Court Opinion

ID: 5132911
Source: CourtListenerOpinion
Date Created: 2021-12-08 19:00:58.782843+00
Date Added: 2024-06-11T08:23:33.023499
License: Public Domain

In the

     United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 19-3117
UNITED STATES OF AMERICA
ex rel. JOHN MAMALAKIS,
                                                 Plaintiff-Appellant,

                                 v.

ANESTHETIX MANAGEMENT LLC d/b/a
ANESTHETIX OF TEAMHEALTH, et al., ∗
                                              Defendants-Appellees.
                     ____________________

            Appeal from the United States District Court
                 for the Eastern District of Wisconsin.
          No. 14-CV-349 — David E. Jones, Magistrate Judge.
                     ____________________

    ARGUED APRIL 13, 2020 — DECIDED DECEMBER 8, 2021
                 ____________________

   Before SYKES, Chief Judge, and HAMILTON and ST. EVE,
Circuit Judges.

∗The parties misspelled the defendant’s name as “Anesthestix Manage-
ment LLC” in the case caption. We use the correct spelling.
2                                                 No. 19-3117

    SYKES, Chief Judge. Dr. John Mamalakis, a Wisconsin anes-
thesiologist, filed this qui tam lawsuit under the False Claims
Act, 31 U.S.C. §§ 3729 et seq., alleging that Anesthetix Man-
agement LLC, his former employer, fraudulently billed
Medicare and Medicaid for services performed by its anes-
thesiologists. His central allegation is that the anesthesiolo-
gists regularly billed the government using the code for
“medically directed” services when their services qualified
for payment only at the lower rate for services that are
“medically supervised.” A magistrate judge dismissed the
case, ruling that the complaint did not provide enough
factual particularity to satisfy Rule 9(b)’s heightened plead-
ing standard for fraud claims. FED. R. CIV. P. 9(b). The judge
gave Mamalakis a chance to amend, directing him to pro-
vide representative examples of the alleged fraudulent
billing.
    Mamalakis obliged, filing an amended complaint that in-
cluded ten specific examples of inflated billing. Each exam-
ple identified a particular procedure and anesthesiologist
and provided details about how the services did not qualify
for payment at the medical-direction billing rate. Six of the
ten examples included a specific allegation that the anesthe-
siologist billed the services using that code; the other four
relied on general allegations regarding the group’s uniform
policy of billing at the medical-direction rate.
   The judge held that the amended complaint still fell short
under Rule 9(b) and dismissed the case with prejudice. That
was error. Although Rule 9(b) imposes a high pleading bar
to protect defendants from baseless accusations of fraud,
Mamalakis cleared it. The ten examples, read in context with
the other allegations in the amended complaint, provide
No. 19-3117                                                   3

sufficient particularity about the alleged fraudulent billing to
survive dismissal. We reverse and remand for further pro-
ceedings.
                        I. Background
    We begin with the government’s billing rules for anes-
thesiologists. Under Medicare and Medicaid regulations,
anesthesiologists may submit claims for payment to the
government under one of three billing codes corresponding
to the level of services provided. 42 C.F.R. § 414.46(b). The
highest billing rate is reserved for cases in which the anes-
thesiologist “personally performed” the procedure. This rate
applies if the anesthesiologist (1) performed the anesthesia
services alone; (2) was the teaching physician directing a
resident or intern physician during the procedure; or
(3) continuously participated in a single procedure involving
a certified registered nurse anesthetist, an anesthesiologist
assistant, or a student nurse anesthetist. Id. § 414.46(c).
    The “medical direction” rate is half the personal-
performance rate. Id. § 414.46(d)(3)(v). An anesthesiologist
may bill at the medical-direction rate if he directed a resident
or intern, certified registered nurse anesthetist, anesthesiolo-
gist assistant, or student nurse anesthetist in two, three, or
four concurrent procedures and he personally performed or
participated in each of the following steps in each procedure:
(1) conducted the preanesthetic examination and evaluation;
(2) prescribed the anesthesia plan; (3) participated in the
most demanding parts of the plan, including induction and
emergence, if applicable; (4) ensured that any procedure he
did not personally perform was performed by a qualified
individual; (5) monitored the anesthesia administration at
frequent intervals; (6) remained physically present and
4                                                  No. 19-3117

