Intermountain Settles Dispute Pending Before Supreme Court, Leaving 9(b) Ambiguity Unresolved
Earlier this month, a Utah-based hospital chain announced it would settle whistleblower Dr. Gerald Polukoff’s case alleging the hospital performed unnecessary heart surgeries on Medicare patients, thereby overcharging the federal government in violation of the False Claims Act (FCA). Defendant Intermountain Health, the largest healthcare provider in the Intermountain West, had petitioned the U.S. Supreme Court to resolve a split among lower courts surrounding the amount of detail required to adequately allege a defendant submitted false claims under the FCA. The recent settlement removes the prospect that the High Court will soon shed light on the standard.
The circuit split at issue concerns the correct interpretation of Federal Rule of Civil Procedure 9(b)’s requirement that litigants alleging fraud do so with “particularity.” In Intermountain’s petition for Supreme Court review, it argued the Tenth Circuit did not require Dr. Polukoff to meet that standard when it “excuse[d] deficiencies that result from the [Relator’s] inability to obtain information within the defendant’s exclusive control.” Intermountain maintained that the Tenth Circuit’s interpretation was erroneously in tension with the plain language of Rule 9(b) and amounted to a judicially created exception.
But most federal circuits that have considered the issue have recognized, like the Tenth Circuit in the Intermountain case, that it would make little sense to dismiss an action for failure to include specific details that are solely within the defendant’s possession. These courts have noted that such a requirement would allow sophisticated defrauders to evade liability by, for instance, purposely confining billing and accounting information and documents to a select group insulated from other pertinent, operational knowledge. Corporate fraudsters utilize this silo approach to reduce the number of employees with knowledge of both falsity and actual false claims presented. Accordingly, most courts recognize that a flexible approach is necessary to allow cases to proceed to discovery so long as the whistleblower describes the fraudulent scheme and details some reliable indicia that the defendant in fact submitted false claims for payment.
The correct interpretation of 9(b) has long divided the federal courts of appeal. The issue arises in various contexts, creating a muddied body of case law. The Eighth Circuit’s recent decision in United States ex rel. Strubbe v. Crawford County Memorial Hospital, 915 F.3d 1158 (2019) highlights the ongoing dispute. In a February 2019 decision, the majority affirmed the district court’s dismissal, finding the relator had pled only a “possibility” that claims were submitted. The court found Strubbe had not provided “reliable indicia” sufficient to create “a strong inference that claims were actually submitted.” It so held despite Strubbe’s allegations that management had told employees its documentation policies were for “billing” and “cost reimbursement purposes.” A sharp dissent argued the outcome would essentially require would-be relators to “commit criminal activity by illegally accessing the hospital’s billing records” in order to successfully plead a FCA violation for Medicare billing fraud.
The Intermountain Healthcare case was notable because the High Court expressed interest in resolving the tension when it issued a docket entry in February, requesting a response to Intermountain’s petition for review. The Supreme Court has now, on multiple occasions, indicated it may weigh in on the particularity standard. In light of the recent settlement, the Intermountain dispute will not be the case to resolve the confusion for FCA litigants.