United States of America ex rel. Marjorie Prather, Relator-Appellant,
Brookdale Senior Living Communities, Inc. et al., Defendants-Appellees. Episode RAP F2F encounter signed Certification signed Final bill
Argued: April 25, 2018
from the United States District Court for the Middle District
of Tennessee at Nashville. No. 3:12-cv-00764-Aleta Arthur
Trauger, District Judge.
Patrick Barrett, BARRETT LAW OFFICE, PLLC, Nashville,
Tennessee, for Appellant. Brian D. Roark, BASS, BERRY &
SIMS PLC, Nashville, Tennessee, for Appellees.
Barbero, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Amicus Curiae.
Patrick Barrett, BARRETT LAW OFFICE, PLLC, Nashville,
Tennessee, Michael Hamilton, PROVOST UMPHREY LAW FIRM, LLP,
Nashville, Tennessee, for Appellant.
D. Roark, J. Taylor Chenery, Angela L. Bergman, BASS, BERRY
& SIMS PLC, Nashville, Tennessee, for Appellees.
Barbero, Charles W. Scarborough, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Amicus Curiae.
Before: MOORE, McKEAGUE, and DONALD, Circuit Judges.
NELSON MOORE, Circuit Judge.
Senior Living Communities employed Marjorie Prather to review
Medicare claims prior to their submission for payment. Many
of these claims were missing the required certifications from
physicians attesting to the need for the medical services
that the defendants had provided. These certifications need
to "be obtained at the time the plan of care is
established or as soon thereafter as possible." 42
C.F.R. § 424.22(a)(2). But the defendants were allegedly
obtaining certifications months after patients' plans of
care were established.
2012, Prather filed a complaint pleading violations of the
False Claims Act under an implied false certification theory.
The district court dismissed her complaint, holding that
Prather did not allege fraud with particularity or that the
claims were false. This panel reversed the district court in
part, holding that Prather had pleaded two of her claims with
the required particularity and that the claims submitted were
false. United States ex rel. Prather v. Brookdale Senior
Living Cmties., Inc. (Prather I), 838 F.3d 750, 775 (6th
Cir. 2016). In doing so, we interpreted the phrase "as
soon thereafter as possible" in 42 C.F.R. §
424.22(a)(2) to mean that a delay in certification is
"acceptable only if the length of the delay is justified
by the reasons the home-health agency provides for it"
and held that the reason alleged for the defendants'
delay was not justifiable. Id. at 765.
remand, the district court granted Prather leave to file her
Third Amended Complaint ("complaint") in light of
the Supreme Court's clarification of the materiality
element of a False Claims Act claim in Universal Health
Services., Inc. v. United States ex rel. Escobar, U.S.,
136 S.Ct. 1989 (2016). The defendants moved to dismiss again
on the grounds that Prather did not plead sufficiently the
materiality and scienter elements of her two alleged False
Claims Act violations. The district court granted that
motion, and Prather now appeals. For the reasons set forth
below, we REVERSE the district court's
dismissal of Prather's complaint and
REMAND for proceedings consistent with this
False Claims Act, 31 U.S.C. § 3729 et seq.,
imposes civil liability that is "essentially punitive in
nature" on those who defraud the U.S. government.
Escobar, 136 S.Ct. at 1996 (quoting Vt. Agency
of Nat. Res. v. United States ex rel. Stevens, 529 U.S.
765, 784 (2000)). Here, Prather is asserting a theory of
liability under the False Claims Act known as "implied
false certification." Under this theory, "liability
can attach when the defendant submits a claim for payment
that makes specific representations about the goods or
services provided, but knowingly fails to disclose the
defendant's non-compliance with a statutory, regulatory,
or contractual requirement." Id. at 1995. This
misrepresentation through omission "renders the claim
'false or fraudulent' under §
3729(a)(1)(A)." Id. "A misrepresentation
about compliance with a statutory, regulatory, or contractual
requirement must be material to the Government's payment
decision in order to be actionable under the False Claims
Act." Id. at 1996.
claims and alleged misrepresentations at issue in this case
arise in the context of Medicare and home-health services.
