US, ex rel. Escobar v. Universal Health Services, Inc , 780 F.3d 504 ( 2015 )

United States Court of Appeals
For the First Circuit
No. 14-1423
UNITED STATES and COMMONWEALTH OF MASSACHUSETTS ex rel. JULIO
ESCOBAR and CARMEN CORREA, Administratrix of the Estate of
Yarushka Rivera,
Plaintiffs, Appellants,
v.
UNIVERSAL HEALTH SERVICES, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Howard, Stahl, and Barron,
Circuit Judges.
Matthew P. McCue, with whom Law Office of McCue was on brief,
for appellants.
Mark W. Pearlstein, with whom Laura McLane, Evan D. Panich,
and McDermott Will & Emery LLP were on brief, for appellee.
Robert Ross, with whom Steven Sharobem and Martha Coakley,
Attorney General, were on brief, for Commonwealth of Massachusetts,
amicus curiae.
Jennifer M. Verkamp and Morgan Verkamp LLC, on brief for
Taxpayers Against Fraud Education Fund, amicus curiae.
March 17, 2015
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STAHL, Circuit Judge. The genesis of this False Claims
Act case was the care of Relators' daughter at Arbour Counseling
Services in Lawrence, Massachusetts. Relators alleged that their
daughter — who died of a seizure in 2009 — was treated by various
unlicensed and unsupervised staff, in violation of state
regulations. The crux of their complaint is that Arbour's alleged
noncompliance with sundry supervision and licensure requirements
rendered its reimbursement claims submitted to the state Medicaid
agency actionably false under both the federal and Massachusetts
False Claims Acts.
The district court dismissed the complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6). With one limited
exception, we reverse.
I. Facts & Background
A. Regulatory framework
Arbour Counseling Services ("Arbour"), owned and operated
by Defendant-Appellee Universal Health Services, Inc. ("UHS"), is
a provider of mental-health services in Lawrence, Massachusetts.1
Arbour participates in the state Medicaid program, known as
MassHealth, and bills MassHealth for services rendered to
individuals insured by the program.
1
We use the name "Arbour" here to refer specifically to the
clinic that treated Yarushka Rivera in Lawrence.
-3-
The state has promulgated regulations governing the
MassHealth program. See generally 130 Mass. Code Regs.
§§ 401.401–650.035.2 Chapter 429 in particular pertains to the
provision of mental-health services at both "parent centers" and
"satellite facilities" around the state.3 In the regulations, a
satellite facility, such as the Arbour clinic at issue in this
case, is a "mental health center program at a different location
from the parent center that operates under the license of and falls
under the fiscal, administrative, and personnel management of the
parent center." Id. § 429.402. Satellite facilities are
classified as either "autonomous" or "dependent"; autonomous
facilities have "sufficient staff and services to substantially
assume [their] own clinical management independent of the parent
center," while dependent facilities operate "under the direct
clinical management of the parent center." Id.
The regulations contemplate that mental health centers
will employ qualified "core" staff members engaged in disciplines
such as psychiatry, psychology, social work, and psychiatric
nursing. See id. § 429.422 (setting forth staff composition
2
The most up-to-date version of the Code of Massachusetts
R e g u l a t i o n s a r e a c c e s s i b l e a t
http://www.mass.gov/courts/case-legal-res/law-lib/laws-by-source/
cmr/ (last visited March 5, 2015).
3
Chapter 429 sets forth regulations specific to the provision
of mental-health services. For administrative and billing
regulations generally applicable to all MassHealth providers, see
Chapter 450, 130 Mass. Code Regs. §§ 450.101–450.331.
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requirements); id. § 429.424 (setting forth requisite staff
qualifications). All staff must receive supervision within a
formalized relationship, commensurate to the individual's skill and
level of professional development. Id. § 429.438(E). Noncore
counselors and unlicensed staff in particular "must be under the
direct and continuous supervision of a fully qualified professional
staff member trained in one of the core disciplines." Id.
§ 429.424(F).
Satellite programs are subject to additional regulations
regarding staff supervision and integration with parent centers;
MassHealth payment for rendered services is conditioned on the
satellites' compliance with these provisions. Id. § 429.439. As
Arbour's Lawrence clinic is a satellite of a parent center located
in Malden, Relators' claims are largely premised on a failure to
conform to the strictures of the satellite-specific regulation.