available for immediate diagnosis and treatment of an
emergency; and (7) provided postanesthetic care as indicat-
ed. Id. §§ 414.46(d), 415.110(a)(1). To qualify for payment at
the medical-direction rate, the anesthesiologist must person-
ally document that the seven conditions were satisfied and
specifically confirm that he performed requirements 1, 3,
and 7. Id. § 415.110(b).
    The lowest billing rate applies when the physician “med-
ically supervises anesthesia services” performed by other
anesthesia professionals. Id. § 414.46(f). Special billing rules
apply when the anesthesiologist medically supervises more
than four concurrent procedures. Id.
    With the regulatory framework in place, we recount the
facts as alleged in the operative amended complaint. In 2008
Dr. Mamalakis began working as an anesthesiologist at All
Saints Hospital in Racine, Wisconsin. He was employed by
Southeastern Anesthesia Consultants, which contracted with
All Saints to provide anesthesia services for the hospital’s
patients. Southeastern did not employ nurse anesthetists, so
its anesthesiologists personally performed the anesthesia
services and Southeastern billed Medicare and Medicaid at
the personal-performance rate.
    In early January 2010, All Saints dropped Southeastern as
its provider of anesthesia services and awarded the contract
to Anesthetix Management LLC. Mamalakis accepted an
offer of employment from the new provider. At around the
same time, Anesthetix Management was acquired by Team-
Health Holdings, Inc., a nationwide holding company of
providers of clinical services to hospital systems around the
country. Both Anesthetix Management, doing business as
Anesthetix of TeamHealth, and the holding company
No. 19-3117                                                   5

TeamHealth are named as defendants. We refer to them
collectively as “TeamHealth.”
    Unlike Southeastern, TeamHealth employs nurse anes-
thetists and planned to have its anesthesiologists medically
direct procedures rather than personally perform them. At
an orientation session on January 10, 2010, Dr. Sonya Pease,
the new medical director, told the anesthesiologists that they
should “document each procedure with the goal of fitting it
within the Medicare guidelines for medical direction.” She
explained that the anesthesiologists should sign the anesthe-
sia record every 15 minutes indicating that they had checked
in on the patient. Mamalakis alleges that he and other anes-
thesiologists interpreted her statement as an instruction that
they should sign the patient record as if they were present at
every 15-minute interval during the procedure even if they
were not.
   TeamHealth thereafter converted the anesthesia practice
at All Saints to “100% medical direction across the board.”
The new system “was designed to allow TeamHealth anes-
thesiologist[s] to perform more procedures concurrently[]
and bill for the procedures in accordance with the regulatory
framework” for medically directed anesthesia services.
    Mamalakis alleges that after this transition, his fellow an-
esthesiologists frequently failed to satisfy the conditions
required for billing at the medical-direction rate yet routine-
ly billed at that rate in accordance with the new business
model. More specifically, he alleges that anesthesiologists
regularly failed to perform preanesthetic exams and evalua-
tions, did not personally prescribe anesthesia plans, did not
monitor the patient at frequent intervals during procedures,
did not participate in the most demanding parts of the
6                                                 No. 19-3117

procedure, and sometimes were not physically present to
handle emergencies. He alleges that TeamHealth was aware
that its anesthesiologists did not comply with these condi-
tions for payment at the medical-direction rate but billed at
that rate anyway and therefore knowingly submitted false
bills to the government for payment.
   Mamalakis further alleges that he brought his concerns
about fraudulent billing to Dr. Pease, but she instructed him
not to inform All Saints because it might jeopardize Team-
Health’s contract. Dr. Pease also directed him to let the nurse
anesthetists prescribe the anesthesia plans for his proce-
dures—even though an anesthesiologist must do so in order
to bill at the medical-direction rate. Mamalakis claims that
Dr. Pease stated on numerous occasions that all TeamHealth
anesthesia services were to be billed as medically directed
regardless of whether the procedure qualified for that rate.
    In May 2011 TeamHealth CEO Dr. Steve Gottlieb visited
the hospital and met with doctors and administrators.
During this visit, Mamalakis tried to tell him about the
fraudulent billing practices, but Dr. Gottlieb “abruptly stood
up and ran out of the room in an attempt to avoid hearing
any more.” Dr. Pease thereafter placed Mamalakis under
“strict scrutiny” and was “look[ing] for any excuse to termi-
nate his employment.” She fired Mamalakis two months
later, at the end of July 2011.
     In March 2014 Mamalakis filed this qui tam suit against
TeamHealth alleging violations of several sections of the
False Claims Act and similar laws in several states. The case
remained sealed for more than a year while the government
considered whether to step in and assume control of the
litigation. See 31 U.S.C. § 3730(b)(4)(B). In June 2015 the
No. 19-3117                                                    7

