District Court Discards FCA Claim with Prejudice for Inability to Identify Specific False Claims
On April 24, 2018, the District Court of Maryland dismissed with prejudice a relator’s qui tam suit against Johns Hopkins Health System Corporation (Johns Hopkins) for failure to state a claim. The court’s decision rested on two rationales, the second of which is generally applicable to FCA claims in the Fourth Circuit and serves as strong deterrent against relator “fishing expeditions.”
The facts of the case revolve around an agreement that Johns Hopkins entered into with Maryland’s Health Services Cost Review Commission (HSCRC), the agency tasked with setting hospital rates for services throughout Maryland. This agreement set a reimbursement “budget cap” that relied on Johns Hopkins’ history of patient volumes, costs and patterns of services in its setting.
The agreement between Johns Hopkins and the HSCRC focused on care provided to Maryland residents. Importantly, the “budget cap” assigned to Johns Hopkins under the agreement applied only to services provided to Maryland residents. Revenue for services provided to out-of-state residents was not counted towards the cap, thereby creating, according to the relator, an incentive for Johns Hopkins to inappropriately recruit and prioritize out-of-state patients in contravention to the focus of the agreement. The relator claimed that senior management sought to increase revenue by treating out-of-state patients at the expense of Maryland patients, leading to false claims each time Johns Hopkins submitted claims and impliedly represented that it was compliant with the agreement’s focus on Maryland patients. Both the United States and the State of Maryland declined to intervene in the relator’s case.
Relying heavily on Rule 9(b)’s particularity requirement, the court dismissed the relator’s complaint due to his failure to identify, with the requisite specificity, claims for payment from Johns Hopkins to the government. The court noted that one of Rule 9(b)’s purposes is “to eliminate fraud actions in which all the facts are learned after discovery,” an especially important purpose in qui tam actions in which a relator has suffered no injury and “may be particularly likely to file suit as a pretext to uncover unknown wrongs.”
The court concluded that the relator alleged a scheme that “need not necessarily have led to the submission of false claims” and failed to identify any particular false claims for payment actually submitted to the government. The court strongly confirmed that Rule 9(b) requires substantial evidence of fraudulent activity before discovery and that courts in the Fourth Circuit will not allow relators to attempt “fishing expeditions” into a defendant’s conduct.
This decision affirms that, in the Fourth Circuit, a relator must provide specific, particularized allegations that point to identifiable claims actually presented to the government for payment. This affirmation serves as a strong defense against relators who have not conducted sufficient diligence and expect the discovery process to offer the evidence required to satisfy Rule 9(b) after the filing of a complaint.