B. Facts relevant to Relators' claims against UHS
Relators' daughter, Yarushka Rivera4 — a teenage
recipient of MassHealth benefits — began seeing Arbour counselor
Maria Pereyra in 2007 after experiencing behavioral problems at
school. Pereyra, though on staff at Arbour, had no professional
license to provide mental-health therapy. Relators met with
Pereyra's supervisor, clinical director Edward Keohan, after
4
Yarushka Rivera was the daughter of Relator Carmen Correa
and the stepdaughter of Relator Julio Escobar.
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Yarushka complained that she was not benefiting from counseling.
During the meeting, Relators became concerned that Keohan was not
supervising Pereyra and was unfamiliar with Yarushka's treatment.
Yarushka was eventually transferred to another staff
member, Diana Casado, also ostensibly supervised by Keohan. Like
Pereyra, Casado was unlicensed. Relators quickly became
unsatisfied with her treatment of their daughter and believed that
Casado was not being properly supervised.
In February 2009, Yarushka was once again assigned to a
new therapist, Anna Fuchu. Fuchu held herself out as a
psychologist with a Ph.D., though Relators later learned that she
had trained at an unaccredited online school and that her
application for a professional license had been rejected.
Notwithstanding Fuchu's lack of essential credentials, she treated
Yarushka and eventually diagnosed her with bipolar disorder.
Several months later, when Yarushka's behavioral problems
had not abated, officials at her school informed Relators that she
would be permitted to attend classes only if she saw a
psychiatrist. When Relators told this to Fuchu, she referred
Yarushka to Maribel Ortiz, another staff member at Arbour.
Believing Ortiz to be a psychiatrist, Relators referred to her as
"Dr. Ortiz." They eventually discovered, however, that she was not
a psychiatrist, but rather a nurse, and that she was not under the
supervision of the one Arbour staff psychiatrist, Maria Gaticales
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— herself not board-certified, or eligible for board certification,
as contemplated by the regulations. See 130 Mass. Code Regs.
§ 429.424(A)(1). Nonetheless, on May 6, 2009, Ortiz prescribed a
medication called Trileptal for Yarushka's purported bipolar
disorder.
Yarushka soon experienced an adverse reaction to the
drug. Although she called Ortiz for guidance, her two phone
messages went unreturned. When her condition worsened, Yarushka
decided to discontinue the medication, having not heard from anyone
at Arbour in several days. On May 13, Yarushka had a seizure and
was hospitalized.
In the days following Yarushka's seizure, Relators spoke
with Keohan and voiced their dissatisfaction with their daughter's
care. Yarushka's stepfather Julio Escobar "began to suspect that
no-one at Arbour was supervising Ms. Ortiz when Mr. Keohan claimed
to have no knowledge of the Relators [sic] repeated efforts to
reach Ms. Ortiz, and of Yarushka's recent seizure." After their
conversation, Keohan directed the staff psychiatrist Gaticales to
supervise Ortiz. Yarushka resumed treatment at Arbour, but
suffered another seizure in October 2009, this one fatal.
After Yarushka's death, Relators spoke with Anna
Cabacoff, a social worker at Arbour who had worked with Yarushka in
the past. Cabacoff informed them that the counselors who had cared
for Yarushka were not properly licensed to provide treatment
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without supervision or to prescribe medication, and that Gaticales
was not board-certified5 and accordingly unqualified to supervise
the other staff members.
In the months following the death of their daughter,
Relators filed complaints with several state agencies, including
the Disabled Persons Protection Committee ("DPPC"), Division of
Professional Licensure ("DPL"), and the Department of Public Health
("DPH"). Although the ensuing DPPC report found that there was
insufficient evidence of abuse of a disabled person, it concluded
that Ortiz and Gaticales "may have been" out of compliance with
relevant requirements concerning qualifications and supervision.
