UNITED STATES OF AMERICA and the STATE OF WISCONSIN, ex rel. ROSE PRESSER v. ACACIA MENTAL HEALTH CLINIC, LLC, and ABE FREUND
No. 14-2804
United States Court of Appeals For the Seventh Circuit
September 1, 2016
ARGUED APRIL 6, 2016
Before FLAUM, RIPPLE, and HAMILTON, Circuit Judges.
RIPPLE, Circuit Judge. Relator and plaintiff Rose Presser filed a qui tam action under the False Claims Act,
I
BACKGROUND
A. Facts
Ms. Presser has twenty years of experience working as both a nurse and a nurse practitioner in the State of Wisconsin. In October 2011, Ms. Presser began working with Acacia
First, Acacia mandated that patients be assessed by a minimum of four different individuals before they were provided with medication. Patients were required to see a receptionist, a medical nurse practitioner (who could not conduct medical examinations but did provide acupuncture and similar treatments), a psychotherapist, and then a nurse practitioner. Patients incurred separate charges for each of these four steps. Ms. Presser alleges that, “[b]ased on [her] years of experience and training, Acacia’s four-step policy was not medically necessary.”2
Second, the clinic manager directed Ms. Presser to utilize American Medical Association Current Procedural Terminology code 90801 when billing her assessments. The receptionist and the medical nurse practitioner used this same billing code for their encounters with the patient. This “code is applied to … a full psychological assessment by a therapist (or therapist in training), or a psychiatric medical evaluation by a psychiatrist or psychiatric nurse practitioner, the type of assessment [Ms.] Presser was expressly told to discontinue conducting.”3 Ms. Presser asked the clinic manager why billing
Third, patients were required to undergo a mandatory urine drug screening during each visit. Each of these screenings was billed. The clinic manager told Ms. Presser that the tests allowed Acacia to determine whether patients were taking their medication. Ms. Presser alleges, “[b]ased on her personal knowledge and experience,” that “the policy made no sense as the screenings would not establish when the patients took their medications and whether they were taking them at the proper times.”4
Fourth, both Mr. Freund and the clinic director told the clinic staff that patients were required to come to the clinic in person in order to obtain a prescription refill or to speak with a physician. Patients regularly told Ms. Presser that they had called to speak with her over the phone, but were told by the receptionist that they needed to come to Acacia in person. If a patient missed an appointment or was not seen for a period as short as thirty days, he or she was discharged and would need to restart the assessment process. Before obtaining a new prescription, patients were required to see a psychotherapist at the clinic. Patients were billed for these encounters. “Based on [Ms.] Presser’s years of experience and training,”
In her complaint, Ms. Presser provided examples of what she believed to be “unnecessary medical billings.”6 John Doe 1 and Jane Doe 2 saw Ms. Presser for treatment of anxiety disorders during Ms. Presser’s previous tenure at Aurora Behavioral Health.7 In her “clinical judgment,” neither patient was an “appropriate candidate for psychotherapy.”8 Ms. Presser had similar opinions about John Doe 2 and Jane Doe 1, whom she also saw for medication.9 The clinic manager and Mr. Freund nonetheless directed that all four individuals undergo the assessment process established by Acacia, which included psychotherapy.
Before Ms. Presser began working at Acacia, Mr. Freund told her “that Acacia could take all insurance.”10 Mr. Freund also told [Ms.] Presser that almost all of Acacia’s patients were
Based on those discussions, as well as her experience at other clinics, she knew that Acacia submitted bills to individual patients, to private insurers, and to Medicare and Medicaid programs run by the United States and the State of Wisconsin for services provided to patients, subject to their individual circumstances. She also knew those bills were based on services provided to patients, as coded by Acacia staff, in accordance with Acacia’s mandatory policies and procedures discussed above.12
Ms. Presser calculated what she believed to be the appropriate annual revenue for Acacia, “[b]ased on her experience and her knowledge of the patient volume and activity at Acacia.”13 Actual revenue for 2011 was double Ms. Presser’s calculation.