Medicare Parts A and B provide coverage for certain
home-health services. Prather I, 838 F.3d at 755
(citing 42 U.S.C. §§ 1395c and 1395k(a)(2)(A)).
These services include: "skilled nursing services, home
health aide services, physical therapy, speech-language
pathology services, occupational therapy services, and
medical social services." Id. (internal
quotation marks and brackets denoting alterations omitted).
"'Medicare Part A or Part B pays for home health
services only if a physician certifies and recertifies'
the patient's eligibility for and entitlement to those
services." Id. (quoting 42 C.F.R. §
certifications are projections about the patient's
medical need and plan of care, and Medicare payments for the
care provided are made on a prospective system of 60-day
periods, known as an "episode of care."
Id. at 756. Payments for each episode are made in
two parts. The initial payment-the "request for
anticipated payment" or "RAP"-is a percentage
of the total expected reimbursement. Id. (citing 42
C.F.R. § 484.205(b)). The second payment-the
"residual final payment"-is disbursed at the end of
the episode. Id. (citing 42 C.F.R. §
certification of need for home health services must be
obtained at the time the plan of care is established or as
soon thereafter as possible and must be signed and dated by
the physician who establishes the plan." 42 C.F.R.
§ 424.22(a)(2). This regulation "permits a
home-health agency to complete a physician certification of
need after the plan of care is established, but . . . such a
delay [is] acceptable only if the length of the delay is
justified by the reasons the home-health agency provides for
it." Prather I, 838 F.3d at 765. If the required
certification was not obtained in compliance with the timing
requirement in 42 C.F.R. § 424.22(a)(2), the RAP and
final payment claims are "impliedly false."
Id. at 766-67.
the relator in this case, "was employed by Brookdale
Senior Living, Inc. as a Utilization Review Nurse from
September of 2011 until November 23,
R. 98 (Third. Am. Compl. ¶ 10) (Page ID #1462).
Defendant Brookdale Senior Living, Inc., along with
defendants Brookdale Senior Living Communities, Inc.,
Brookdale Living Communities, Inc., Innovative Senior Care
Home Health of Nashville, LLC, and ARC Therapy Services, LLC,
"are interconnected corporate siblings who operate
senior communities, assisted living facilities, and home
health care providers." Id. ¶ 3 (Page ID
alleges that it was the defendants' policy to
"enroll as many of their assisted living facility
residents as possible in home health care services that were
billed to Medicare, " id., even when these
treatments "were not always medically necessary or did
not need to be performed by nurses who billed to
Medicare." Prather I, 383 F.3d at 765; R. 98
(Third. Am. Compl. ¶¶ 70, 105, 110) (Page ID #1477,
1486, 1488). This "aggressive solicitation of their
senior community and assisted living facility residents
ultimately generated thousands of Medicare claims that were
'held' because they did not meet basic Medicare
requirements . . . ." R. 98 (Third Am. Compl. ¶ 3)
(Page ID #1460). "In September of 2011, there was a
large backlog of about 7, 000 unbilled Medicare claims worth
approximately $35 million." Id. ¶ 77 (Page
ID #1478). To facilitate the processing of these claims, the
defendants initiated the "Held Claims Project, "
and Prather was hired to work on this specific assignment.
Id. ¶ 77-80 (Page ID #1478-49).
Prather's job responsibilities included:
(1) pre-billing chart reviews in order to ensure compliance
with the requirements and established policies of Defendants,
as well as state, federal, and insurance guidelines; (2)
working directly with the Regional Directors, Directors of
Professional Services, and clinical associates to resolve
documentation, coverage, and compliance issues; (3) acting as
resource person to the agencies for coverage and compliance
issues, (4) reviewing visits utilization for appropriateness
pursuant to care guidelines and patient condition; and (5)
keeping Directors of Professional Services apprised of
problem areas requiring intervention.
Id. ¶ 80 (Page ID #1479).
