TORRUELLA, Circuit Judge.
This is an appeal from a dismissal of a federal False Claims Act ("FCA") complaint on grounds that it was jurisdictionally barred by the FCA's public disclosure provision. The Appellant, the Estate of Robert Cunningham ("Relator"),
Prior to the filing of said complaint, Millennium had filed a suit against Relator's employer, Calloway Laboratories ("Calloway"), in California state court ("California suit"), attaching e-mails from Calloway employees to third parties suggesting fraudulent activity in Millennium's billing practices. The district court found this prior disclosure to constitute a jurisdictional bar to Relator's suit, dismissing his complaint. This appeal followed.
Since we find error in the district court's dismissal of all of Relator's claims when only some of them had been disclosed by way of being substantially similar to the information contained in Millennium's prior California suit, we affirm in part and vacate in part the district court's dismissal, remanding for the district court's consideration of whether Relator's remaining FCA claim was sufficiently pled under Fed. R.Civ.P. 12(b)(6) and 9(b).
Jurisdiction is determined based on whether it existed at the time the plaintiff filed the original complaint, Sallen v. Corinthians Licenciamentos LTDA, 273 F.3d 14, 23 (1st Cir.2001), so we provide the factual background as alleged in Relator's original complaint. Since we ultimately find that said facts were integrated in Relator's amended complaint, we only distinguish between the two complaints when there are noted differences as to the language and count number of their respective allegations.
Robert Cunningham, now deceased, worked as a compliance officer for Calloway, a competitor of Millennium's, in 2007 and 2008. It was during his employment at Calloway that Cunningham learned of the allegedly improper billing practices at issue in his qui tam complaint against Millennium and the unnamed physicians. Cunningham labeled Millennium's alleged fraudulent practices, collectively, as "Millennium's Physician Billing Model" in his original complaint. The overall scheme is alleged to involve different components, but as a general matter, is
The complaint states that, unlike other laboratories "which profit from the tests ordered by a physician with no payment to the physician," Millennium's model allows a physician "to substantially increase his or her revenue based upon the laboratory tests ordered." The complaint then proceeds to break down the various aspects of the larger scheme, which involves alleged fraudulent activity related to multiple billing for single test kits, excessive testing without medical necessity, and improper confirmation testing.
First, Millennium is alleged to have billed multiple times for the testing of a single test kit. Specifically, the original complaint alleges that Millennium encouraged doctors "to use a multi-class qualitative drug screen which uses a single specimen, and to bill the government and private insurance programs multiple units for the single testing event devices" ("Aspect 1"). Millennium then encouraged doctors "to improperly bill the government under CPT codes 80101, 80101QW, and/or other pathology and laboratory codes," resulting in federal monies lost as a result of "laboratory services which were not performed as claimed or were inflated." Millennium did this by informing physicians that, rather than bill one unit of 80101QW for each test kit, the physician should bill "as many units as there are panels in the test kit." (emphasis added). Further, Millennium gave physicians a document, entitled "Gross Revenue by Insurance Category for Multi-Clin 11 Panel Test Kit," which suggested
Second, Relator claims that Millennium directed and encouraged physicians to test excessively, more than was reasonable or medically necessary ("Aspect 2"). Specifically, the original complaint alleges that Millennium
Thus, as distinct from the first set of allegations, the second set of allegations does not involve billing more than one time for a single unit, but rather involves the unnecessary frequency with which physicians were encouraged to use and bill entire test kits. These allegations also include charges that Millennium informed physicians that, if they were to order twenty tests per day, they could earn $8,640.00 per day based on "the standard indemnity, auto insurance, and [w]orkmen's compensation policies at the reasonable and customary rate of $80.00 per panel for nine (9) units." These amounts are also reflected in the "Gross Revenue by Insurance Category for Multi-Clin 11 Panel Test Kit" document, which also breaks down the potential revenues a physician can earn by ordering between one and twenty tests per day. The complaint states that Millennium thus "encourages the physician to order more testing than that physician would have prior to engaging in Millennium's point[-] of[-]care model, and increases Millennium's market share by drawing other physicians to the practice with the hope and promise of greater revenues." It further alleges that the physician defendants did order "significantly more testing for their patients since entering the conspiracy than they did prior to participating in the conspiracy with Millennium. This would include ... the initial screens conducted by" the physician defendants. The alleged fraud consists of Millennium's promotion of said billing model and physician defendants' misrepresentation of "the medical necessity of the tests performed."