DPH determined, after an investigation, that Arbour had
violated fourteen distinct regulations, including those relating to
staff supervision and licensure.6 The DPH report deemed Relators'
allegations "valid" and found that
[t]he Psychiatrist's personnel record
indicated that she was not qualified to
supervise a nurse practitioner because she was
not Board Certified in psychiatry. Clinical
Therapist #8's and Clinical Therapist #11's
personnel files indicated they were not
licensed. Clinic Director #2 said that he
supervised Clinical Therapist #8 and Clinical
Therapist #11, but did not document these
meetings.
5
Relators confirmed this by checking state licensing
databases.
6
Relators attached a copy of the DPH report to their
complaint as an exhibit.
-8-
The report also concluded, based on a comprehensive review of
Arbour's personnel files, that "23 therapists were not licensed for
independent practice and also . . . were not licensed in their
discipline." Though all twenty-three therapists required clinical
supervision, there was no documentation to show that any had
received such supervision prior to January 2012, despite having
been hired as early as 1996. As a result of the DPH report, Arbour
entered into a plan of correction with the agency to rectify the
identified deficiencies.
In addition, Arbour's clinical director Keohan entered
into a consent agreement with the Board of Registration of Social
Workers, within the DPL.7 In the agreement, Keohan admitted to
sufficient facts meriting the Board's conclusion that, inter alia,
he had authorized Pereyra's unlicensed practice of social work at
the clinic, in violation of Massachusetts law. As a consequence,
the agreement imposed a two-year period of supervised probation on
Keohan's license to practice social work in the state. Fuchu,
another staff member who had treated Yarushka, also entered into a
consent agreement wherein she admitted to holding herself out as a
psychologist despite not being licensed. She agreed to pay a
$1,000 civil penalty.
7
A copy of this agreement was attached to the complaint as an
exhibit.
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C. Procedural background
Relators filed their second amended complaint in February
of 2013, reciting the above allegations and setting forth fourteen
counts against Defendant UHS under both the federal and
Massachusetts False Claims Acts.8 The complaint alleged that
Arbour, in submitting bills for services rendered by Pereyra,
Casado, Fuchu, and Ortiz — in connection with the treatment of
Yarushka Rivera and other MassHealth recipients — fraudulently
misrepresented that those staff members were properly licensed
and/or supervised, as required by law. The complaint further
alleged that Arbour made similar fraudulent misrepresentations with
regard to additional unidentified clinical staff members and nurse
practitioners, who had treated patients other than Yarushka.
Finally, Relators alleged that Arbour had engaged in fraudulent
billing "during [a] period of non-compliance with core staff and
supervision requirements," insofar as the clinic had failed to
employ at least one fully certified psychiatrist and one fully
certified psychologist.
The district court dismissed the complaint in its
entirety. In determining whether Relators had pleaded the
requisite element of falsity, the court drew a distinction between
8
The federal and state governments declined to intervene on
behalf of Relators in the district court, but the Commonwealth of
Massachusetts as amicus curiae was permitted to participate in oral
argument before this court.
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requirements that MassHealth imposes on providers as preconditions
to reimbursement ("conditions of payment") and those imposed as
preconditions to participation in the program in the first instance
("conditions of participation"). The court held that only
noncompliance with the former could establish the falsity of a
claim. Relying on chapter 429's preamble, which states in part
that "130 CMR 429.000 establishes requirements for participation of
mental health centers in MassHealth,"9 the court observed that the
chapter "generally does not establish preconditions to payment."
United States ex rel. Escobar v. Universal Health Servs., Inc., No.
11-11170-DPW, 2014 WL 1271757, at *7 (D. Mass. Mar. 26, 2014). The
court then evaluated the text of individual regulations cited in
the complaint to determine whether they constituted conditions of
participation or of payment. The court analyzed the regulations
"through the lens" of the preamble, effectively assuming that each
regulation imposed only a condition of participation, "unless its
9
The full text of the preamble is as follows:
130 CMR 429.000 establishes requirements for
participation of mental health centers in MassHealth and
governs mental health centers operated by freestanding
clinics, satellite facilities of clinics, and
identifiable units of clinics. All mental health centers
participating in MassHealth must comply with the
MassHealth regulations, including but not limited to
MassHealth regulations set forth in 130 CMR 429.000 and
450.000: Administrative and Billing Regulations.
130 Mass. Code Regs. § 429.401.
-11-
'plain provisions' suggest[ed] that it is also a precondition of
payment." Id.