Held Claims Project team "used a 'billing release
checklist' to identify items that needed to be completed
before [a] claim could be released for final billing to
Medicare." Id. ¶ 82 (Page ID #1480). The
checklist and corresponding documents for each claim were
then given to the billing office. Id. Once the
billing office had all the documentation required, it
submitted the bill to Medicare. Id.
the required documents frequently missing was the physician
certification. Initially, Prather and the other project
members "sent attestation forms to doctors for them to
sign to correct the problem of missing signatures, " but
they "only received a few signed and completed forms
back from the doctors." Id. ¶ 86 (Page ID
#1481). Beginning in May 2012, to facilitate the process of
gathering the required certifications, "Defendants paid
physicians to review outstanding held claims and sign orders
for previously provided care." Id. ¶ 98
(Page ID #1483). Additionally, team members visited
physicians in order to obtain certifications. Id.
¶ 104 (Page ID #1818-19). Prather also alleges that the
defendants repeatedly "billed RAPs without having
physician certifications, and then re-billed them immediately
after the RAPs were canceled in order to keep the funds
received through the RAPs, while still lacking the required
physician certifications." Id. ¶ 99 (Page
alleges that she, and the other employees in the Held Claims
Project, "raised concerns" about "compliance
problems" with supervisors. Id. ¶ 91-92
(Page ID #24). But the defendants told the utilization review
nurses to ignore problems they found and only cursorily to
review the documentation. Id. ¶ 23, 91, 94-95
(Page ID #1481-83). In response to Prather's repeated
comments to her supervisors that she was discovering
compliance issues, she was told that the defendants could
"just argue in our favor if we get audited."
Id. ¶ 114 (Page ID #1489).
support her allegations that the defendants failed to comply
with the timing requirement in 42 C.F.R. § 424.22(a)(2),
Prather included five examples in her complaint and
incorporated by reference two exhibits containing
spreadsheets listing information about hundreds of other
untimely certifications. In the examples in her complaint,
Prather describes physician certifications obtained from a
few months to nearly a year after an episode of care began.
Id. ¶ 104-13 (Page ID #1485-89). In her
attached Exhibit A, Prather identifies 489 claims submitted
to Medicare for which she alleges "Defendants did not
obtain the required physician certification of need until
after the episode was complete and/or the patient was
discharged." Id. ¶ 115-17 (Page ID
#1489-90); R. 98-1 (Third Am. Compl. Ex. A) (Page ID
#1497-1520). Similarly, in Exhibit B, Prather identifies 771
claims that were allegedly submitted to Medicare with
physician certifications of the required face-to-face
encounter that were not obtained "until after the
patient had been discharged and/or the episode was
complete." R. 98 (Third Am. Compl. ¶ 118-20) (Page
ID #1491); R. 98-2 (Third Am. Compl. Ex. B) (Page ID
filed her complaint in this lawsuit under seal in July 2012
asserting multiple False Claim Act violations and state-law
claims. R. 1 (Sealed Compl. at 28-45) (Page ID #28-45). In
April 2014, the United States declined to intervene, and
Prather's complaint was unsealed and served on the
defendants. R. 23 (Notice of Election to Decline
Intervention) (Page ID #103-04); R. 24 (Apr. 10, 2014 Dist.
Ct. Order) (Page ID #107-08). Before the defendants had
responded to the initial complaint, Prather filed her First
Amended Complaint. R. 52 (First Am. Compl.) (Page ID
#178-211). The defendants subsequently moved to dismiss for
failure to comply with Federal Rule of Civil Procedure 9(b),
R. 56 (First Mot. to Dismiss at 1) (Page ID #217), and the
district court granted the motion without prejudice, R. 71
(Mar. 31, 2015 Dist. Ct. Op.) (Page ID #889-922).