government declined to do so, leaving Mamalakis in charge
of the action as the relator. Id. § 3730(c)(3). The case was then
unsealed, and nearly a year later, Mamalakis filed an
amended complaint on behalf of the United States, the
District of Columbia, and 16 states seeking treble damages
for multiple violations of the Act and similar false-claims
laws in six states and the District of Columbia.
    TeamHealth moved to dismiss. The case then stalled for
about 18 months due to the retirement of the assigned judge
and the administrative process of reassigning it to a magis-
trate judge presiding by consent. Once the case got back on
track, the magistrate judge granted TeamHealth’s dismissal
motion, ruling that the allegations of fraud were too general-
ized to satisfy the particularity requirement of Rule 9(b). The
judge gave Mamalakis a final opportunity to amend, setting
a 60-day deadline and instructing him to provide representa-
tive examples of fraudulent billing.
    Mamalakis timely filed another amended complaint add-
ing ten specific examples of procedures at All Saints in
which TeamHealth anesthesiologists failed to comply with
the requirements for the medical-direction billing code. Each
example identified the procedure in question, the anesthesi-
ologist involved, and the specific ways in which he or she
did not perform the services required to bill at the medical-
direction rate. For six of the ten examples, the amended
complaint affirmatively alleges that the anesthesiologist
billed for his or her services at the medical-direction rate.
The other four examples rely on the complaint’s more
general allegations that TeamHealth anesthesiologists
uniformly used the medical-direction billing code whether
their services qualified for it or not.
8                                                 No. 19-3117

    TeamHealth again moved to dismiss, and the magistrate
judge again granted the motion. He began by noting that
Mamalakis’s response to the motion was limited to the
alleged violation of § 3729(a)(1)(A) of the Act. That section
provides a cause of action on behalf of the United States
against any person who “knowingly presents, or causes to
be presented, a false or fraudulent claim for payment or
approval.” Because Mamalakis offered no argument regard-
ing the other counts in the complaint, the judge summarily
dismissed all other claims. Mamalakis does not challenge
that ruling, so we limit our discussion accordingly.
    Regarding the alleged § 3729(a)(1)(A) violation, the judge
held that the ten examples in the latest amended complaint
did not cure the deficiencies in the earlier version. He de-
termined that nine of the ten examples failed to provide
adequately particularized factual support for the allegation
that the anesthesiologists fraudulently billed at the medical-
direction rate. The single remaining example, the judge
ruled, was not enough by itself to satisfy the heightened
pleading burden under Rule 9(b). The judge also rejected
Mamalakis’s background allegations regarding Team-
Health’s billing policies as insufficient to plead fraud with
the specificity required by the rule. Focusing on the allega-
tions about Dr. Pease’s instructions to anesthesiologists at
the January 2010 orientation, the judge explained that her
remarks suggested only that the anesthesiologists should
provide medically directed care and bill accordingly—not
that the doctors should fraudulently bill at the medical-
direction rate. On this reasoning the judge dismissed the
case in its entirety, and Mamalakis appealed.
No. 19-3117                                                                    9

                              II. Discussion
    This once-sprawling case has been narrowed to
Mamalakis’s claim that TeamHealth violated § 3729(a)(1)(A)
of the False Claims Act. That section provides that any
person who “knowingly presents, or causes to be presented,
a false or fraudulent claim for payment or approval” by the
government is liable to the government for civil penalties
and treble damages. To prevail on a claim under this provi-
sion, the plaintiff “generally must prove (1) that the defend-
ant made a statement in order to receive money from the
government; (2) that the statement was false; and (3) that the
defendant knew the statement was false.” United States ex rel.
Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770, 777
(7th Cir. 2016) (quotation marks omitted). In addition, the
defendant’s misrepresentation must have been material to
the government’s payment decision; the Supreme Court has
characterized the materiality requirement as “rigorous.”
Universal Health Servs., Inc. v. United States ex rel. Escobar,
579 U.S. 176, 181 (2016). 1
    The Act rewards private relators with a generous share of
the proceeds of a successful claim: 15-25% if the government
takes over the case; 25-30% if the government declines to do
so and the private relator handles it solo. 31 U.S.C.
§ 3730(d)(1)–(2).