Applying that rubric, the district court ruled that
Relators' claims failed on the merits, since there was "no
indication" in the text of any of the pertinent regulations that
they were intended as conditions of payment, rather than as
conditions of participation as stated in the preamble. Id. at
*7–8. The only exception was the overarching regulation pertaining
to satellite centers — section 429.439 — which states that
"[s]ervices provided by a satellite program are reimbursable only
if the program meets the standards described below." See id. at
*9. The court went on to note that section 429.439 sets forth
different requirements for autonomous and dependent satellite
programs; because Relators had failed to plead whether the Lawrence
Arbour clinic was autonomous or dependent, the court held that the
complaint did not plead with particularity a misrepresentation of
compliance with any condition of payment, as required by Federal
Rule of Civil Procedure 9(b). Id. at *10, *12. The court also
held that the counts of the complaint directed at unnamed staff
members and Arbour's pattern of noncompliance with core staffing
requirements also failed to allege fraud with particularity. Id.
at *12–13.
Relators now appeal from the dismissal of their
complaint.
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II. Analysis
A. False Claims Act generally
The False Claims Act ("FCA" or "Act") is an "expansive[]"
statute, intended "to reach all types of fraud, without
qualification, that might result in financial loss to the
Government." Cook Cnty., Ill. v. United States ex rel. Chandler,
538 U.S. 119, 129 (2003) (internal quotation marks omitted). As
relevant here, the Act proscribes "knowingly present[ing], or
caus[ing] to be presented, a false or fraudulent claim for payment
or approval."10 31 U.S.C. § 3729(a)(1)(A). To be actionable, a
false or fraudulent statement must be material to the government's
decision to pay a claim. United States ex rel. Loughren v. Unum
Grp., 613 F.3d 300, 307 (1st Cir. 2010). The Act's qui tam
provisions authorize private individuals to sue on behalf of the
United States in order to recover monies alleged to have been
defrauded from the government. 31 U.S.C. § 3730(b); United States
ex rel. Duxbury v. Ortho Biotech Prods., L.P., 719 F.3d 31, 33 (1st
Cir. 2013).
In defining the notion of "falsity" under the FCA, which
the statute itself does not do, a number of circuits have developed
10
The statute provides that "the terms 'knowing' and
'knowingly' . . . mean that a person, with respect to information
. . . (i) has actual knowledge of the information; (ii) acts in
deliberate ignorance of the truth or falsity of the information; or
(iii) acts in reckless disregard of the truth or falsity of the
information." 31 U.S.C. § 3729(b)(1)(A). No proof of specific
intent to defraud is required. Id. § 3729(b)(1)(B).
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two categories of false submissions: those that are factually false
and those that are legally false. See, e.g., United States ex rel.
Conner v. Salina Reg'l Health Ctr., Inc., 543 F.3d 1211, 1217 (10th
Cir. 2008); Mikes v. Straus, 274 F.3d 687, 696–97 (2d Cir. 2001).
Courts have further subdivided claims in the latter group based on
whether they proceed on a theory of either "implied" or "express"
certification of compliance with conditions of payment. See United
States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295,
305–06 (3d Cir. 2011) (collecting cases).
This circuit recently has eschewed distinctions between
factually and legally false claims, and those between implied and
express certification theories, reasoning that they "create
artificial barriers that obscure and distort [the statute's]
requirements." United States ex rel. Hutcheson v. Blackstone Med.,
Inc., 647 F.3d 377, 385 (1st Cir. 2011). Instead, "we take a broad
view of what may constitute a false or fraudulent statement to
avoid 'foreclos[ing] FCA liability in situations that Congress
intended to fall within the Act's scope.'" United States ex rel.
Jones v. Brigham & Women's Hosp., 678 F.3d 72, 85 (1st Cir. 2012)
(alteration in original) (quoting Hutcheson, 647 F.3d at 387). We
ask simply whether the defendant, in submitting a claim for
reimbursement, knowingly misrepresented compliance with a material
precondition of payment. New York v. Amgen Inc., 652 F.3d 103, 110
(1st Cir. 2011). Preconditions of payment, which may be found in
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sources such as statutes, regulations, and contracts, need not be
"expressly designated." Hutcheson, 647 F.3d at 387–88. Rather,
the question whether a given requirement constitutes a precondition
to payment is a "fact-intensive and context-specific inquiry,"
Amgen, 652 F.3d at 111, involving a close reading of the
foundational documents, or statutes and regulations, at issue. Cf.