2015, Prather filed her Second Amended Complaint. R. 73
(Second Am. Compl.) (Page ID #924-57). She alleged three
claims: (1) the presentation of false claims to the United
States government in violation of 31 U.S.C. §
3729(a)(1)(A); (2) the making or use of material false
records or statements in the submission of claims to the
government in violation of 31 U.S.C. § 3729(a)(1)(B);
and (3) the wrongful retention of overpayments in violation
of 31 U.S.C. § 3729(a)(1)(G). Id. at 29-32
(Page ID #952-55). The defendants again moved to dismiss for
failure to comply with Federal Rule of Civil Procedure 9(b).
R. 78 (Second Mot. to Dismiss at 1) (Page ID #1028). The
district court granted the motion with respect to all three
counts. R. 89 (Nov. 5, 2015 Dist. Ct. Op.) (Page ID
appealed, and this panel reversed the district court's
"dismissal of Prather's claims regarding the
submission of false or fraudulent claims for payment and the
fraudulent retention of payments, " but affirmed the
"dismissal of Prather's claim regarding the use of
false records." Prather I, 838 F.3d at 775. The
briefs in Prather I were filed prior to the Supreme
Court's decision in Escobar, so we did not
address any potential impact that decision may have had on
Prather's complaint. Id. at 761 n.2. On remand
to the district court:
the defendants stated their intent to file a motion to
dismiss the Second Amended Complaint for failure to meet the
standards set forth in Escobar. Because the Second
Amended Complaint was filed before Escobar was
issued, the court afforded the relator an opportunity to
amend her complaint again, specifically to attempt to satisfy
the pleading obligations identified in that case.
United States ex rel. Prather v. Brookdale Senior Living
Cmties., Inc., 265 F.Supp.3d 782, 787 (M.D. Tenn. 2017).
filed her Third Amended Complaint in March 2017. R. 98
(Third. Am. Compl.) (Page ID #1459-96). She asserted two
claims: (1) the presentation of false claims to the United
States government in violation of 31 U.S.C. §
3729(a)(1)(A); and (2) the wrongful retention of overpayments
in violation of 31 U.S.C. § 3729(a)(1)(G). Id.
¶ 121-31 (Page ID #1492-94). The defendants moved again
to dismiss the complaint. R. 102 (Third Mot. to Dismiss)
(Page ID #1571-73). The defendants argued that Prather had
failed to plead adequately the required elements of
materiality and scienter under Escobar. Id.
at 1 (Page ID #1571). The district court granted the
defendants' motion to dismiss with prejudice, holding
that Prather had not sufficiently pleaded materiality.
Prather, 265 F.Supp.3d at 801; R. 113 (June 22, 2017
Dist. Ct. Order) (Page ID #2142); R. 114 (Dist. Ct. J.) (Page
ID #2143). It did not reach the issue of scienter.
Prather, 265 F.Supp.3d at 801.
timely appeal from the district court's judgment is now
before the same panel that heard her original appeal in
STANDARD OF REVIEW
Rule of Civil Procedure 9(b)'s requirement that fraud be
pleaded with particularity applies to complaints alleging
violations of the False Claims Act, because "defendants
accused of defrauding the federal government have the same
protections as defendants sued for fraud in other
contexts." Prather I, 838 F.3d at 760 (quoting
Chesbrough v. VPA, P.C., 655 F.3d 461, 466 (6th Cir.
2011)). "To satisfy Rule 9(b), a complaint of fraud,
'at a minimum, must allege the time, place, and content
of the alleged misrepresentation on which [the plaintiff]
relied; the fraudulent scheme; the fraudulent intent of the
defendants; and the injury resulting from the
fraud.'" United States ex rel. Marlar v. BWXT
Y-12, L.L.C., 525 F.3d 439, 444 (6th Cir. 2008) (quoting
United States ex rel. Bledsoe v. Cmty. Health Sys., Inc.
(Bledsoe I), 342 F.3d 634, 643 (6th Cir. 2003)). If the
complaint "alleges 'a complex and far-reaching
fraudulent scheme, ' then that scheme must be pleaded
with particularity and the complaint must also 'provide
examples of specific' fraudulent conduct that are
'representative samples' of the scheme."
Id. at 444-45 (alteration in original) (quoting
United States ex rel. Bledsoe v. Cmty. Health Sys.
