The Fifth Circuit Court of Appeals has affirmed the dismissal of a lawsuit brought under the False Claims Act (FCA) against Encompass Health Rehabilitation Hospital of Pearland, L.L.C. (Encompass). The case, brought by former sales representative Deidra Gentry, alleged that Encompass submitted false claims to Medicare. The court found that Gentry’s complaint lacked sufficient detail to support her claims.
Background of the Case
Encompass is an inpatient rehabilitation facility (IRF) that provides care to patients after they leave acute-care hospitals. Medicare reimburses IRFs a set amount for each patient, with adjustments based on the facility and the patient’s condition. To receive payment, an IRF must conduct a preadmission screening within 48 hours of a patient’s admission. This screening is meant to document the clinicians’ reasons for admitting the patient, and it is later reviewed by auditors from the Centers for Medicare & Medicaid Services (CMS). While non-clinical staff can gather information for the screening, the final admission decision must be made by a clinician.
Deidra Gentry was a sales representative at Encompass. She raised concerns about how the hospital trained and utilized sales representatives in the preadmission-screening process. Encompass terminated Gentry’s employment after about five months.
Following her termination, Gentry filed a qui tam action under the FCA. Qui tam allows private citizens to sue on behalf of the government to recover money lost due to fraud. Gentry’s lawsuit alleged that Encompass:
* Presented false claims to Medicare.
* Used false records to get those claims paid.
* Conspired to get false claims paid.
The government declined to intervene in the case, meaning it chose not to take over the lawsuit.
The Lower Court’s Decision
Encompass moved to dismiss Gentry’s complaint, and the magistrate judge recommended the court grant the motion. The magistrate judge found that Gentry’s complaint did not provide enough specific details to support her claims and recommended denying Gentry’s request to amend her complaint. The district court agreed with the magistrate judge and dismissed the case with prejudice, meaning Gentry could not refile the lawsuit.
The Appeals Court’s Ruling
The Fifth Circuit reviewed the district court’s decision. The appeals court affirmed the dismissal, agreeing that Gentry’s complaint failed to meet the legal standards for pleading an FCA claim.
Key Legal Points
The court explained that to survive a motion to dismiss in an FCA case, a plaintiff must allege facts that show the defendant:
* Made a false statement or engaged in fraudulent conduct.
* Did so with the required state of mind, known as *scienter* (e.g., knowledge, reckless disregard).
* That was material (important to the government’s decision to pay).
* That caused the government to pay out money.
Furthermore, FCA claims must be pleaded with particularity, meaning the complaint must specify the “who, what, when, where, and how” of the alleged fraud. When a plaintiff cannot provide details of an actual false claim submitted, the complaint must provide “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.”
The court found that Gentry’s complaint fell short on several fronts.
Falsity and Submission of False Claims
Gentry argued that Encompass made false statements by training sales representatives to operate as clinical screeners and by having physicians rubber-stamp the sales representatives’ screening narratives. The court rejected these arguments.
The court noted that Medicare rules allow non-clinical personnel to gather information for preadmission screenings. The court found that Gentry did not provide sufficient facts to show that the information Encompass told her to include was false or misrepresented a patient’s need for IRF services. The court also pointed out that the complaint did not allege facts showing that sales representatives, like herself, operated as clinicians who provided clinical judgments or medical justifications in the screening process.
Gentry’s complaint also did not provide enough details about the submission of false claims. The court stated that Gentry failed to provide details of an actual submitted false claim, such as which services were improperly billed, which patients were billed for services they never received, and who submitted the false claims. The court said that Gentry’s allegations were too general and speculative to establish a strong inference that false claims were submitted.
Leave to Amend
Gentry also argued that the district court should have allowed her to amend her complaint. The appeals court found that the district court had erred slightly in its analysis of the leave to amend, but that the error was inconsequential. The court explained that the district court could deny leave to amend if it would be futile, meaning the proposed amended complaint would still fail to state a claim. The appeals court agreed that further amendment would have been futile in this case.
Concurrence
Judge James C. Ho wrote a concurring opinion. He stated that he agreed with the court’s decision but that he believes the court should revisit whether the qui tam provisions of the False Claims Act have serious constitutional problems. Judge Ho noted that qui tam relators, like federal civil servants, are not appointed by or accountable to the President, which raises constitutional concerns.