Background
Liesa Kyer, a former nurse, filed a qui tam action on behalf of the United States alleging that Thomas Health System and related entities violated the False Claims Act by submitting claims barred by the Stark Law and Anti-Kickback Statute. The district court dismissed the complaint for failing to plead fraud with the particularity required by Rule 9(b) and denied leave to amend.
The court’s reasoning
The court reviewed the complaint de novo and found it failed to meet the heightened pleading standards for fraud. Regarding the Stark Law, the court held that the complaint did not plausibly allege a prohibited financial relationship because the physicians’ compensation was based on work relative value units for services they personally performed, which the statute excludes from the definition of referrals. The court rejected the argument that supervising nonphysicians constituted a referral proxy. Regarding the Anti-Kickback Statute, the court found the allegations that cash transfers covered operating deficits were conclusory and equally consistent with lawful explanations. The court also affirmed the denial of leave to amend due to prejudice to the defendants.
This appeal involves a dizzying kaleidoscope: five defendants, three statutes, and one complex industry.
Opinion at 3
What it means going forward
The decision reinforces the requirement that relators in False Claims Act cases must plead specific facts showing how compensation arrangements vary with referral volume, rather than relying on general allegations or high compensation levels.