(Bledsoe II), 501 F.3d 493, 510 (6th Cir. 2007)).
Court reviews de novo a district court's
dismissal of a complaint for failure to state a claim,
including dismissal for failure to plead with particularity
under [Rule] 9(b).'" United States ex rel.
Ibanez v. Bristol-Myers Squibb Co., 874 F.3d 905, 914
(6th Cir. 2017) (alteration in original) (quoting United
States ex rel. Eberhard v. Physicians Choice Lab. Servs.,
LLC, 642 Fed.Appx. 547, 550 (6th Cir. 2016)), cert.
denied, No. 17-1399, 2018 WL 1697046 (U.S. May 29,
2018). We "must construe the complaint in the light most
favorable to the plaintiff, accept all factual allegations as
true, and determine whether the complaint contains
'enough facts to state a claim to relief that is
plausible on its face.'" Bledsoe II, 501
F.3d at 502 (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)).
plead a claim under the False Claims Act, the plaintiff must
sufficiently allege that: (1) the defendant made a false
statement or created a false record; (2) with scienter; (3)
that was "material to the Government's decision to
make the payment sought in the defendant's claim";
and (4) that the defendant submitted to the U.S. government
causing it to pay the claim. United States ex rel.
Sheldon v. Kettering Health Network, 816 F.3d 399, 408
(6th Cir. 2016) (quoting United States ex rel. SNAPP,
Inc. v. Ford Motor Co., 618 F.3d 505, 509 (6th Cir.
2010)); see also United States ex rel. Campie v. Gilead
Scis., Inc., 862 F.3d 890, 902 (9th Cir. 2017),
petition for cert. filed, 86 U.S.L.W. 3361 (U.S.
Dec. 26, 2017) (No. 17-936). In Prather I, we
resolved in Prather's favor the issue of whether Prather
had sufficiently pleaded facts supporting the first element.
838 F.3d at 762. The parties are now contesting whether
Prather sufficiently pleaded the second and third elements:
scienter and materiality. Appellant Br. at 12; Appellees Br.
at 14-15. These two elements are integral to both of
Prather's alleged claims and therefore Count One and
Count Two of Prather's complaint rise or fall together.
Prather, 265 F.Supp.3d at 801. Because the district
court addressed only materiality and not scienter, we will
discuss the two elements in that order.
misrepresentation about compliance with a statutory,
regulatory, or contractual requirement must be material to
the Government's payment decision in order to be
actionable under the False Claims Act."
Escobar, 136 S.Ct. at 2002. The Act defines
"material" as "having a natural tendency to
influence, or be capable of influencing, the payment or
receipt of money or property." 31 U.S.C. §
3729(b)(4). In Escobar, the Supreme Court clarified
this materiality requirement and emphasized that the
"standard is demanding." 136 S.Ct. at 2003.
'look[s] to the effect on the likely or actual behavior
of the recipient of the alleged misrepresentation.'"
Escobar, 136 S.Ct. at 2002 (second alteration in
original) (quoting 26 Samuel Williston & Richard A. Lord,
A Treatise on the Law of Contracts § 69:12 (4th ed.
2003)). Something is material if a reasonable person
"would attach importance to [it] in determining his
choice of action in the transaction" or "if the
defendant knew or had reason to know that the recipient of
the representation attaches importance to the specific matter
'in determining his choice of action, ' even though a
reasonable person would not." Id. at 2002-03
(alteration in original) (quoting Restatement (Second) of
Torts § 538 (Am. Law Inst. 1977)).
analysis of materiality is "holistic." United
States ex rel. Escobar v. Universal Health Servs.,
Inc., 842 F.3d 103, 109 (1st Cir. 2016). Relevant
factors include: (1) "the Government's decision to
expressly identify a provision as a condition of
payment"; (2) whether "the Government consistently
refuses to pay claims in the mine run of cases based on
noncompliance with the particular statutory, regulatory, or
contractual requirement" or if, with actual knowledge of
the non-compliance, it consistently pays such claims and
there is no indication that its practice will change; and (3)
whether the "noncompliance is minor or
insubstantial" or if it goes "to the very essence
of the bargain." Escobar, 136 S.Ct. at 2003
& n.5. None of these considerations is dispositive alone,
nor is the list exclusive. Id. at 2001-04.