Ms. Presser and other clinicians questioned the efficacy of the aforementioned procedures, but the clinic director told them that “[t]his is how Abe [Freund] wants it.”14 When Ms. Presser sent emails that questioned procedures, Mr. Freund would respond, even when those emails were not addressed to him. He also had cameras in the office and could
B. Earlier Proceedings
Ms. Presser filed a qui tam complaint on January 18, 2013, under the FCA and the WFCA on behalf of the United States and the State of Wisconsin against Acacia and Mr. Freund. She alleged that they had submitted fraudulent medical bills to the federal and state governments for payment.16
Acacia and Mr. Freund moved to dismiss the complaint on December 18, 2013, contending that Ms. Presser had not pleaded a single claim with sufficient particularity. Ms. Presser then moved to amend her complaint. The district court granted that motion and ordered Ms. Presser to “mak[e] any and all improvements she deems appropriate; no further
Acacia and Mr. Freund moved to dismiss the amended complaint on April 11, 2014. They contended that Ms. Presser had failed to plead the FCA and WFCA claims with sufficient particularity, as required by
II
DISCUSSION
“The FCA is an anti-fraud statute and claims under it are subject to the heightened pleading requirements of
Drawing on the Supreme Court’s holdings in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), we have made clear that the pleading standards under
While applying this shorthand to describe the requirements of
placing what may be undue pressure on the defendant to settle the case in order to lift the cloud on its reputation. The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable the defendant to riposte swiftly and effectively if the claim is groundless. It also forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims.
Fid. Nat’l Title Ins. Co. of N.Y. v. Intercounty Nat’l Title Ins. Co., 412 F.3d 745, 749 (7th Cir. 2005); see also Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994) (discussing the Rule’s purpose of “minimizing ‘strike suits’ and ‘fishing expeditions’”); Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 924 (7th Cir. 1992) (“
A.
We have applied the requirements of
The False Claims Act makes it unlawful to knowingly (1) present or cause to be presented to the United States a false or fraudulent claim for payment or approval,
31 U.S.C. § 3729(a)(1) (2006); (2) make or use a false record or statement material to a false or fraudulent claim,§ 3729(a)(1)(B) ; or (3) use a false record or statement to conceal or decrease an obligation to pay money to the United States,§ 3729(a)(7) (2006). Under the Act, private individuals … , referred to as “relators,” may file civil actions known as qui tam actions on behalf of the United States to recover money that the government paid as a result of conduct forbidden under the Act. Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 912 (7th Cir. 2009). As an incentive to bring suit, a prevailing relator may collect a substantial percentage of any funds recovered for the benefit of the government. Id. To establish civil liability under the False Claims Act, a relator generally must prove (1) that the defendant 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. E.g., United States ex rel. Gross v. AIDS Research Alliance–Chicago, 415 F.3d 601, 604 (7th Cir. 2005).
1.
We first consider whether the complaint states, with sufficient particularity, that Acacia and Mr. Freund made the alleged claims and statements to the federal and state governments. The defendants contend, and the district court held, that Ms. Presser had not alleged that the defendants actually sent any of the alleged claims or made any of the alleged statements to the state or federal governments.
Our case law establishes that a plaintiff does not need to present, or even include allegations about, a specific document or bill that the defendants submitted to the Government. In United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849 (7th Cir. 2009), for example, an engineer alleged that his employer knowingly certified engine parts that did not meet the specifications prescribed by the Government. Id. at 853–54. The engineer’s complaint described the parts that were shipped to the Government, noted that a contract required his
Here, Ms. Presser stated in her complaint that Mr. Freund had told her “that almost all of Acacia’s patients were ‘on Title 19’” and that they dealt with Medicare.24 Ms. Presser’s complaint also makes clear that the questionable practices and procedures were applied to all patients at the clinic. Considering Ms. Presser’s position as a nurse practitioner, a position that does not appear to include regular access to medical bills, we do not see how she would have been able to plead more facts pertaining to the billing process. See Corley v. Rosewood Care Ctr., Inc., 142 F.3d 1041, 1051 (7th Cir. 1998) (“[T]he particularity requirement of
2.
We now must consider whether the policies and practices alleged in Ms. Presser’s complaint describe the alleged fraudulent activity in sufficient detail. Although a pleading need not “exclude all possibility of honesty in order to give the particulars of fraud,” Lusby, 570 F.3d at 854, “[t]he grounds for the plaintiff’s suspicions must make the allegations plausible, even as courts remain sensitive to information asymmetries that may prevent a plaintiff from offering more detail.” Pirelli, 631 F.3d at 443 (emphasis in original).
