United States of America et al v. Carelink Hospice, Inc.
Filing
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ORDER GRANTING 30 MOTION TO DISMISS. Signed by Judge William H. Orrick on 10/01/2018. (jmdS, COURT STAFF) (Filed on 10/1/2018)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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UNITED STATES OF AMERICA, EX
REL. YOLANDA ARMSTRONGYOUNG,
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United States District Court
Northern District of California
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ORDER GRANTING MOTION TO
DISMISS
Plaintiffs,
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Case No. 15-cv-04095-WHO
v.
Re: Dkt. No. 30
CARELINK HOSPICE SERVICES, INC.,
Defendant.
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Qui Tam plaintiff Yolanda Armstrong-Young alleges that defendant Carelink Hospice
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Services, Inc. (“Carelink”) violated the federal False Claims Act by claiming reimbursements from
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Medicare on behalf of patients who were not eligible to have their hospice care covered by the
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Government. On her third attempt, she has still not alleged sufficient facts to meet Federal Rule of
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Civil Procedure 9(b)’s heightened requirements to state a claim for fraud. Accordingly, I GRANT
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Carelink’s motion to dismiss without leave to amend.
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BACKGROUND
Armstrong-Young was employed by Carelink from approximately April 2015 to June
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2015. Second Amended Complaint (“SAC”) [Dkt. No. 30] ¶ 11. Carelink is a California
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corporation in the business of providing hospice care to Medicare participants. Id. ¶¶ 12-13.
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Armstrong-Young filed suit on behalf of the United States of America alleging that Carelink
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violated 31 U.S.C. § 3729(a)(1)(A), the federal False Claims Act (“FCA”), because it claimed
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reimbursements from Medicare on behalf of ineligible patients. Her allegations are taken as true
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for the purposes of evaluating Carelink’s motion to dismiss.
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Since 1982, Medicare Part A has included a hospice benefit for terminally-ill patients. Id.
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¶ 18. Terminally ill is defined as having a life expectancy of six months or less. Id. ¶ 22. In order
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for a patient to be admitted into hospice care there must be a certification of terminal illness from
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both the individual’s attending physician, if he or she has an attending physician, and the medical
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director of the hospice or a physician-member of the hospice interdisciplinary group. Id. ¶ 46. An
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interdisciplinary group consists of, at minimum, a physician, a registered nurse, a social worker,
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and a pastor or other counselor. Id. ¶ 47. Hospice providers must submit a CMS-1450 form to be
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reimbursed by Medicare via the Centers for Medicare and Medicaid Services (“CMS”). Id. ¶¶ 56-
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58. By submitting a CMS-1450 form, a hospice provider certifies to the CMS that it is entitled to
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reimbursement. Id. ¶¶ 59-60.
Without identifying particular claims for reimbursement or patients, Armstrong-Young
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United States District Court
Northern District of California
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alleges that Carelink violated the FCA when it sought reimbursement for patients who it knew
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were not terminally-ill. Id. ¶¶ 68-75. She also describes a number of violations of Medicare’s
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rules, policies, procedures, and regulations that are unrelated to her sole FCA claim. Id. ¶¶ 76-81.
In my June 2018 Order, I dismissed Armstrong-Young’s First Amended Complaint with
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leave to amend. Dkt. No. 28. I stated that she had not alleged enough detail to give notice of
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particular misconduct that would constitute fraud and support an implied false certification claim
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for hospice care under Medicare. Id.
Armstrong-Young filed the SAC on July 13, 2018. Dkt. No. 29. Carelink again moves to
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dismiss the FCA claim for failure to allege a FCA cause of action with the required particularity
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required by Federal Rule of Civil Procedure 9(b) and because Carelink is not authorized to
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designate patients for hospice care and therefore cannot make false claims.1 Dkt. No. 30. The
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United States of America (the real party in interest) has declined to intervene in this case. Dkt.
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No. 15.
LEGAL STANDARD
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Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint
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if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to
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Given that I am dismissing the SAC on Rule 9(b) grounds, I will not address Carelink’s
alternative argument.
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dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its
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face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). A claim is facially plausible when
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the plaintiff pleads facts that “allow the court to draw the reasonable inference that the defendant
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is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation
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omitted). There must be “more than a sheer possibility that a defendant has acted unlawfully.” Id.
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While courts do not require “heightened fact pleading of specifics,” a plaintiff must allege facts
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sufficient to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555, 570.
“Because they involve allegations of fraud, qui tam actions under the False Claims Act
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must meet not only the requirement of Rule 8, but also the particularity requirements of Rule 9.”