Third and finally, the complaint alleges fraudulent activity related to confirmation testing of initial screen tests ("Aspect 3"). After performing an initial qualitative test, physicians at the point of care may confirm the results of those tests by another method. The complaint claims that Millennium encouraged physicians to order more testing than they would have otherwise not only with respect to the initial tests, but with the confirmation tests as well. The fraud that the complaint alleges is that Millennium "knowingly encouraged the [physician] defendants ... to misrepresent the medical necessity of confirmation testing. Defendants knew that these practices and procedures resulted in fraudulent claims to the federal government through the Medicare, Medicaid, and other federally funded programs."
The first e-mail attached to the California complaint is from a Calloway account executive, Greg Williams, to Michael Schatman, Ph.D., of Pacific Northwest University Health Sciences in Yakima, Washington, and Marty Schultz. Williams expresses his shock that their clinic chose a lab for services "that allow[] the clinic to generate revenue by billing for the drug screens. There is a very un-reputable lab going around, called Millennium, that is offering this revenue generating scenario. I hope this is not the lab you all have bought into." Williams goes on to describe the "severe pitfalls" of the physician billing scheme utilized by Millennium, stating that: (1) "there are ... patients and insurances being billed twice for the same service"; and (2) the "in-house screens that clinics are billing the 80101 code for should be bundled, but clinics are `un-bundling' each metabolite screened for on the cup or test strip." Williams suggests that these practices are unlawful, unethical, and the basis for an office being audited.
The second e-mail was also sent by a Calloway account executive, Stephen Schur, but was sent to a Millennium customer. Schur's e-mail consisted of a two-sentence introduction to an attached question-and-answer information sheet ("Q & A Sheet I"). The introduction indicates that the attached sheet "should clear things up" and invites further contact should the customer have any questions. Q & A Sheet I in its own right appears to be a guide drafted for physicians as a means to clarify the value of Calloway's urine-testing services. The Sheet distinguishes between Calloway's own model and the competing point-of-care "physician screening model." It does not mention Millennium by name, but states that "[s]ome laboratories" that promote the "physician screening model" "are sure to attract the attention of regulatory authorities" for unlawful billing practices. These include "suggesting that a
The third e-mail attached to the California complaint was also sent by Stephen Schur to Teresa Tinc of Pain Diagnosis, and contained another Q & A Sheet ("Q & A Sheet II"). The body of Schur's e-mail described the attached Q & A Sheet more fully, identifying the information contained therein as "info that is pertinent to a physician billing model like Millennium's .... a model that is potentially fraudulent." The first question on Q & A Sheet II involves whether a physician who "perform[s] a drug screen with a Point-of-Care device" may "bill the patient's insurance for drug screening." The response states that, while "[s]ome laboratories promote a `Physician Screening Model' suggesting that a physician can bill multiple units of CPT Code 80101, sometimes with a `QW' modifier.... This is incorrect and possibly abusive." It states the same reasons for challenging the practice as stated in Q & A Sheet I — CMS not authorizing the billing of multiple units when they should be considered as a single test and also referencing state Medicaid manuals prohibiting the practice. Q & A Sheet II also copies exactly the language of Q & A Sheet I regarding confirmation testing under the "Physician Screening Model" described therein.
Cunningham filed his original complaint in this action five days after Millennium filed the California suit, on December 29, 2009. On February 25, 2011, his Estate filed an amended complaint. Millennium moved to dismiss that complaint on three grounds: the FCA's public disclosure bar deprived the court of subject matter jurisdiction; in the alternative, Relator failed to state a claim upon which relief could be granted under Fed.R.Civ.P. 12(b)(6); and, lastly, he failed to plead fraud with the requisite particularity under Fed.R.Civ.P. 9(b).
The district court granted Millennium's motion, dismissing Relator's complaint with prejudice on grounds that it lacked subject matter jurisdiction under the FCA's public disclosure bar.
In challenging the district court's dismissal order, Relator argues that the court
Further, Relator contends that mere rumors of improper billing stated in Calloway's account executives' e-mails are insufficient to constitute a "public disclosure" of Millennium's fraudulent conduct and it does not put the government on notice of fraud as required under the statute and this Circuit's case law. What is exposed, Relator claims, is a sanitized, innocuous version of Millennium's business model, not the details of the fraudulent conduct. Relator also asserts that the allegations in his complaint were not "based upon" Millennium's California complaint since: (1) Aspects 2 and 3 are only discussed in Relator's complaint and are not mentioned in the California complaint; and (2) Relator did not learn of the multiple billing fraud of Aspect 1 from the California complaint. Relator argues in the alternative that, if the court finds that the information contained in the instant complaint was publicly disclosed in the California suit, the court should assert jurisdiction under the "original source" exception as Cunningham was an original source who acquired all of his information through his own investigation, without an intervening agency.