United States v. Sci. Applications Int'l Corp., 626 F.3d 1257, 1269
(D.C. Cir. 2010) [hereinafter "SAIC"] ("The existence of express
contractual language specifically linking compliance to eligibility
for payment may well constitute dispositive evidence of
materiality, but it is not . . . a necessary condition.").11
B. Establishing "falsity"
The district court — whose decision we review de novo,
Amgen, 652 F.3d at 109 — acknowledged our rejection in Hutcheson of
"judicially created formal categories," 647 F.3d at 385, but held
that the distinction between conditions of participation and
conditions of payment nonetheless survived; only misrepresentation
of compliance with the latter would establish that a claim was
false within the meaning of the FCA. The court reasoned that,
because the holdings of both decisions were framed in terms of
11
But see, e.g., Mikes v. Straus, 274 F.3d 687, 700 (2d Cir.
2001) (FCA claim proceeding under theory that defendant
misrepresented compliance with program requirement "is
appropriate[] . . . only when the underlying statute or regulation
upon which the plaintiff relies expressly states the provider must
comply in order to be paid").
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conditions of payment, Hutcheson and the subsequent case of Amgen
at least implicitly accepted the "condition of payment/condition of
participation dichotomy." Escobar, 2014 WL 1271757, at *6; see
Amgen, 652 F.3d at 110 ("To survive [a] 12(b)(6) motion,
[plaintiffs] . . . . must show that the claims at issue in [the]
litigation misrepresented compliance with a material precondition
of Medicaid payment such that they were false or fraudulent.");
Hutcheson, 647 F.3d at 379 ("[W]e hold that [the] complaint, in
alleging that the hospital and physician claims represented
compliance with a material condition of payment that was not in
fact met, states a claim under the FCA . . . ."). The court also
pointed to cases from other circuits that have adopted such a
framework. Escobar, 2014 WL 1271757, at *6 n.1 (citing cases from
Second and Sixth Circuits).
To be sure, Hutcheson and Amgen held that a plaintiff
states a claim under the FCA when he or she alleges that a
recipient of government funds has misrepresented its compliance
with a condition of payment. But while the district court
concluded that only claims premised on misrepresentation of
compliance with a condition of payment are cognizable under the
FCA, we find that any payment/participation distinction is not
relevant here. As in Amgen, the provisions at issue in this case
clearly impose conditions of payment.
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Section 429.439 of the MassHealth regulations expressly
provides that "[s]ervices provided by a satellite program are
reimbursable only if the program meets the standards described
below [in subsections (A) through (D)]." Subsection (A) pertains
to parent centers' supervision of satellite programs, while
subsection (B) addresses the supervision that must occur within
autonomous satellites, which "must provide supervision and in-
service training to all noncore staff employed at the satellite
program."12 Subsection (C) further demands that all satellites
employ a full-time clinical director who meets the qualifications
required of core staff members in his or her discipline, as set
forth in section 429.424; in addition, supervisors at dependent
satellites must "receive regular supervision and consultation from
qualified core staff at the parent center."
Relying on subsection (B), the district court read
section 429.439 as imposing internal supervision requirements only
on autonomous satellites. In so doing, the district court
overlooked a critical interaction between section 429.439 and other
substantive provisions of the MassHealth regulations: subsection
(C) specifies that the clinical director of both autonomous and
dependent satellites must "meet all of the requirements in 130 CMR
12
130 Mass. Code Regs. § 429.402 defines a "core team" as a
"group of three or more mental-health professionals that must
include a psychiatrist and one each of at least two of the
following professionals: clinical or counseling psychologist,
psychiatric social worker, or psychiatric nurse."
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429.423(B)." Section 429.423(B), in turn, delineates the clinical
director's responsibilities, including, inter alia, "overall
supervision of staff performance."
