. We will not repeat them. But they detail exactly how these claims violated the Stark Act. 36 Rule 9(b) does not require the relators to plead anything more, such as the date, time, place, or content of every single allegedly false Medicare claim. The falsity here comes not from a particular misrepresentation, but from a set of circumstances that, if true, makes a whole set of claims at least prima facie false. It is enough to allege those circumstances with particularity. Doing so “inject[s] precision or some measure of substantiation into [the] fraud allegation” and “place[s] the defendant on notice of the precise misconduct with which [it is] charged.” Alpizar-Fallas v. Favero, 908 F.3d 910, 919 (3d Cir. 2018) (quoting Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007)) (last alteration in original; internal quotation marks omitted). And the relators have done so. C. Pleading Stark Act exceptions under the False Claims Act One final issue is how the Stark Act interacts with the False Claims Act. The defendants argue that the False Claims Act’s elements of falsity and knowledge turn the Stark Act’s exceptions into prima facie elements of the False Claims Act. On their reading, the relators would have to plead that no exception applies here. We reject that argument. The defendants retain the burden of pleading Stark Act exceptions even under the False Claims Act. And even if the relators bore that burden, they have met it here. 1. The burden of pleading Stark Act exceptions stays with the defendant under the False Claims Act. The defendants argue that the False Claims Act’s knowledge and falsity elements 37 turn the Start Act’s exceptions into prima facie elements. Their logic is simple and cogent: The False Claims Act penalizes only false claims. 31 U.S.C. § 3729(a)(1). False claims include claims submitted in violation of the Stark Act. See Kosenske, 554 F.3d at 94. But if an exception to the Stark Act applies, then the claim is not false. And if the defendant thinks that an exception applies, then the defendant does not know that the claim is false. So, according to the defendants, to plead a False Claims Act claim based on Stark Act violations, a relator must plead that no Stark Act exception applies and that the defendant knows that none applies. Otherwise, the relator pleads neither falsity nor knowledge. Though this argument has force, we reject it. Our precedent compels this result. Like this case, Kosenske was a False Claims Act case based on Stark Act violations. Id. It placed the burden of proving a Stark Act exception on the defendant. Id. at 95; accord Tuomey, 792 F.3d at 374. And we see no reason to split up the burdens of pleading and persuasion. It is thus the defendants’ burden to plead a Stark Act exception, not the relators’ burden to plead that none exists. 2. Even if the relators bore this pleading burden, they have met it. In any event, the relators here plausibly plead that no Stark Act exception applies. The parties identify four that could apply here: exceptions for bona fide employment, personal services, fair-market-value pay, and indirect compensation. All four exceptions require that the surgeons’ compensation not exceed fair market value and not take into account the volume or value of referrals. 38 We have already explained how the relators plausibly plead that the surgeons were paid more than fair market value. And that itself suggests that their pay may take into account their referrals’ volume or value. So the relators plausibly plead that no Stark Act exception applies. D. Practical concerns Our concurring colleague raises legitimate concerns about opening the floodgates of litigation. Top hospitals that offer doctors performance bonuses, he argues, could be sued and forced to suffer through discovery or to settle. Although understandable, this fear is overstated. Qui tam actions face hurdles even before they reach a motion to dismiss. The government can dismiss them over the relator’s objection. 31 U.S.C. § 3730(c)(2)(A). Federal courts are not the first line of defense against abusive suits; the Justice Department is. Indeed, it recently took a more aggressive approach to dismissing qui tam actions, urging its lawyers to consider dismissal every time the government decides not to intervene. Michael D. Granston, U.S. Dep’t of Justice, Memorandum: Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A), at 1 (2018). While our Court has not yet specified the standard of review for a § 3730(c)(2)(A) dismissal, our sister circuits defer a great deal to the Justice Department. Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003) (recognizing the government’s “unfettered right” to dismiss qui tam actions); United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998) (adopting a “rational relation” test 39 for reviewing dismissals). That deference gives the government plenty of room to make good on its stated intention to scrutinize and dismiss more qui tam actions than in the past. So there is little reason to fear that a flood of frivolous cases will reach discovery.