Finally, Relator states that it was error for the district court to dismiss the complaint with prejudice, without granting leave to amend, because the dismissal was based on a "mistakenly abridged reading" of the complaint, and on remand, Relator should be allowed to file a second amended complaint given the "well-known, liberal standards for amendment." Upon amendment, Relator promises to provide more of Millennium's marketing materials, e-mails, and laboratory testing forms demonstrating Millennium's intent that physicians profit from billing for a multiplicity of results derived from a single urine test, and that Millennium and the defendant physicians both profit from performing as many tests as possible regardless of medical necessity, in violation of the FCA.
This Court reviews de novo the district court's dismissal of a complaint for lack of subject matter jurisdiction. Abdel-Aleem v. OPK Biotech LLC, 665 F.3d 38, 41 (1st Cir.2012). Jurisdiction is determined based on whether it existed at the time the plaintiff filed the original complaint. Sallen, 273 F.3d at 23.
Pursuant to the FCA, 31 U.S.C. § 3730(e)(4)(A) (2006),
For the public disclosure bar to apply, each of three elements must be met: (1) a public disclosure of the allegations or transactions in a relator's complaint must have occurred; (2) said disclosure must
A prior public disclosure may occur through any public document available on the docket in a civil hearing. See United States ex rel. Poteet v. Bahler Med., Inc., 619 F.3d 104, 111 (1st Cir.2010). To be a disclosure "of fraud," a disclosure must either contain a direct allegation of fraud or allow for a proper inference of fraud by revealing a misrepresented state of facts in conjunction with a true state of facts. Id. at 110. In assessing whether a given later-filed suit is "based upon" publicly disclosed allegations, we look to whether those allegations are "substantially similar" to said allegations. United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 57 (1st Cir.2009). We do this by comparing the substance of the prior disclosures with the substance of a relator's complaint. Poteet, 619 F.3d at 114.
As a preliminary matter, we must address the issue of which complaint — Relator's original or amended complaint — we are comparing to Millennium's California complaint for the purposes of the public disclosure bar. The record is not entirely clear which complaint was reviewed below for the purposes of the public disclosure bar. The district court first cited to the proper rule — that a court must determine whether it has subject matter jurisdiction over an action based on the original complaint filed — but then only considered its subject matter jurisdiction over the allegations made in Count One of the original complaint, summarily stating in footnote 59 that, since Relator's other three counts "do not appear in the First Amended Complaint," they "thus have no bearing on this motion to dismiss." The district court then went on to say that, even if the additional three claims were not barred by the public disclosure bar, "they do not provide Relator with the ability to amend the complaint to include a claim that was jurisdictionally barred at the time Cunningham filed the original Complaint." After making this statement in a footnote, the district court did not analyze whether the claims made in the three separate counts in the original complaint were either: (1) integrated into the amended complaint in its factual section or under the single FCA count; or (2) barred by the FCA's public disclosure provision as a result of having been disclosed in Millennium's California suit.
The district court erred in the first instance when it did not consider all FCA counts of the original complaint in determining whether or not said complaint was jurisdictionally barred by prior public disclosure. It also erred when it failed to meticulously compare Relator's allegations in both the original and amended complaint regarding excessive and confirmatory testing with the information contained in Millennium's California complaint and attached e-mails. Specifically, in reciting the relevant "substantially similar" facts shared by Millennium's California complaint and Relator's complaint, the district court only cited to the California complaint's attached e-mails detailing the multiple billing fraudulent scheme, or, as the district court described the scheme, "a plan that billed insurance agencies and the federal government multiple times for the same test." A detailed comparison, however, reveals that, while the district court was correct that Millennium's California complaint discussed the purportedly fraudulent
We first discuss the multiple billing allegations and our reasons for affirming the district court's dismissal of the Relator's complaint as barred by the FCA's public disclosure provision. Relator appears to concede that the multiple billing scheme alleged as Aspect 1 of its FCA claim was disclosed in the California complaint, stating that that complaint was "limited to th[e] discrete issue of multiple billing," and the district court's holding in dismissing the complaint was "wrong because the California Complaint is devoid of the other two aspects of the fraud — excessively frequent testing, and the automatic confirmation of negative results." (emphasis added). However, for the sake of thoroughness, we briefly review the reasons the public disclosure bar applies to Aspect 1 as alleged in Relator's complaint.