Express Condition of Payment
misrepresentation cannot be deemed material merely because
the Government designates compliance with a particular
statutory, regulatory, or contractual requirement as a
condition of payment." Escobar, 136 S.Ct. at
2003. But such a designation is a relevant factor in
determining materiality. Id.
parties vigorously dispute whether the timing requirement in
42 C.F.R. § 424.22(a)(2) is an express condition of
payment for RAPs and residual final payments.Appellant Br. at 25-27;
Appellees Br. at 28-35; Appellant Reply Br. at 4-6. The
district court concluded that the timing requirement was an
express condition of payment for both, Prather, 265
F.Supp.3d at 796, and we agree.
Parts A and B condition payment for services on a
physician's certification regarding the necessity of such
services. 42 U.S.C. §§ 1395f(a)(2) &
1395n(a)(2); 42 C.F.R. § 424.10. Thus, "[i]n order
for home health services to qualify for payment under the
Medicare program, " 42 C.F.R. § 409.41 mandates
that "[t]he physician certification and recertification
requirements for home health services described in [42
C.F.R.] § 424.22" be met. 42 C.F.R. §
409.41(b). The timing requirement at issue in this case is
located in 42 C.F.R. § 424.22.
argues that this analysis answers the question. Section
409.41(b) expressly conditions payment on meeting the
certification requirements in § 424.22. Section
424.22(a)(2) contains the timing requirement for the
certification Prather alleges the defendants violated. Thus,
Prather argues, § 424.22(a)(2) must be an express
condition of payment. Appellant Br. at 26.
fast argue the defendants. Section 409.41(b) directs the
reader to the requirements "described in §
424.22." So the reader must then look to the language in
§ 424.22 itself. Appellees Br. at 30. Section 424.22
states: "Medicare Part A or Part B pays for home health
services only if a physician certifies and recertifies the
content specified in paragraphs (a)(1) and (b)(2) of this
section, as appropriate." The defendants argue that this
language limits the broader language of 42 C.F.R. §
409.41 by making only the requirements in 42 C.F.R. §
424.22(a)(1) and (b)(2) express conditions of payment.
Appellees Br. at 29.
defendants are correct that § 409.41(b) incorporates the
requirements in § 424.22, and thus it is necessary to
examine the latter section to understand the scope of the
former. For example, if § 424.22 contained a provision
that stated "certifications may be submitted via U.S.
mail" then § 409.41(b) could not be read as to make
it an express condition of payment that the certification
must be submitted via U.S. mail merely by reference to §
424.22 as a whole. But the defendants' reading of the
introductory clause in § 424.22 is overly crabbed.
prefatory language states that payment requires the physician
to certify (or recertify) the contents specified in §
424.22(a)(1) and (b)(2). Section 424.22(a), entitled
"[c]ertification, " then explains in further detail
what a certification requires. Thus, § 424.22(a) gives
meaning to the word "certifies" in the introductory
clause. The required certification is not a certification
unless it complies with all provisions of § 424.22(a),
both (a)(1) and (a)(2). And § 424.22(a)(2) states that
the certification "must be obtained at the time
the plan of care is established or as soon thereafter as
possible and must be signed and dated by the
physician who establishes the plan."Cf. Ebeid ex rel.
United States v. Lungwitz, 616 F.3d 993, 1000-01 (9th
Cir. 2010) (holding that 42. C.F.R. § 424.22(d), which
limits which physicians may certify or recertify the need for
home-health services, is an express condition of payment),
cert. denied, 562 U.S. 1102 (2010).
we agree with the district court that the timing requirement
in 42 C.F.R. § 424.22(a)(2) is an express condition of
payment. Thus, this factor weighs in favor of the conclusion
that a misrepresentation with respect ...