1 Mamalakis alleges that TeamHealth’s bills contained express false-
hoods; he does not rely on a theory of implied false certification. See
Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176, 187
(2016); United States ex rel. Prose v. Molina Healthcare of Ill., Inc., 17 F.4th
732, 742 (7th Cir. 2021).
10                                                   No. 19-3117

    Because the False Claims Act is an antifraud statute,
Rule 9(b)’s heightened pleading standard applies, so the
complaint must allege the circumstances of the fraud with
factual particularity. We have described this burden as
requiring the plaintiff to “describe the ‘who, what, when,
where, and how’ of the fraud.” Presser, 836 F.3d at 776
(quoting United States ex rel. Lusby v. Rolls-Royce Corp.,
570 F.3d 849, 853 (7th Cir. 2009)). This more rigorous plead-
ing standard guards against “the stigmatic injury that poten-
tially results from allegations of fraud.” Id. However, the
knowledge element of the claim may be alleged generally.
FED. R. CIV. P. 9(b). What is essential is that the complaint
allege with sufficient particularity the facts showing that the
defendant made a false statement to obtain money from the
government, “injecting precision and some measure of
substantiation” into the allegations of fraud. Presser, 836 F.3d
at 776 (quotation marks omitted).
    It follows that alleging fraud “on information and belief”
is normally insufficient to satisfy Rule 9(b)’s heightened
pleading standard. United States ex rel. Bogina v. Medline
Indus., Inc., 809 F.3d 365, 370 (7th Cir. 2016). While the relator
need not “produce the invoices (and accompanying repre-
sentations) at the outset of the suit,” it is nevertheless “essen-
tial to show a false statement,” though this can be
accomplished by including particularized factual allegations
that give rise to a plausible inference of fraud. Lusby,
570 F.3d at 854.
    Mamalakis lacked access to TeamHealth’s billing records
and thus has not identified specific false invoices. As we’ve
just noted, however, that omission is not fatal to the claim.
He has alleged that he has direct knowledge that anesthesi-
No. 19-3117                                                  11

ologists regularly falsely coded their procedures for billing
purposes after TeamHealth took over the practice group. He
provided some factual background about the change in
approach to the delivery of anesthesia services under
TeamHealth’s ownership and the billing policies imple-
mented by the new upper management. Among other
things, he described: (1) statements Dr. Pease made at the
2010 orientation about the shift to the medical-direction
billing rate; (2) her instruction to him that he should not
micromanage the nurse anesthetists and instead let them
create anesthesia plans; (3) her insistence that he not inform
All Saints of his suspicions of fraudulent billing activity; and
(4) her repeated direction that it was the policy of Team-
Health to bill all procedures as medically directed, whether
or not a procedure met the requirements for that rate. He
also described his attempt to bring his allegations of fraudu-
lent billing to Dr. Gottlieb’s attention, alleging that
Dr. Gottlieb ran out of the room to avoid hearing more.
    These generalized allegations that anesthesiologists en-
gaged in fraudulent billing after the transition to Team-
Health’s ownership are insufficient under Rule 9(b), even
when read against the backdrop of the complaint’s more
particularized allegations about Dr. Pease and Dr. Gottlieb.
We therefore cannot fault the magistrate judge for insisting
that Mamalakis provide specific representative examples of
fraudulent billing. But we disagree with the judge’s conclu-
sion that the examples in the latest version of the complaint
fall short of the mark. Mamalakis provided ten specific
examples in which an anesthesiologist failed to comply—
sometimes egregiously—with the requirements to submit a
bill at the medical-direction rate. He alleged that each proce-
dure involved a patient insured by Medicare or Medicaid
12                                                  No. 19-3117