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United States ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 992 (9th Cir. 2011). Under Federal
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United States District Court
Northern District of California
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Rule of Civil Procedure 9(b), a party must “state with particularity the circumstances constituting
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fraud or mistake,” including “the who, what, when, where, and how of the misconduct charged.”
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Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (internal quotation marks
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omitted). However, “Rule 9(b) requires only that the circumstances of fraud be stated with
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particularity; other facts may be plead generally, or in accordance with Rule 8.” Corinthian
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Colls., 655 F.3d at 992.
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In deciding whether the plaintiff has stated a claim upon which relief can be granted, the
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court accepts the plaintiff's allegations as true and draws all reasonable inferences in favor of the
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plaintiff. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court is
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not required to accept as true “allegations that are merely conclusory, unwarranted deductions of
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fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir.
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2008).
DISCUSSION
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I.
THE FEDERAL RULE OF CIVIL PROCEDURE 9(B) HEIGHTENED PLEADING
STANDARD FOR FRAUD
Carelink argues that Armstrong-Young’s FCA claim must be dismissed because the SAC
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fails to allege fraudulent conduct with the degree of specificity required by Federal Rule of Civil
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Procedure 9(b).
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The FCA imposes liability on anyone who “knowingly presents, or causes to be presented,
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a false or fraudulent claim for payment or approval.” United States, et al. v. Stephens Inst., No.
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17-15111, 2018 WL 4038194, at *3 (9th Cir. Aug. 24, 2018) (citing 31 U.S.C. § 3729(a)(1)(A)).
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In order to state a FCA claim, plaintiffs must allege that there was a “(1) a false statement or
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fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the
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government to pay out money or forfeit moneys due.” U.S. ex rel Hendow v. Univ. of Phoenix,
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461 F.3d 1166, 1174 (9th Cir. 2006). The falsity requirement may be satisfied by either express
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false certification or implied false certification. The key difference between the two is whether the
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entity seeking payment must certify that it has complied with the applicable law, rule, or
regulation each time a claim is made, or if that certification is made initially and later implied with
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United States District Court
Northern District of California
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each subsequent claim. Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010).
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Express false certification occurs when an entity seeking payment from the government
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falsely certifies compliance with a law, rule, or regulation each time a claim is submitted. Id.
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Implied false certification occurs when an entity has previously undertaken to expressly comply
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with a law, rule, or regulation, does not in fact comply, and then submits a claim for payment.2 Id.
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Under both theories, “[i]t is the false certification of compliance which creates liability when
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certification is a prerequisite to obtaining a government benefit.” Id. at 998 (quoting U.S. ex rel.
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Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996)).
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Under Federal Rule of Civil Procedure 9(b), a party must “state with particularity the
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circumstances constituting fraud or mistake,” including “the who, what, when, where, and how of
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the misconduct charged.” Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)
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(internal quotation marks omitted). As applied here, “[t]o survive a Rule 9(b) motion to dismiss, a
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In the wake of the United States Supreme Court’s decision in Universal Health Services,
Inc. v. United States ex rel. Escobar, the requirements to state an FCA claim under a theory of
implied false certification has become less clear in the Ninth Circuit. See generally Stephens Inst.,
No. 17-15111, 2018 WL 4038194, at *4-5 (citing 136 S.Ct. 1989 (2016)). It is unclear if the
standard for implied false certification in Ebeid remains viable. See id. at *4. This uncertainty
does not preclude me from analyzing the sufficiency of Armstrong-Young’s allegations under
Federal Rule of Civil Procedure 9(b) as Ebeid articulates a lower standard for falsity than Escobar.
If Armstrong-Young cannot meet the Ebeid standard for falsity, she will also not be able to meet
the more rigorous standard in Escobar.
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complaint alleging implied false certification must plead with particularity allegations that provide
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a reasonable basis to infer that (1) the defendant explicitly undertook to comply with a law, rule or
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regulation that is implicated in submitting a claim for payment and that (2) claims were submitted
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(3) even though the defendant was not in compliance with that law, rule or regulation.” Ebeid,
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616 F.3d at 998.
Armstrong-Young seeks to bring an implied false certification claim. She relies on general
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allegations that Carelink presented false claims and pressured its employees to maximize the
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number of patient admissions or eligibility recertifications without care to whether the patients
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were actually eligible for Medicare-provided hospice care. SAC ¶¶ 68, 70.
