Opinion ID: 4518720
Heading Depth: 2
Heading Rank: 1

Heading: Winter properly alleges false or fraudulent

Text: statements We interpret the FCA broadly, in keeping with the Congress’s intention “to reach all types of fraud, without qualification, that might result in financial loss to the Government.” United States v. Neifert-White Co., 390 U.S. 228, 232 (1968). For that reason, the Supreme Court “has consistently refused to accept a rigid, restrictive reading” of the FCA, id., and has cautioned courts against “adopting a circumscribed view of what it means for a claim to be false or fraudulent,” Escobar, 136 S. Ct. at 2002 (quoting United States v. Sci. Applications Int’l Corp., 626 F.3d 1257, 1270 (D.C. Cir. 2010)). “[W]e start, as always, with the language of the statute.” Id. at 1999 (quoting Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 668 (2008)). The plain language of the FCA imposes liability for presenting, or causing to be presented, a “false or fraudulent claim for payment or approval,” making “a false record or statement material to a false or fraudulent claim,” or conspiring to do either. 31 U.S.C. § 3729(1)(A)–(C). Because Congress did not define “false or fraudulent,” we presume it incorporated the common-law definitions, including the rule that a statement need not contain an “express falsehood” to be actionable. Escobar, 136 S. Ct. at 1999 (“[I]t is a settled principle of 14 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. interpretation that, absent other indication, Congress intends to incorporate the well-settled meaning of the common-law terms it uses.” (quoting Sekhar v. United States, 570 U.S. 729, 732 (2013))). And, in at least one respect, Congress intended for the FCA to be broader than the common law: Under the FCA, “‘knowingly’ . . . require[s] no proof of specific intent to defraud.” 31 U.S.C. § 3729(b)(1)(B). “[O]pinions are not, and have never been, completely insulated from scrutiny.” United States v. Paulus, 894 F.3d 267, 275–76 (6th Cir. 2018) (upholding conviction for Medicare fraud where physician justified unnecessary procedures by exaggerating his interpretation of medical tests); see also Hooper v. Lockheed Martin Corp., 688 F.3d 1037, 1049 (9th Cir. 2012) (holding that false estimates “can be a source of liability under the FCA”). Under the common law, a subjective opinion is fraudulent if it implies the existence of facts that do not exist, or if it is not honestly held. Restatement (Second) of Torts § 525; id. § 539. As the Supreme Court recognized, “the expression of an opinion may carry with it an implied assertion, not only that the speaker knows no facts which would preclude such an opinion, but that he does know facts which justify it.” Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175, 191 (2015) (quoting W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 109, at 760 (5th ed. 1984)). Defendants and amici curiae American Health Care Association, National Center for Assisted Living, and California Association of Health Facilities urge this court to hold the FCA requires a plaintiff to plead an “objective falsehood.” But “[n]othing in the text of the False Claims Act supports [Defendants’] proposed restriction.” Escobar, 136 S. Ct. at 2001. Under the plain language of the statute, WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 15 the FCA imposes liability for all “false or fraudulent claims”—it does not distinguish between “objective” and “subjective” falsity or carve out an exception for clinical judgments and opinions. Defendants are correct that if clinical judgments can be fraudulent under the FCA, doctors will be exposed to liability they would not face under Defendants’ view of the law. “But policy arguments cannot supersede the clear statutory text.” Id. at 2002. Our role is “to apply, not amend, the work of the People’s representatives.” Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718, 1726 (2017). And the Supreme Court has already addressed Defendants’ concern: “Instead of adopting a circumscribed view of what it means for a claim to be false or fraudulent, concerns about fair notice and open-ended liability can be effectively addressed through strict enforcement of the Act’s materiality and scienter requirements.” Escobar, 136 S. Ct. at 2002 (quotation marks, alterations, and citation omitted). We have similarly explained that the FCA requires “the ‘knowing presentation of what is known to be false’” and that “[t]he phrase ‘known to be false’. . . does not mean ‘scientifically untrue’; it means ‘a lie.’ The Act is concerned with ferreting out ‘wrongdoing,’ not scientific errors.” Wang v. FMC Corp., 975 F.2d 1412, 1421 (9th Cir. 1992) (citations omitted), overruled on other grounds by United States ex rel. Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121 (9th Cir. 2015) (en banc). This does not mean, as the district court understood it, that only “objectively false” statements can give rise to FCA liability. It means that falsity is a necessary, but not sufficient, requirement for FCA liability—after alleging a false statement, a plaintiff must still establish scienter. Id. (“What is false as a matter of science is not, by that very fact, wrong as a matter of 16 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. morals.”). To be clear, a “scientifically untrue” statement is “false”—even if it may not be actionable because it was not made with the requisite intent. And an opinion with no basis in fact can be fraudulent if expressed with scienter. We are not alone in concluding that a false certification of medical necessity can give rise to FCA liability. In United States ex rel. Riley v. St. Luke’s Episcopal Hospital, the Fifth Circuit recognized that “claims for medically unnecessary treatment are actionable under the FCA.” 355 F.3d 370, 376 (5th Cir. 2004). The plaintiff alleged the defendants filed false claims “for services that were . . . medically unnecessary,” id. at 373, and the Fifth Circuit reversed the district court’s dismissal for failure to state a claim, explaining that because the complaint alleged that the defendants ordered medical services “knowing they were unnecessary,” the statements were lies, not simply errors. Id. at 376. Likewise, in United States ex rel. Polukoff v. St. Mark’s Hospital, the Tenth Circuit recognized “[i]t is possible for a medical judgment to be ‘false or fraudulent’ as proscribed by the FCA[.]” 