and that he knew that each procedure was billed to the
government. For six procedures Mamalakis affirmatively
alleged that the anesthesiologist billed at the medical-
direction rate despite failing to comply with the require-
ments for that rate. These allegations are as follows:
     •   In June 2011 Dr. Lee billed three procedures as medi-
         cally directed (one general-surgery procedure, one
         urology procedure, and one hysterectomy), but he left
         the hospital before noon and spent the afternoon
         waiting for a piano to be delivered. Mamalakis
         learned of this situation when Dr. Disque called him
         to say that he was already directing two procedures
         and could not direct all three of Dr. Lee’s rooms with-
         out exceeding the four-procedure maximum required
         to qualify for the medical-direction rate.
     •   In spring 2010 Dr. Peters billed a hip replacement as
         medically directed, but she left the hospital after in-
         ducing anesthesia. Dr. Peters called Mamalakis from
         out of state and asked him to treat the patient’s low
         blood pressure during the procedure.
     •   In fall 2010 Dr. Peters billed two procedures as medi-
         cally directed while she was absent from All Saints.
         When Dr. Pease made a surprise visit, Mamalakis
         called Dr. Peters and told her to return immediately.
     •   In spring 2011 Dr. Stroupe billed a knee arthroscopy
         as medically directed. But when the patient experi-
         enced distress, the nurse anesthetist administering the
         procedure asked Mamalakis to come to the room.
         When he asked her why Dr. Stroupe wasn’t there, she
         said that he was never present for a knee arthroscopy.
No. 19-3117                                                13

   •   In winter 2011 Dr. Stroupe billed a gynecological pro-
       cedure as medically directed, but he was never pre-
       sent in the operating room, didn’t prescribe the
       anesthesia plan, and didn’t provide postoperative
       care. When the patient suffered distress after emerg-
       ing from anesthesia, Dr. Stroupe was called. When he
       arrived at All Saints over 30 minutes later, he was
       wearing street clothes and then left without examin-
       ing the patient, ordering studies, or prescribing any
       treatment. When the patient required further care,
       Mamalakis was called to assist. Nurse Anesthetist
       Fitzpatrick told Mamalakis that Dr. Stroupe had
       billed the procedure as medically directed despite
       several failures to comply with the requirements for
       medical direction.
   •   In fall 2010 Dr. Dean billed a cataract extraction as
       medically directed, but Nurse Anesthetist Fisher told
       Mamalakis that Dr. Dean never entered the operating
       room (even after complications), did not create the
       anesthesia plan, and did not perform the preanesthet-
       ic examination required for medical direction.
    These examples are detailed, identifying specific doctors
and procedures and describing why each procedure should
not have been billed as medically directed. And Mamalakis
alleged that he became personally involved in some of these
procedures after a care provider asked him for assistance—
in several cases entering the operating room itself.
   The remaining four examples are similarly detailed, alt-
hough Mamalakis did not include a specific allegation that
the anesthesiologist in question billed for the services using
the medical-direction code. For these four examples, he
14                                                 No. 19-3117

relied on his more generalized allegations about Team-
Health’s uniform policy of billing at the medical-direction
rate.
    Together, these representative examples provide a par-
ticularized basis from which to plausibly infer that at least
on these occasions, TeamHealth presented false claims to the
government. Mamalakis has injected enough precision and
substantiation into his allegations of fraud to entitle him to
move forward with his case.
     Indeed, the allegations here are roughly analogous to the
allegations of fraudulent Medicaid billing at issue in Presser.
There the plaintiff alleged that a medical clinic submitted
claims for payment to the government using billing codes
corresponding to specific psychiatric services but in fact had
performed only nonpsychiatric services. 836 F.3d at 778–79.
As we summarized the allegations, the provider “billed
Medicaid for a completely different treatment” and thus made
an express false statement by “misus[ing] a billing code and
falsely represent[ing] to the state and federal governments
that a certain treatment was given by certain medical staff
when in fact it was not.” Id. at 779. We held that the plain-
tiff’s allegations regarding up-coded billing were sufficient
to satisfy the particularity requirement of Rule 9(b). Id. at
781.
    The ten specific examples of TeamHealth anesthesiolo-
gists falsely billing at the medical-direction rate are likewise
sufficient to lift the latest version of Mamalakis’s complaint
over Rule 9(b)’s pleading benchmark. The case may proceed,
but it calls for carefully managed discovery to test whether it
in fact has evidentiary support. If early managed discovery
reveals that TeamHealth did not submit false claims on these
No. 19-3117                                              15

occasions, then it can respond as appropriate. But Mama-
lakis has pleaded fraud with enough particularity to entitle
him to move forward on his claim.
                                  REVERSED AND REMANDED