Armstrong-Young attached a list of four patients about whom she states she raised
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United States District Court
Northern District of California
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eligibility concerns. Id. ¶ 81, Ex. D. She alleges only that she “expressed concern to senior
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Carelink Management regarding their eligibility for Medicare hospice benefits eligibility and/or
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compliance with Medicare-required treatments and protocols.” SAC ¶ 81. This bare allegation
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does not describe the nature of Armstrong-Young’s concerns or her basis for believing that the
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four individuals in Exhibit D were not eligible for Medicare reimbursements for hospice care. She
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does not identify any reimbursements from Medicare made on behalf of the four individuals.
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Armstrong-Young states that another social worker, Arnetta Lone Chief, had “personal
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knowledge of two other employees, Regina and Myla Thong, engaged in misrepresentation of
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facts in reporting about Carelink patient care.” SAC ¶ 79. She does not allege the nature of this
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misrepresentation, who the alleged misrepresentation was reported to, or why it is relevant to her
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claim.
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She also asserts a number of facts regarding violations of Medicare rules, policies,
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procedures, and regulations unrelated to any particular false claim. These include, among other
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things, that she was asked to sign interdisciplinary group meeting notes stating that she had
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provided social work services to patients she had not seen, that the staff lacked a permanent
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nutritionist, and that there were insufficient visits by registered nurses. Id. ¶ 77. She contends that
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Carelink retaliated against her for voicing her concern about its practices and that another
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employee shared her concerns. Id. ¶¶ 78-80.
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Armstrong-Young has failed to meet the particularity requirements for alleging fraud under
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Federal Rule of Civil Procedure 9(b). Her allegations, individually or taken together, fail to
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identify with particularity what “claims” Carelink submitted that were “impliedly” false as
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required by Federal Rule of Civil Procedure 9(b). Vess, 317 F.3d at 1106. They do not provide a
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reasonable basis for me to infer that claims had been submitted on behalf of any particular patient.
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Ebeid, 616 F.3d at 998. Allegations in a complaint may not simply recite the elements of a cause
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of action but must contain sufficient allegations of underlying facts to give fair notice and to
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enable the opposing party to effectively defend itself. Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.
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2011). The SAC does not sufficiently allege the “who, what, when, where, and how” of the
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United States District Court
Northern District of California
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asserted implied false certification claim to allow Carelink to defend itself.
In opposition, Armstrong-Young argues that her case is similar to United States, et al. v.
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Stephens Inst., No. 17-15111, 2018 WL 4038194 (9th Cir. Aug. 24, 2018). In Stephens, the
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Second Amended Complaint stated a FCA claim for implied false certification through detailed
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factual allegations describing how the defendant, a private, for-profit higher education institution,
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violated the Title IV of the Federal Higher Education Act. See Second Amended Complaint,
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United States, et al. v. Stephens Institute, No. 09-5966-PJH (ND Cal. Nov. 8, 2011), Dkt. No. 18.
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Universities are prohibited under Title IV from providing “any commission, bonus, or other
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incentive payment based . . . on success in securing enrollments of financial aid to any persons . . .
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engaged in any student recruiting or admissions activities.” Id. ¶ 20. The Stephens plaintiffs
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alleged specific and detailed instances of a violation of this prohibition, such as defendant’s agents
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informing a plaintiff-relator that she would “receive an $8,000 salary increase if she met her
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recruitment goal of 65 students, if she achieved 125% of the goal she would receive $10,000
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salary increase and if she achieved 150% of that goal she would receive $15,000 salary increase.”
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Id. ¶ 26, 27, 30. The Stephens plaintiffs bolstered their allegations with emails between the
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plaintiffs’ and defendant’s agents. Id. Ex. A-C, E. Under this scheme, the Ninth Circuit found
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that the plaintiffs had sufficiently alleged an implied false certification cause of action. Stephens,
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2018 WL 4038194 at *8.
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The SAC here is clearly distinguishable. Armstrong-Young has failed to allege a
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fraudulent scheme by Carelink in a comparable level of detail as the Stephens plaintiffs. She
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brings only conclusory allegations, such as that Carelink “knowingly and deliberately pressured
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and encouraged all its employees, including physicians, nurses, social workers and support staff to
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maximize the number of patient admissions and/or recertification of eligibility without care,
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regards or attention to patients were eligible for Medicare hospice benefits,” SAC ¶ 70, or that
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“Carelink employed procedures designed to cause the admission and/or recertification of
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eligibility of virtually every patient who applied for admission and/or continued hospice care,
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regardless of the patients’ eligibility for hospice care”. Id. ¶ 71. These allegations do not
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approach the level of detail provided by the plaintiffs in Stephens, or that is necessary to provide
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United States District Court
Northern District of California
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sufficient notice to Carelink.
