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The Ninth Circuit reversed a district court’s dismissal of a qui tam case alleging the defendant submitted false claims to Medicare. Contrary to the district court, the appeals court found the relator’s research undermined the defendant’s assertion of an alternative interpretation of the invoice information supporting the false claims allegation. The court also held that statements by one of the relator’s co-workers supported the allegations enough to survive a motion to dismiss, even though their recollections were more than 15 years old. The appeals court also held that the relator had established materiality, because Medicare’s guidance specifically stated the claims at issue would not be paid as submitted and because the payment requirements had been the subject of extensive negotiation between CMS and the defendants.

Finally, the court held the relator had established scienter, as she plausibly demonstrated the existence of a scheme to cover up the allegedly fraudulent billings, and because after she raised her concerns internally, the defendant immediately fired not only the relator, but the supervisor and vice president to whom she had reported the conduct. The court held this extreme action demonstrated, at minimum, that the defendant wished to remain ignorant of the potential fraud.

Relator Geraldine Godecke appealed the district court’s dismissal of her qui tam case against Kinetic Concepts Inc. and KCI USA Inc., in which she alleged KCI submitted False Claims to Medicare. Godecke alleged KCI delivered durable medical equipment to Medicare patients before obtaining a detailed written order from a physician, which was a requirement for Medicare reimbursement. She argued that if Medicare had known that this requirement had not been met, KCI would not have been reimbursed, and that KCI knowingly submitted the claims anyway and engaged in a scheme to cover up the fraud.

The district court dismissed the case, first finding that Godecke had failed to plead a violation of the FCA, because she had not shown KCI submitted incorrectly coded claims in order to obtain payment. The appeals court reversed, finding that Godecke had sufficiently alleged that KCI had violated the FCA by submitting claims for payment that were coded to show that a physician’s order had been received, when in reality, orders were pending or otherwise not received.

The court explained that a relator is not required to identify representative examples of false claims to support every allegation. In this case, Godecke sufficiently alleged particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that the claims were actually submitted. Although she was never directed to submit incorrectly coded claims or observed other employees doing so, Godecke had direct knowledge that sales representatives delivered equipment without a physician’s order. She was also aware of a management plan to cover up this activity. The court found this knowledge was sufficient to support Godecke’s allegation.

The district court had found KCI plausibly asserted an alternative interpretation of the relator’s evidence, because the orders Godecke argued were falsely submitted to Medicare could have been claims that were correctly submitted but denied. However, the appeals court agreed with Godecke that her research ruled out this interpretation, holding that Godecke had shown that these claims were either paid or appealed, which would have been impossible if the claim had been correctly coded as lacking a prior authorization. Godecke also provided evidence from another employee regarding the inconsistencies in the submissions. The appeals court found the additional allegations provided the necessary reliable indicia that give a strong inference that KCI actually submitted false claims to Medicare, and the district court incorrectly disregarded the information provided by the second employee.

The district court reasoned that Godecke had waited too long to submit the statements from the second employee and that the employee’s recollections might not be reliable, but the appeals court found this decision imposed too high a bar. Although it is true that a fifteen year old memory is less reliable than a more recent one, the employee’s statements clearly alleged a false claim. The appeals court held that the employee’s recollections could be more closely examined in a deposition, even if they would not hold up to scrutiny.

The district court also held that Godecke failed to establish the requisite scienter. The district court found the relator had not shown that KCI knew its claims were false at the time of submission, only that KCI might have learned its claims were problematic during an appeals process. However, the appeals court found that Godecke sufficiently alleged that KCI knowingly submitted claims that were flagged as approved when the company had not received a physician’s order. She also plausibly alleged KCI formulated a scheme to cover up the submission of defective claims.

Further, the statements of Godecke’s former co-worker confirmed both the submission of false claims and the effort to obscure them. Combined, the court held this was sufficient to allege scienter. At the very least, the court reasoned the evidence showed KCI willfully ignored the possible wrongdoing and failed to make simple inquiries that would have alerted it to the submission of false claims.

The court also noted that when Godecke raised her concerns to KCI, she was fired, as were her supervisor and the senior vice president to whom they reported. Godecke’s supervisor told her that KCI management was afraid she was gathering information on false claims and was going to be a whistleblower. The court reasoned that KCI’s extraordinarily aggressive reaction to these concerns suggest that KCI was at least trying to remain willfully ignorant of the falsity of its claims.

The appeals court also found that Godecke’s allegations, taken together, sufficiently alleged materiality to survive a motion to dismiss. Medicare guidance states that the claims at issue in this case would not be paid if equipment was delivered without a prior physician’s order. While this express identification of a condition of payment might not be sufficient alone to prove materiality, the court found it to be probative evidence. Further, Godecke argued the requirement was not a paperwork issue but the result of extensive negotiations between Medicare and KCI in order to prevent fraud and abuse. The court found this assertion also probative. Notably, the court found no evidence Medicare had ever reimbursed such a claim despite knowing it did not meet this requirement. Because Godecke alleged that Medicare would not pay the claim at all if it knew that there was no prior written order, the court held she had sufficiently alleged materiality.

The plaintiffs are represented by Kurt Kuhn, Kuhn Hobbes PLLC; Patrick J. O’Connell, Law Offices of Patrick J. O’Connell PLLC; Mark I. Labaton, Glancy Prongay & Murray LLP; Michael A. Hirst, Hirst Law Group P.C. The defendants are represented by Gregory M. Luce, Matthew E. Sloan, and Kevin J. Minnick of Skadden Arps Slate Meagher & Flom LLP.