Therefore, the MassHealth regulations explicitly
condition the reimbursement of satellites' claims on the clinical
director's fulfillment of his or her regulatory duties, regardless
of whether the satellite is autonomous or dependent. Section
429.423(B) makes plain that one of those duties is ensuring
appropriate supervision. Indeed, the cost of staff supervision is
automatically built into MassHealth reimbursement rates. See 130
Mass. Code Regs. § 429.408(C)(3). That supervision at Arbour was
either grossly inadequate or entirely lacking is the core of
Relators' complaint. Insofar as Relators have alleged
noncompliance with regulations pertaining to supervision, they have
provided sufficient allegations of falsity to survive a motion to
dismiss.
C. Application to Relators' complaint
1. Counts I–IV and VIII-XI
In Counts I through IV and VIII through XI,13 Relators
allege that four different individuals who treated Yarushka Rivera
13
Counts VIII through XI are the same as Counts I through IV,
but they bring claims under the Massachusetts FCA rather than the
federal statute. "Given the substantive similarity of the
[Massachusetts] FCA[] . . . and the federal FCA with respect to the
provisions at issue in this litigation, the state statute[] may be
construed consistently with the federal act." See New York v.
Amgen, Inc., 652 F.3d 103, 109 & n.6 (1st Cir. 2011); Scannell v.
Att'y Gen., 70 Mass. App. Ct. 46, 49 n.4 (2007) ("[T]he MFCA was
modeled on the similarly worded Federal False Claims Act.").
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(Pereyra, Casado, Fuchu, and Ortiz) did not receive proper
supervision, either directly from the clinical director Keohan or
from the psychiatrist Gaticales — who, in any event, was not board-
certified. See 130 Mass. Code Regs. §§ 429.423(D), 429.424(A),
429.424(F), 429.438(E). In these counts, Relators have adequately
pleaded that Arbour's claims for reimbursement in connection with
Yarushka's treatment were false within the meaning of the Act, in
that they misrepresented compliance with a condition of payment,
i.e., proper supervision.14
These counts also have properly pleaded that the
condition of payment at issue was a material one. The express and
absolute language of the regulation in question "'constitute[s]
dispositive evidence of materiality.'" Hutcheson, 647 F.3d at 394(quoting SAIC, 626 F.3d at 1269); see 130 Mass. Code Regs.
§ 429.439 ("Services provided by a satellite program are
reimbursable only if the program meets the standards described
below.")
Furthermore, Relators have satisfied the scienter
requirement, as they have plausibly pleaded that Arbour knowingly
14
Although the record is silent as to whether Arbour
explicitly represented that it was in compliance with conditions of
payment when it sought reimbursement from MassHealth, we have not
required such "express certification" in order to state a claim
under the FCA. See United States ex rel. Hutcheson v. Blackstone
Med., Inc., 647 F.3d 377, 385–86 (1st Cir. 2011) (rejecting labels
of express and implied certification). We note, however, that each
time it submitted a claim, Arbour implicitly communicated that it
had conformed to the relevant program requirements, such that it
was entitled to payment.
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submitted false claims to MassHealth. The complaint quotes a
portion of Keohan's interview with the state DPH in which he
admitted that, until recently, he was "unaware that supervision was
required to be provided on a regular and ongoing bases, or that the
supervision meetings needed to be documented." These allegations
more than suffice to establish that Arbour acted in reckless
disregard or deliberate ignorance of the falsity of the information
contained in the claims. See 31 U.S.C. § 3729(b)(1)(A); cf.
Loughren, 613 F.3d at 313–14.
These counts were pleaded with sufficient particularity.
In the FCA context, Federal Rule of Civil Procedure 9(b) requires
relators to connect allegations of fraud to particular false claims
for payment, rather than a fraudulent scheme in the abstract.
United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d
220, 232 (1st Cir. 2004). While we have declined to set forth a
mandatory checklist, we have identified a number of types of
information that contribute to the particularity of the
allegations, including:
the dates of the claims, the content of the
forms or bills submitted, their identification
numbers, the amount of money charged to the
government, the particular goods or services
for which the government was billed, the
individuals involved in the billing, and the
length of time between the alleged fraudulent
practices and the submission of claims based
on those practices.
Id. at 233.