Armstrong-Young contends that Carelink misapplies the factual standard required for a
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motion for summary judgement to a motion to dismiss. Opposition (“Oppo.”) [Dkt. No. 37] at 1.
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Federal Rule of Civil Procedure 9(b) controls, and it demands a higher level of specificity to
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sufficiently allege a claim for fraud than is typically required of other claims and certainly more
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than Armstrong-Young provides in the SAC.
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Armstrong-Young also argues that Carelink necessarily made implied false certifications
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when it sought reimbursement from CMS via a CMS-1450 form. Id. at 11-13. But she fails to
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identify the submission of any particular CMS-1450 form or patient for whose benefit
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reimbursement was sought. She does not allege that any CMS-1450 forms were submitted on
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behalf of the four individuals identified in Exhibit D to the SAC.
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Armstrong-Young cites U.S. ex rel. Brown v. Celgene Corp. for the proposition that falsity
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may be alleged without providing details of a representative false claim as long as the plaintiff
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alleges sufficient indicia that false claims were actually submitted. Oppo. at 12 (citing No. CV 10-
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3165, 2014 WL 3605896, at *2 (C.D. Cal. July 10, 2014)). In Celgene, the plaintiff alleged that
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defendant pharmaceutical company defrauded government-funded healthcare programs by
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systematically promoting two particular drugs for non-reimbursable off-label uses and paying
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illegal kickbacks to physicians. Celgene, WL 3605896, at *1. The Celgene plaintiff was able to
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allege particular details of a scheme to submit false claims paired with reliable indicia that led to a
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strong inference that claims were actually submitted. Id. In a 100-plus page complaint, the
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plaintiff described the fraudulent scheme as it was communicated to her by those perpetrating the
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fraud, that by the defendant’s own estimates Medicare and Medicaid paid for the majority of the
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two drug prescriptions, that industry analysts estimate that “almost all” of defendant’s sales were
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for off-label uses, and that the plaintiff never was trained to market the drugs on-label. Id. These
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facts made it easy for the court to infer that claims for non-reimbursable, off-label uses were
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submitted to Medicare and Medicaid. Id.
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Celgene is distinguishable because no similar facts have been alleged in this case.
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Armstrong-Young has not provided anything close to the reliable indicia relied upon by the court
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United States District Court
Northern District of California
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in Celgene to show that false claims were submitted.
Armstrong-Young cites Wool v. Tandem Computers Inc., Deutsch v. Flannery, and U.S. ex
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rel. Lee v. SmithKline Beecham, Inc. to support her request that Rule 9(b)’s particularity
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requirement should be relaxed in this case. Oppo. at 13 (citing 818 F.2d 1433, 1440 (9th Cir.
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1987); F.2d 1361, 1366 (9th Cir. 1987); 245 F.3d 1048, 1052 (9th Cir. 2001)). Wool and Flannery
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both involved securities fraud claims, where the evidence of fraud was in the exclusive possession
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of the defendants. Securities fraud claims have different pleading requirements than FCA claims.
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In SmithKline, the court refused to relax Rule 9(b)’s particularity standard in a FCA case and
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stated that because the plaintiff had worked for the defendant for 20 years, it could not be fairly
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said that the information required was in the exclusive possession of the defendants. 245 F.3d at
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1052. Simply because the court in SmithKline refused to relax Rule 9(b)’s requirement for a long-
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time employee does not mean that it would have done so for a short-term employee. The law is to
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the contrary, particularly where I cannot make a reasonable inference to leap from the facts alleged
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to find a plausible FCA claim.
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Carelink’s Motion to Dismiss is GRANTED. In my previous order dismissing the First
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Amended Complaint, I cautioned Armstrong-Young that she had not alleged enough detail to give
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notice of particular misconduct to support an implied false certification claim for hospice care
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under Medicare. She has again failed to provide enough detail. Her FCA claim is DISMISSED
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WITH PREJUDICE.
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CONCLUSION
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For the reasons outlined above, Carelink’s Motion to Dismiss is GRANTED. Because
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Armstrong-Young has already been given leave to amend her FCA claim twice and it appears that
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further amendment would be futile, the FCA claim and this case is DISMISSED WITH
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PREJUDICE.
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IT IS SO ORDERED.
Dated: October 1, 2018
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William H. Orrick
United States District Judge
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United States District Court
Northern District of California
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