Relator is incorrect and misguided in suggesting that Aspect 1 was not "publicly disclosed" in the California suit "as fraud" because the allegations made in that case consisted of "mere rumors." Since Relator does not contest that a disclosure of information on a civil docket may constitute "public disclosure" for the purposes of the FCA, we construe Relator's challenge to be directed at the extent to which Millennium's complaint made a direct or properly inferrable public disclosure of fraud. Yet, the California complaint and attached e-mails could not have been more explicit that the information the Calloway account executives were spreading about Millennium's billing practices concerned allegations that they involved and encouraged unlawful and unethical misrepresentations to the government and private insurers about billing for multiple tests when in fact only a single unit was tested. As cited supra, in the first e-mail attached, Williams states the following about Millennium's billing practices:
The third e-mail attached to the California complaint states that "participating in any plan to increase revenues by billing excessive or incorrect codes violates a number of federal and state statutes," and that Millennium's billing model involving billing for each test strip rather than the single testing event puts physicians "at risk for potential insurance fraud."
Even assuming these statements did not constitute direct allegations of fraud, the e-mails compare Millennium's version of the
While we share Relator's concern that a person or entity committing fraud against the government could theoretically shield itself from a qui tam action through preemptively filing its own action, thus creating a sanitized public disclosure while barring a future whistleblower action, the Supreme Court has been clear that self-disclosure can bar such suit under the FCA, and it has further characterized concerns about insulation from FCA liability as unwarranted in most cases. Schindler Elevator Corp. v. United States ex rel. Kirk, ___ U.S. ___, 131 S.Ct. 1885, 1895, 179 L.Ed.2d 825 (2011) (dismissing as "pure speculation" concerns that potential defendants may insulate themselves from FCA liability by making FOIA requests); Graham Cnty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 130 S.Ct. 1396, 1410, 176 L.Ed.2d 225 (2010) (stating that careful disclosure of potential fraud would not immunize a fraudulent actor "from FCA liability in an action brought by the United States" because it still tips off the Attorney General; furthermore, Congress "carefully preserved the rights of the most deserving qui tam plaintiffs: those whistle-blowers who qualify as original sources") (quotations and citations omitted).
Finally, Relator is incorrect in suggesting that his suit is not "based upon" the allegations contained in the California suit as to Aspect 1. Relator misconstrues what this court has understood the terms "based upon" to mean in the context of FCA liability. We do not, as Relator suggests, determine whether information in a subsequently filed action is "based upon" a prior filing in terms of whether the former is "parasitic" to the latter. Rather, we compare the respective substance of the prior disclosures with a relator's complaint and determine if they are "substantially similar." Ondis, 587 F.3d at 57. As just discussed, the allegations in both suits detail a scheme involving multiple billing or individual billing for the "unbundled" components for a single test under CPT codes 80101 and 80101QW. We thus find that, as to Aspect 1, the district court was not incorrect in finding that all requirements of the public disclosure bar were met, and it properly found that it lacked subject matter jurisdiction as to Relator's FCA claim based on the Aspect 1 allegations.
Relator's FCA claim based on its allegations as to Aspect 3 of Millennium's purportedly fraudulent scheme is also barred since Aspect 3 was both publicly disclosed and was "substantially similar" to information provided in Millennium's California suit. The facts alleged pertaining to Millennium's confirmation testing scheme in Relator's complaint were as follows: (1) since the start of the company in 2007, Millennium used and promoted the Physician Billing Model designed to, inter alia, "increase [the physician] defendants' revenues, [and] significantly increase Millennium's revenues and market share, enabling Millennium to profit from the billing for... confirmations"; (2) the physician defendants
The California complaint states that Millennium's business strategy included physicians sending drug tests and results "to an independent laboratory, such as Millennium, for confirmation testing and additional testing for drugs not tested with the point[-]of[-] care device," and further states that "the laboratory only bills for any confirmation tests and additional testing that is necessary." This statement in Millennium's complaint is counterposed with statements made in Calloway account executives' e-mails regarding confirmation testing and billing. As cited supra, Calloway account executives forwarded Q & A Sheets warning of the potential fraud surrounding billing for confirmation tests. Specifically, they warned that billing practices like Millennium's may be "considered double-billing by CMS because your Point-of-Care-Testing is also `EIA' (Enzyme Immunoassay) testing and regulations specifically prohibit one EIA test confirming another EIA test. The physician needs to order only confirmation tests performed by GC/MS or LC/MS/MS."
Thus, the allegations in Relator's complaint and the California suit both concern fraudulent billing of confirmation tests when such tests were purportedly unnecessary, and they further link that practice with Millennium's billing model which benefits Millennium and the physician defendants. Since these allegations are "substantially similar," Relator's FCA claim as based in Aspect 3 of Millennium's fraudulent scheme is jurisdictionally barred.