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Relators' complaint sets forth the core of this material:
it alleges twenty-seven separate dates on which claims were
submitted in connection with Yarushka's care, each time including
the relevant billing codes, amount invoiced, and the name of the
Arbour staff member who provided the treatment for which
reimbursement was sought. Relators have thus succeeded in linking
their allegations of fraud to specific claims for payment. Cf.
United States ex rel. Ge v. Takeda Pharm. Co. Ltd., 737 F.3d 116,
124 (1st Cir. 2013) (affirming dismissal of FCA complaint for
failure to state fraud with particularity where relator "alleged
next to no facts in support of the proposition that [pharmaceutical
company's] alleged misconduct resulted in the submission of false
claims or false statements material to government payment").
Finally, we note that while Relators' complaint provides
specific information about bills submitted to MassHealth in
connection with Yarushka's care only, it also seeks damages for
bills submitted for services rendered to all MassHealth recipients
by Pereyra, Casado, Fuchu, and Ortiz within a six-year period.
Under the circumstances of this case, where Relators have raised a
particular and plausible allegation of fraud in connection with the
treatment of their daughter, we do not view the absence of more
precise details pertaining to the bills for services provided to
other MassHealth recipients as an impediment to proceeding. Given
that such allegation is not particular to Yarushka's treatment, but
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rather arises from the clinical director's systematic failure to
enforce supervision requirements, it stands to reason that billing
for more than one MassHealth recipient has been infected by fraud.
2. Counts VII and XIV
For similar reasons, Counts VII and XIV of Relators'
complaint also survive a motion to dismiss. The substance of those
counts is that Arbour violated both the federal and Massachusetts
FCA by fraudulently misrepresenting its compliance with regulations
requiring mental-health clinics to employ at least one board-
certified psychiatrist at all times.15 See 130 Mass. Code Regs.
15At different points in their complaint, Relators identify
both MassHealth and Department of Public Health ("DPH") regulations
as the source of this staffing requirement. There is at least some
ambiguity as to whether the MassHealth regulation in question, 130
Mass. Code Regs. § 429.422, independently requires each satellite
clinic to employ its own psychiatrist. Section 429.422 provides
that mental health centers must employ at least one psychiatrist.
A "mental health center" is defined as "an entity that delivers a
comprehensive group of diagnostic and psychotherapeutic treatment
services to mentally or emotionally disturbed persons and their
families by an interdisciplinary team under the medical direction
of a psychiatrist." 130 Mass. Code Regs. § 429.402. This
definition appears to refer to an entity comprising both the parent
center and the satellite locations. See 130 Mass. Code Regs.
§ 429.402 (defining "parent center" as "the central location of the
mental health center . . . ."; defining "autonomous satellite
program" and "dependent satellite program" as "a mental health
center program . . . .") (emphases added). On this reading of the
definition of "mental health center," a satellite that does not
employ a psychiatrist is not out of compliance with the staffing
regulation so long as the parent has a psychiatrist on staff.
But the DPH regulations suggest something else. 105 Mass.
Code Regs. § 140.530 provides that every "clinic providing mental
health services" must employ a board-certified psychiatrist, or one
who is eligible for board certification. "A satellite clinic must
meet [this requirement] independently of its parent clinic." 105
Mass. Code Regs. § 140.330. According to the DPH report attached
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§ 429.422(A); 105 Mass. Code Regs. § 140.530(C)(1)(a). Since the
clinical director is explicitly responsible for hiring adequate
psychiatric staff, see 130 Mass. Code Regs. § 429.423(B)(2)(e), and
claims are reimbursable only if the clinical director fulfills the
assigned duties, see id. § 429.439(C), Arbour's failure to maintain
a properly licensed psychiatrist on staff constituted noncompliance
with a material condition of payment. Such noncompliance was at
least deliberately ignorant, in light of Relators' allegation that
they were able to determine that Gaticales was not board-certified
in psychiatry simply by checking a state licensing database. Thus,
these counts, too, were improperly dismissed.16
to Relators' complaint, which details the results of the agency's
investigation of the satellite clinic where Yarushka Rivera
received treatment, that clinic was not in compliance with the
staffing requirements of 105 Mass. Code Regs. § 140.530. We defer
to the agency's determination that such regulation applies to the
Arbour satellite clinic at issue here. See City of Pittsfield,
Mass. v. U.S. Envt'l Prot. Agency, 614 F.3d 7, 10-11 (1st Cir.
