US Ex Rel. Geraldine Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201

Background

Relator Geraldine Godecke was KCI’s Director of Medicare Cash & Collections (2001–2007) and worked on billing, appeals, and internal tracking for VAC (negative-pressure wound therapy) claims submitted to Medicare.
Medicare LCDs required a detailed written order prior to delivery (WOPD) for VAC reimbursement; claims delivered before a WOPD required an EY modifier to indicate noncompliance, while the KX modifier attested that all requirements were met.
Godecke alleges KCI routinely delivered VACs under manager-authorized “exceptions” (i.e., before obtaining a WOPD), then submitted claims without the EY modifier (and sometimes with KX), using internal tracking systems to conceal the timing and obtain orders within a 30-day billing window.
She identified representative ROEs through cross-referencing KCI databases showing deliveries without WOPDs that were nevertheless paid or appealed, and she relied on corroboration from former colleague Theresa Duffy who reviewed denied claims and recalled widespread missing documentation.
After raising concerns internally, Godecke and several supervisors were fired; she filed a qui tam FCA suit. The district court dismissed the Fourth Amended Complaint; the Ninth Circuit reversed and remanded, holding the FAC sufficiently pleaded false claims, scienter, and materiality.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether KCI actually submitted false claims (pleading adequacy)	Alleges a detailed scheme: managerial exceptions, tracking systems, ROE cross‑references showing delivered-but-unsupported VACs that were paid/appealed, and Duffy corroboration	Plaintiff failed to identify representative submitted false claims; ROE data could instead reflect claims submitted with EY and denied	Pleading sufficed: scheme allegations plus reliable indicia (ROE analysis and Duffy) create a strong inference that false claims were submitted
Whether KCI acted with requisite scienter under the FCA	KCI knowingly or willfully ignored noncompliance: manager-authorized exceptions, tracking to mask deliveries, Duffy’s statements, management instructed not to appeal, and retaliatory firings	Any knowledge arose only during appeals (after submission); no specific intent to defraud shown	Scienter adequately alleged under FCA standard via deliberate ignorance/reckless disregard (no specific intent required)
Whether the alleged falsity was material to Medicare’s payment decision	LCDs expressly made WOPD a condition of payment; longstanding rule, negotiated to prevent fraud; absent WOPD Medicare would not pay	Government sometimes permits departures; without proof Medicare actually refused payment in comparable cases, materiality not shown	Materiality adequately alleged at pleading stage: LCD condition and allegation that Medicare would not pay without WOPD are probative and sufficient to survive dismissal

Key Cases Cited

Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for Rule 12(b)(6))
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must be plausible)
U.S. ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166 (9th Cir. 2006) (standard for reviewing FCA dismissals)
U.S. ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir. 2011) (Rule 9(b) particularity in FCA suits)
Kearns v. Ford Motor Co., 567 F.3d 1120 (9th Cir. 2009) (who, what, when, where, how pleading rule for fraud)
Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993 (9th Cir. 2010) (scheme-plus-indicia pleading approach in FCA cases)
Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009) (same scheme-plus-indicia formulation)
U.S. ex rel. Campie v. Gilead Sci., Inc., 862 F.3d 890 (9th Cir. 2017) (elements of an FCA claim)
United States v. Bourseau, 531 F.3d 1159 (9th Cir. 2008) (no specific intent required for FCA scienter)
United Healthcare Ins. Co. v. 848 F.3d 1161 (9th Cir. 2016) (deliberate ignorance/limited inquiry duty in FCA scienter context)
Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016) (materiality standard for FCA; government’s treatment of noncompliance is probative)
U.S. ex rel. Rose v. Stephens Inst., 909 F.3d 1012 (9th Cir. 2018) (LCDs and materiality analysis)
Hooper v. Lockheed Martin Corp., 688 F.3d 1037 (9th Cir. 2012) (district court legal-standard error review)