We begin with the allegations related to the use of billing code 90801. According to the complaint, this code is only meant to apply to full psychological assessments by a therapist or an evaluation by a psychiatrist. Ms. Presser alleges that her superiors directed her to use this code even though they also “expressly told [her] to discontinue conducting” psychiatric evaluations.25 She also alleges that receptionists and medical nurse practitioners used this code, even though their job description clearly does not include psychological assessments. The clinic director indicated to Ms. Presser that the use of this specific code was the policy and that Mr. Freund
Indeed, the allegations involving this billing code are even more specific than those presented in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). In Universal Health Services, a relator alleged that the owner of a mental health facility had employed mental health counselors who lacked the requisite licensing. Id. at 1997. The facility submitted reimbursement claims to Medicaid using payment codes “such as ‘Individual Therapy’ and ‘family therapy.’” Id. The Supreme Court concluded that, “by submitting claims for payment using payment codes that corresponded to specific counseling services, [the owner of the facility] represented that it had provided individual therapy, family therapy, preventive medication counseling, and other types of treatment.” Id. at 2000. The Court held that the use of these codes “without disclosing [the] many violations of basic staff and licensing requirements for mental health facilities … constituted misrepresentations” that could serve as a basis for liability under the FCA. Id. at 2000–01.26 Ms. Presser’s allegations involve more than the “misleading half-truths” that the Court identified in Universal Health Services. Id. at 2001. In that case, the
By contrast, Ms. Presser’s remaining allegations present significant cause for concern. Ms. Presser challenges the propriety of the four-person evaluation process, mandatory drug screenings, and policies on prescription refills and appointments. She claims that these policies violate
However, in her complaint, Ms. Presser provides no medical, technical, or scientific context which would enable a reader of the complaint to understand why Acacia’s alleged actions amount to unnecessary care forbidden by the statute. For instance, the complaint does not reference policies or practices at other medical clinics, regulations, or other publications which call Acacia’s policies into question. Further, although the complaint identifies four individuals who received treatment at Acacia that was, in Ms. Presser’s view, medically unnecessary, the complaint does not provide any reasons why
We previously have affirmed dismissals of complaints that fail to put the defendant’s alleged activity into its relevant context. In Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. Walgreen Co., 631 F.3d 436 (7th Cir. 2011), for example, we considered a complaint which alleged that a pharmacy chain systematically filled prescriptions for one form of a medication with a more expensive form of the same medication. Id. at 438. The plaintiff relied, in part, on data showing that the chain had sought reimbursement for the more expensive form of the drug eleven times. Id. at 444. We noted, however, that patients may have specific medical reasons that make the more expensive form of the drug preferable to the other form. Id. at 445. “[T]he data” presented in the complaint, “untethered as they are, cannot corroborate a fraud because their free-floating nature stymies any meaningful understanding of what the numbers mean.” Id. We explained that:
Putting the numbers in context could tell us whether [the plaintiff] also reimbursed [the pharmacy] for the cheaper form of the drugs in the five-year period that [the plaintiff] examined. To the extent it did not, the fraud claim would be supported; to the extent it did, it would be undermined. Or we could see if reimbursements for the more expensive forms of the drugs outstripped reimbursements for the cheaper versions in an unlikely way. [The plaintiff] did not need to dance to [a] comprehensive statistical tune, but did need to provide firsthand facts or data to make its suspicions
plausible. [The plaintiff’s] de minimis showing tells us little and does not fulfill Rule 9(b) ’s purpose of “forc[ing] the plaintiff to do more than the usual investigation before filing his complaint.”
Id. (last alteration in original) (emphasis in original) (quoting Ackerman, 172 F.3d at 469).
The complaint in this case similarly lacks a concrete basis for the plaintiff’s allegations. Like the complaint in Pirelli, Ms. Presser’s complaint fails to demonstrate how Acacia’s policies compare to other clinics or could otherwise be understood as “unusual.” See id. Acacia’s policies could have entirely innocent explanations. A four-step evaluation process may be in place to ensure that patients are diagnosed properly and receive proper treatment. Mandatory drug-screening and in-person refill policies may ensure that prescriptions are not being abused. Without additional context providing reason to question the appropriateness of these policies, the complaint does not present allegations of fraud with sufficient particularity.