Further, the claims arising from Aspects 1 and 3 in Relator's complaint cannot be saved by Relator's belated assertion that he was the "original source" of the information concerning Millennium's alleged fraud. An "original source," as defined by statute at the time Relator's original complaint was filed, is "an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information." 31 U.S.C. § 3730(e)(4)(B) (2009).
Knowledge is "direct" if it is as "marked by absence of an intervening agency, instrumentality, or influence: immediate." Ondis, 587 F.3d at 59 (citation omitted). Knowledge is not direct if it is "based on research into public records, review of publicly disclosed materials, or some combination of these techniques." Id. Knowledge is "independent" if it did not depend on the public disclosure or if it merely constitutes a use of an individual's "unique expertise or training to conclude that the material elements already in the public domain constitute a false claim." Id. at 59-60. The relator as the proponent of federal jurisdiction bears the burden of proving its existence by a preponderance of the evidence. Id. at 54.
Relator raises his original source argument for the first time on appeal. He contends that he had direct and independent knowledge of the information at issue because he undertook an independent investigation into Millennium's activities by reviewing Millennium's Physician Billing Model and other documents as well as
However, because Relator never raised his original source argument before the district court, it is waived. Warren Freedenfeld Assocs. v. McTigue, 531 F.3d 38, 48 (1st Cir.2008) ("If any principle is settled in this circuit, it is that, absent the most extraordinary circumstances, legal theories not raised squarely in the lower court cannot be broached for the first time on appeal.") (quoting Teamsters, Chauffeurs, Warehousemen and Helpers Union, Local No. 59 v. Superline Transp. Co. et al., 953 F.2d 17, 21 (1st Cir.1992)).
Finally, we review a district court's denial of leave to amend a complaint for abuse of discretion. Aponte-Torres v. University of Puerto Rico, 445 F.3d 50, 58 (1st Cir.2006). There was no such abuse here with respect to denying Relator leave to amend his complaint as to Aspects 1 and 3. Assuming Relator's request in his sur-reply brief and at oral argument constituted a "sufficient request" to amend pursuant to Fed.R.Civ.P. 15(a), see Rost, 507 F.3d at 734, our comparison of the information disclosed in Relator's complaint and Millennium's California complaint, and Relator's failure to indicate any additional facts in its briefing as to Aspects 1 and 3 beyond the information disclosed in the California complaint, leaves us to conclude that the jurisdictional defect with respect to those FCA claims is incurable.
We thus affirm the district court's dismissal with prejudice of Relator's complaint as to the FCA claim based on Aspect 1 of Millennium's purported fraudulent scheme. Aspect 3 of that scheme is also jurisdictionally barred.
As stated supra, Relator's complaint alleges that one component of Millennium's fraudulent billing scheme included directing and encouraging the physician defendants to test excessively in a manner that was not medically necessary,
The allegations thus involve testing patients with an unnecessary frequency while incentivizing that testing through providing revenue sheets that break down the gross revenues a physician could earn by ordering multiple tests rather than one test per day.
Neither Millennium's California complaint nor the e-mails attached thereto mention this kind of excessively frequent testing as part of Millennium's fraudulent scheme. The first e-mail from Williams only references allegations pertaining to Aspect 1 of Relator's complaint, and the other two e-mails and attached Q & A Sheets reference facts pertaining only to Aspects 1 and 3 of Millennium's billing practices.
However, while Relator's factual allegations pertaining to Aspect 2 of Millennium's model may not be subject to the FCA's public disclosure bar, Relator must still sufficiently plead the fraud associated with those allegations to survive dismissal under Fed.R.Civ.P. 12(b)(6) and 9(b). While Millennium's motion to dismiss Relator's complaint included alternative grounds to dismiss the complaint pursuant
We conclude that the district court did not err in dismissing Relator's complaint as jurisdictionally barred as to Aspects 1 and 3 of Millennium's alleged fraudulent scheme, and we therefore
While it appears that Relator may have confused the "based upon" analysis with some aspects of the original source doctrine, it nevertheless remains true that Relator never presented to the district court briefing, argumentation, or allegations to support his claims that he was an original source of information on Millennium's fraudulent billing scheme, and thus the district court was never able to evaluate what the basis for such an exception to the public disclosure bar could consist of in this case. This was also the district court's own understanding in its memorandum dismissing Relator's complaint: "[t]he Relator does not even attempt to argue that it fits into the original source exception to the bar."