895 F.3d 730, 742 (10th Cir. 2018). The court looked to CMS’s definition of “medically necessary,” and held, “a doctor’s certification to the government that a procedure is ‘reasonable and necessary’ is ‘false’ under the FCA if the procedure was not reasonable and necessary under the government’s definition of the phrase.” Id. at 743. The Third Circuit reached a similar conclusion in United States ex rel. Druding v. Care Alternatives, No. 18-3298, 2020 WL 1038083 (3d Cir. Mar. 4, 2020), rejecting the “bright-line rule that a doctor’s clinical judgment cannot be ‘false.’” Id. at  (holding that, in the context of certifying terminal illness, “for purposes of FCA falsity, a claim may be ‘false’ under a theory of legal falsity, where it fails to WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 17 comply with statutory and regulatory requirements,” and that “a physician’s judgment may be scrutinized and considered ‘false,’” id. at ). The Eleventh Circuit’s recent decision in United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019), is not directly to the contrary. In AseraCare, the Eleventh Circuit held that “a clinical judgment of terminal illness warranting hospice benefits under Medicare cannot be deemed false, for purposes of the False Claims Act, when there is only a reasonable disagreement between medical experts as to the accuracy of that conclusion, with no other evidence to prove the falsity of the assessment.” Id. at 1281 (emphases added). We recognize that the court also said “a claim that certifies that a patient is terminally ill . . . cannot be ‘false’—and thus cannot trigger FCA liability—if the underlying clinical judgment does not reflect an objective falsehood.” Id. at 1296–97. But we conclude that our decision today does not conflict with AseraCare for two reasons. First, the Eleventh Circuit was not asked whether a medical opinion could ever be false or fraudulent, but whether a reasonable disagreement between physicians, without more, was sufficient to prove falsity at summary judgment. Id. at 1297–98. Notwithstanding the Eleventh Circuit’s language about “objective falsehoods,” the court clearly did not consider all subjective statements—including medical opinions—to be incapable of falsity, and identified circumstances in which a medical opinion would be false. 7 7 For example, “if the [doctor] does not actually hold that opinion” or simply “rubber-stamp[s] whatever file was put in front of him,” if the opinion is “based on information that the physician knew, or had reason to know, was incorrect,” or if “no reasonable physician” would agree 18 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. Second, the Eleventh Circuit recognized that its “objective falsehood” requirement did not necessarily apply to a physician’s certification of medical necessity— explicitly distinguishing Polukoff. Id. at 1300 n.15. Rather, the court explained that the “hospice-benefit provision at issue” purposefully defers to “whether a physician has based a recommendation for hospice treatment on a genuinely-held clinical opinion” whether a patient was terminally ill. 8 Id.; see also id. at 1295. In fact, after holding that physicians’ hospice-eligibility determinations are entitled to deference, the Eleventh Circuit explained that the less-deferential medical necessity requirement remained an important safeguard: “The Government’s argument that our reading of the eligibility framework would ‘tie CMS’s hands’ and ‘require improper reimbursements’ is contrary to the plain design of the law” because “CMS is statutorily prohibited from reimbursing providers for services ‘which are not reasonable and necessary[.]’” Id. at 1295 (alteration and citation omitted). Thus, for the same reason the Eleventh Circuit recognized AseraCare did not conflict with Polukoff, we believe our decision does not conflict with AseraCare. And to the extent that AseraCare can be read to graft any type of “objective falsity” requirement onto the FCA, we with the doctor’s opinion, “based on the evidence[.]” AseraCare, 938 F.3d at 1302. 8 A patient must have less than six months to live to be eligible for hospice care. AseraCare, 938 F.3d at 1282. But, as the Eleventh Circuit explained, CMS “repeatedly emphasized that ‘[p]redicting life expectancy is not an exact science,’ [and that] ‘certifying physicians have the best clinical experience, competence and judgment to make the determination that an individual is terminally ill.’” Id. at 1295 (quoting 75 Fed. Reg. 70372, 70448 (Nov. 17, 2010) and 78 Fed. Reg. 48234, 48247 (Aug. 7, 2013)). By contrast, a certification of medical necessity is not entitled to deference. 