2010) (giving "controlling weight" to "agency's interpretation [of
its own regulation] unless it is plainly erroneous or inconsistent
with the regulation") (internal quotation marks omitted); Friends
& Fishers of Edgartown Great Pond, Inc. v. Dep't of Envt'l Prot.,
446 Mass. 830, 838 (2006) (deferring to agency's interpretation of
its own regulations).
16
These counts also allege that Arbour violated core staffing
requirements by failing to have at least one licensed psychologist
on staff. However, the regulations do not mandate that a
psychologist be on staff at all times; instead, clinics are
required to employ at least two people from various disciplines,
one of which is psychology. 130 Mass. Code Regs. § 429.422(A); 105
Mass. Code Regs. § 140.530(C)(2)(b).
Although Fuchu held herself out as a licensed psychologist
when she in fact was not, the complaint does not allege whether
Arbour retained any other properly licensed psychologists, or staff
in other approved disciplines. Thus, the portions of Counts VII
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3. Counts V–VI and XII–XIII
We are left with Counts V, VI, XII, and XIII, which
allege that Arbour engaged in fraudulent billing in connection with
other unlicensed and unsupervised clinical staff and nurse
practitioners. Relators allege that the "specific identit[ies]" of
these staff members are "currently unknown to [them] but [are] well
known to Arbour."
We have previously upheld the dismissal of claims under
the FCA for failure to plead fraud with particularity where, among
other things, the individuals involved with allegedly improper
billing were not identified. See, e.g., Karvelas, 360 F.3d at 233.
Here, however, while the staff members in question have not been
identified by name in the individual counts, the factual background
of the complaint sets forth a non-exhaustive list of twenty-two
Arbour employees who have obtained a National Provider
Identification number despite not being licensed as social workers
or mental-health counselors by the Commonwealth of Massachusetts.
Moreover, the DPH report attached to the complaint verifies that
twenty-three Arbour therapists "were not licensed for independent
practice and also . . . were not licensed in their discipline," and
had received no documented supervision prior to January 2012.
These concrete allegations, corroborated by a state agency's
and XIV that allege that Arbour committed fraud by failing to have
at least one licensed psychologist on staff does not state a
plausible claim for relief.
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independent report and Keohan's own admission that the clinic
suffered from a fundamental lack of oversight, confirm that the
basic goals of Federal Rule of Civil Procedure 9(b) have been met
— "to provide a defendant with fair notice of a plaintiff's claim,
to safeguard a wrongdoing, and to protect a defendant against the
institution of a strike suit." Suna v. Bailey Corp., 107 F.3d 64,
68 (1st Cir. 1997) (internal quotation marks omitted); cf. Ge, 737
F.3d at 123 (observing that particularity requirement of Rule 9(b)
is designed to ward off "parasitic relators who bring FCA damages
claims based on information within the public domain or that the
relator did not otherwise discover" (internal quotation marks
omitted)). Under the circumstances, then, these counts of
Relators' complaint also state claims under the FCA.
III. Conclusion
Compliance with the regulations at issue pertaining to
staff supervision and core staffing at satellite centers is a
condition of payment by MassHealth. Because our case law makes
clear that a healthcare provider's noncompliance with conditions of
payment is sufficient to establish the falsity of a claim for
reimbursement, we need not address here whether the False Claims
Act embraces a distinction between conditions of payment and
conditions of participation.
In the final analysis, Relators' daughter died after
receiving treatment that was out of compliance with over a dozen
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regulations, as determined by an independent report. Relators have
carefully compiled information regarding the names of unlicensed
and unsupervised providers, and the dates, amounts, and codes of
allegedly false claims submitted to MassHealth. As such, they have
appropriately stated a claim with particularity under the FCA.
We accordingly REVERSE the dismissal of Relators'
complaint, save for that portion of Counts VII and XIV pertaining
to the employment of psychologists. See supra note 16. We remand
the case for proceedings consistent with this opinion. Costs are
awarded to Relators.
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