Not only does the lack of context make these allegations too indefinite, but each of the allegations depends entirely on Ms. Presser’s personal estimation28—an estimation that is not
We hold that Ms. Presser sufficiently has alleged facts that constitute a fraudulent scheme involving the use of billing code 90801. However, without an ascertainable standard or more context, Ms. Presser’s other allegations of fraud do not
B.
A party has the right to amend the complaint once as a matter of right and has the opportunity for further amendment at the district court’s discretion.
Ms. Presser does not challenge the district court’s decision not to grant further leave, and therefore this issue is waived. See Fluker v. Cty. of Kankakee, 741 F.3d 787, 795 (7th Cir. 2013) (holding that a party that failed to develop a legal argument on appeal regarding the district court’s denial of its attempt to file a second amended complaint had waived the issue). Considering that some of her claims are proceeding to the discovery stage, the district court may choose to revisit the question of amendment because the potential for undue prejudice to Acacia and Mr. Freund that previously was identified by the district court now may be diminished. The decision whether to grant further leave to amend is entirely within the discretion of the district court.
Conclusion
For the foregoing reasons, we affirm the district court’s judgment except with respect to the claims about the use of billing code 90801. With respect to those claims, we reverse the judgment of the district court and remand for further proceedings consistent with this opinion. Whether, under these circumstances, further amendment should be allowed, is left
AFFIRMED in part; REVERSED and REMANDED in part
However, I respectfully part company on the dismissal of Presser’s other fraud claims based on the unnecessary four-person evaluation process, mandatory drug screenings, and policies on prescription refills and appointments. I would allow those claims to go forward as pleaded. In any event, the district court will need to exercise its sound discretion in deciding whether to allow further amendments to revive these other claims.
On these other claims, Presser alleged the “circumstances” of the fraud with particularity as required by
Yet the majority concludes on pages 17 to 20 that Presser failed to allege something else essential, apparently some additional factual basis to support her contention that these
The majority tells us that what is missing is “an ascertainable standard or more context,” and the majority suggests that a reference to a professional standard might provide the missing allegations. Ante at 20. The majority is concerned that plaintiff has not identified anything other than her own experience and judgment as a basis for saying that defendant was billing the federal and state governments for unnecessary care. The majority also speculates about possible innocent explanations for the allegedly fraudulent practices. Ante at 19.
With respect, the majority’s insistence on an external standard or “context” goes beyond the requirements of
In fact, the majority here comes close to applying the special pleading standard from the Private Securities Litigation Reform Act, which requires a securities fraud plaintiff to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.”
To justify this unusually demanding interpretation of
This case will return to the district court for discovery and further proceedings. It is possible the relator Presser may seek to amend her complaint to meet the newly articulated requirement for “context” or “external standards,” or at least for more factual details supporting the other fraud claims. The majority says at page 22 that the decision on any further amendment of the complaint “is entirely within the discretion of the district court.” It should go without saying that discretion must be exercised according to law.
When the defense filed its original motion to dismiss, the district judge told the relator that she would have only one chance to amend her complaint. Such a rigid ruling at the outset of most cases would be an abuse of discretion. See Runnion v. Girl Scouts of Greater Chicago, 786 F.3d 510, 522 (7th Cir. 2015) (2009 amendment to
More generally, in the post-Iqbal-and-Twombly world of civil pleading, it is difficult for any plaintiff to know what a particular district judge will require by way of details in a complaint. Variations among district judges and appellate panels can be substantial, suggesting that the Iqbal and Twombly project is leading not to more clarity and less litigation, but to less clarity and more litigation. The majority acknowledges this problem, noting accurately that “the precise details that must be included in a complaint ‘may vary on the facts of a given case.’” Ante at 10, quoting Pirelli Armstrong Tire Corp. Retiree Med. Benefits Tr. v. Walgreen Co., 631 F.3d 436, 442 (7th Cir. 2011); accord, In re Healthcare Compare Corp. Securities Litig., 75 F.3d 276, 284–85 (7th Cir. 1996) (Ripple, J., dissenting) (“Reasonable minds can—and will—differ on the adequacy of the factual specificity in an allegation of fraud.”). To emphasize the uncertainty, Pirelli noted that the plaintiff in that case may have provided too much detail. 631 F.3d at 439 n.1.