164 F. Supp. 3d 621
D.N.J.2016Background
- Care Alternative, Inc. is a for‑profit hospice provider in New Jersey; former employees (Relators) sued under the federal False Claims Act (FCA) and New Jersey FCA alleging widespread improper hospice admissions, altered records, and inducements to obtain referrals.
- Relators allege corporate directives to manipulate diagnoses, back‑date or recreate missing documentation, and an aggressive marketing program (meals, gifts, staffing promises) to induce referrals; they identify 15 patients as examples and attached patient records under seal.
- The United States investigated but declined to intervene; Relators amended to add state claims and served a redacted complaint; defendant moved to dismiss for failure to state a claim and for lack of Rule 9(b) particularity.
- The complaint proceeds on an implied‑certification theory (legal falsity) alleging violations of Medicare hospice certification/regulatory requirements and the Anti‑Kickback Statute (AKS); Relators do not pursue a factually false theory (services not rendered).
- The court treated Medicare statutes/regulations and Local Coverage Determinations (LCDs) as incorporated by reference, held that hospice certification/LCD rules are conditions of payment (not merely conditions of participation), but interdisciplinary team meeting rules are conditions of participation.
- The court granted in part and denied in part the motion: claims based on inappropriate admissions/recertifications survive; claims based on alleged altered documentation and AKS violations were dismissed for lack of particularity (without prejudice); Stark Act and interdisciplinary‑meeting claims were dismissed with prejudice; NJFCA claims dismissed without prejudice (deficient as to post‑effective‑date specificity).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether hospice certification/regulatory noncompliance can be a basis for FCA liability (condition of payment vs participation) | Relators: Medicare statute/regulations and LCDs condition payment on proper certification and supporting clinical documentation, so implied certification is actionable | Care Alternative: Rules are conditions of participation, not payment, so no FCA liability | Court: Hospice certification rules and LCDs are conditions of payment (implied certification viable); interdisciplinary meeting rule is condition of participation (no FCA claim on that ground) |
| Whether Relators pled presentment of false claims and scienter with sufficient particularity under Rule 9(b) | Relators: Certification of identified patients and attached records + corporate practices allow strong inference that claims were submitted and that defendants knew or recklessly disregarded falsity | Care Alternative: Complaint lacks representative false claims or particularized scheme details; scienter not plausibly alleged | Court: Allegations about 15 identified patients and provider status sufficiently infer presentment; scienter plausibly alleged for inappropriate admissions/recertifications (claims survive) |
| Whether allegations of document alteration are plead with Rule 9(b) particularity | Relators: Corporate instructions to alter/recreate records and specific exhibits support claim | Care Alternative: Allegations are conclusory; lack who/when/which records; inadequate notice under Rule 9(b) | Court: Dismissed altered‑documentation FCA claims for failure to plead particulars, without prejudice to amend |
| Whether alleged AKS violations were pled with sufficient specificity and can support implied‑certification FCA claims | Relators: Gifts, meals, staffing promises induced referrals, so claims impliedly certified AKS compliance | Care Alternative: Allegations are vague; safe harbor exceptions could apply; Relators fail to identify specifics (who, what, when) | Court: Dismissed AKS‑based FCA claims for lack of Rule 9(b) particularity, without prejudice to amend |
Key Cases Cited
- Erickson v. Pardus, 551 U.S. 89 (standard for accepting well‑pleaded facts)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for complaints)
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions insufficient; plead factual plausibility)
- Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153 (3d Cir.) (Rule 9(b) particularity in FCA actions; need scheme + reliable indicia that claims were submitted)
- United States ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295 (3d Cir.) (elements of FCA claim; implied‑certification framework in Third Circuit)
- United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235 (3d Cir.) (Anti‑Kickback Statute treated as condition of payment)
- United States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211 (FCA: distinction between conditions of payment and participation)
- United States v. Kolodesh, 787 F.3d 224 (3d Cir.) (Medicare reimburses only for patients certified as terminally ill)
- Schumann v. Astrazeneca Pharma. L.P., 769 F.3d 837 (3d Cir.) (standards for denying leave to amend)
- Briscoe v. Klaus, 538 F.3d 252 (3d Cir.) (what constitutes prejudice in denying leave to amend)