42 C.F.R. § 412.46(b). WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 19 reject that proposition. See Druding, 2020 WL 1038083, at . In sum, we hold that the FCA does not require a plaintiff to plead an “objective falsehood.” A physician’s certification that inpatient hospitalization was “medically necessary” can be false or fraudulent for the same reasons any opinion can be false or fraudulent. These reasons include if the opinion is not honestly held, or if it implies the existence of facts—namely, that inpatient hospitalization is needed to diagnose or treat a medical condition, in accordance with accepted standards of medical practice— that do not exist. See Polukoff, 895 F.3d at 742–43. We now turn to Winter’s complaint. We accept all facts alleged as true and draw all inferences in Winter’s favor, and conclude that her complaint plausibly alleges false certifications of medical necessity. First, the complaint “alleges a ‘scheme’ connoting knowing misconduct.” Riley, 355 F.3d at 376. RollinsNelson and S&W—and their individual owners Rollins, Nelson and Weiner—had a motive to falsify Medicare claims and pressure doctors to increase admissions. Gardens Regional relied on Medicare for a “significant portion” of its revenue, and the spike in admissions corresponded with an increased number of Medicare beneficiaries in its care. Moreover, the increased admissions of RollinsNelson patients began when RollinsNelson started managing Gardens Regional. Second, not only does Winter identify suspect trends in inpatient admissions—for example, hospitalizing patients for UTIs—she also alleges statistics showing an overall increase in hospitalizations once RollinsNelson started managing the hospital. For example, the daily occupancy 20 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. rate jumped by almost 10%, the number of Medicare beneficiaries became the highest it had ever been by a significant margin, and the admissions rate from RollinsNelson nursing homes was over 80%. Plus, the large number of admissions that did not meet the criteria, and the fact that the vast majority of admissions came from a single doctor—Dr. Pascual, who had contractually agreed to use the InterQual criteria—decreases the likelihood that any given admission was an outlier. Third, Winter’s detailed allegations as to each Medicare claim support an inference of falsity. This is not a complaint that “identifies a general sort of fraudulent conduct but specifies no particular circumstances of any discrete fraudulent statement[.]” Cafasso, 637 F.3d at 1057. The complaint identifies sixty-five allegedly false claims in great detail, listing the date of admission, the admitting physician, the patient’s chief complaint and diagnosis, and the amount billed to Medicare. The complaint alleges that each admission failed to satisfy the hospital’s own admissions criteria—the InterQual criteria that Gardens Regional and Dr. Pascual had contractually agreed to use and that Winter’s job as Director of Care Management required her to apply. And, as the district court recognized, the InterQual criteria represent the “consensus of medical professionals’ opinions,” so a failure to satisfy the criteria also means that the admission went against the medical consensus. Finally, we note that many of the allegations supporting an inference of scienter also support an inference of falsity. Cf. AseraCare, 938 F.3d at 1304–05 (remanding for district court to consider evidence related to scienter in determining falsity on summary judgment). For example, when confronted, Dr. Sacapano corroborated Winter’s suspicions, telling her that hospital management pressured him into WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 21 recommending patients for medically unnecessary inpatient admission. And following Winter’s numerous attempts to bring her concerns to the attention of hospital management, Defendants Rollins, Nelson, and Weiner held a meeting where they instructed Winter and other staff not to question the admissions. Defendants argue that “Winter has alleged nothing more than her competing opinion with the treating physicians who actually saw the patients at issue.” The district court similarly dismissed the complaint because Winter’s “contention that the medical provider’s certifications were false is based on her own after-the-fact review of [Gardens Regional’s] admission records.” To begin with, an opinion can establish falsity. See Paulus, 894 F.3d at 270, 277 (affirming doctor’s conviction for healthcare fraud by performing medically unnecessary procedures and holding that experts’ “opinions, having been accepted into evidence, are sufficient to carry the government’s burden of proof”); cf. AseraCare, 938 F.3d at 1300 (distinguishing Paulus because in AseraCare “the Government’s expert witness declined to conclude that [the clinical judgments of] AseraCare’s physicians . . . were unreasonable or wrong”). Winter alleges more than just a reasonable difference of opinion. In addition to the allegations discussed above, she alleges that a number of the hospital admissions were for diagnoses that had been disproven by laboratory tests, and that several admissions were for psychiatric treatment, even though Gardens Regional was not a psychiatric hospital— and one of those patients never even saw a psychiatrist. Even if we were to discount Winter’s evaluation of the medical records, as the district court did, the other facts she alleges would be sufficient to make her allegations of fraud plausible. 22 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. But more importantly, assessing medical necessity based on an “after-the-fact review” of patients’ medical records was Winter’s job. At the motion to dismiss stage, her assessment is “entitled to the presumption of truth[.]” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). “The standard at this stage of the litigation is not that plaintiff’s explanation must be true or even probable. The factual allegations of the complaint need only ‘plausibly suggest an entitlement to relief.’” Id. at 1216–17 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009)). Winter’s complaint satisfies that standard. 9