Certain FCA Defendants Dismissed; “Lumping” Defendants Together Is Not Enough To State An FCA Claim

A district court in the Northern District of Illinois recently partially granted a motion to dismiss the Government’s False Claims Act (“FCA”) complaint filed against IPC The Hospitalist Company, Inc. (“IPC”) and its subsidiaries and affiliates. The district court dismissed IPC’s subsidiaries and affiliates because the Government simply “lumped” those subsidiaries and affiliates in with IPC, and did not plead facts tying the subsidiaries and affiliates to the alleged fraud. The decision underscores an important defense available to FCA defendants, and highlights the nuanced pleading requirements that the Government must meet in an FCA case.

United States ex rel. Oughatiyan v. IPC The Hospitalist Co., Case No. 1:09-cv-05418, was filed as a qui tam action on September 1, 2009 by relator Bijan Oughatiyan who worked for IPC as a hospitalist, and alleged various violations of the FCA. The Government intervened on December 6, 2013, and filed a complaint in intervention on June 16, 2014 against IPC and over twenty of its subsidiaries and affiliates, seeking damages and civil penalties under the FCA and several common law theories.

The Government alleged that IPC knowingly and systematically billed Medicare, Medicaid, and other federal payors for higher and more expensive medical services than those that were actually performed, and that it did so by upcoding services rendered by IPC physicians. The Government alleged several facts in support of this conclusion including, for example, that IPC had a corporate policy of incentivizing physicians to maximize revenue for each patient encounter, and ignored data allegedly demonstrating that IPC’s billing rates were outside national norms. The IPC defendants jointly moved to dismiss the Government’s claims on numerous grounds, including by arguing that the Government failed to allege sufficient facts as to each of IPC’s affiliates and subsidiaries and also generally failed to meet the heightened pleading standard for fraud claims that is set out in Federal Rule of Civil Procedure 9(b).

The district court granted the IPC defendants’ motion in part and denied it in part, agreeing that the Government failed to allege sufficient facts as to IPC’s subsidiaries and affiliates. In so ruling, the district court held that “lumping” defendants together is not enough to meet Rule 9(b) which requires the plaintiff—in this case, the Government—to reasonably notify a defendant of its purported role in the fraud scheme. For example, while the Government alleged that IPC submitted false claims, it did not explain the role played by IPC’s subsidiaries and affiliates in the submission of those false claims.

The district court otherwise denied the IPC defendants’ motion to dismiss, finding that the Government had sufficiently alleged standing and also adequately pled its claims against IPC because it alleged the “who, what, when, where, and how: the first paragraph of any newspaper story.”

The decision is available here.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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