Kenya Sibley v. University of Chicago Medical ( 2022 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 21‐2610
UNITED STATES OF AMERICA
ex rel. KENYA SIBLEY, et al.,
Plaintiffs‐Appellants,
v.
UNIVERSITY OF CHICAGO MEDICAL CENTER d/b/a
University of Chicago Medicine, et al.,
Defendants‐Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:17‐cv‐04457 — Harry D. Leinenweber, Judge.
____________________
ARGUED MAY 18, 2022 — DECIDED AUGUST 11, 2022
____________________
Before HAMILTON, BRENNAN, and KIRSCH, Circuit Judges.
BRENNAN, Circuit Judge. Kenya Sibley, Jasmeka Collins,
and Jessica Lopez worked for Medical Business Office Corp.
(“MBO”) and Trustmark Recovery Services, Inc., two jointly
owned companies that deliver medical‐billing and debt‐col‐
lection services to healthcare providers. After they raised con‐
cerns about their employers’ business practices, the three
2 No. 21‐2610
employees were fired. They sued MBO and Trustmark—as
well as the University of Chicago Medical Center (“UCMC”),
one of MBO’s clients—under the False Claims Act, 31 U.S.C.
§ 3729, et seq. That statute allows private parties, known as re‐
lators, to sue on behalf of the United States.
Regulations specify that Medicare providers seeking reim‐
bursement for “bad debts” owed by beneficiaries must have
first made reasonable efforts to collect those debts. The rela‐
tors’ allegations concern those regulations. UCMC, they
assert, knowingly avoided an obligation to repay the govern‐
ment after it effectively learned that it had been reimbursed
for noncompliant debts. Per the relators, MBO and Trustmark
caused the submission of false claims to the government by
flouting the regulatory requirements. Each relator also brings
a retaliation claim against MBO and Trustmark.
The district court dismissed the operative complaint with
prejudice. It ruled that UCMC could not be liable because it
never recognized any obligation to repay the government.
The court also concluded that MBO and Trustmark were not
liable for causing the submission of false claims to the govern‐
ment because the complaint did not identify an example of a
false statement made in connection with Medicare reimburse‐
ments. The retaliation claims were dismissed as well because
the relators could not show they reasonably believed their
employers were causing the submission of false claims.
We affirm in part and reverse in part. The district court
properly dismissed the claim against UCMC, which neither
had an established duty to repay the government nor acted
knowingly in avoiding any such duty. The direct false claim
against MBO was also correctly dismissed. As to MBO, the re‐
lators did not meet the applicable standard because they
No. 21‐2610 3
failed to include specific representative examples of noncom‐
pliant patient debts, linked to MBO, for which reimbursement
was sought. But the complaint includes specific examples of
patient debts as to Trustmark, so we reverse the dismissal of
the direct false claim against it. As for retaliation, Sibley and
Collins have alleged facts that support the inference that they
reasonably believed their employers were causing the sub‐
mission of false claims to the government. We hold that their
retaliation claims may proceed. Lopez cannot meet that stand‐
ard, though, so her retaliation claim was appropriately dis‐
missed.
I
A
The federal government reimburses Medicare providers
for “bad debts” under 42 C.F.R. § 413.89. If a Medicare patient
fails to make required deductible or coinsurance payments,
the provider may seek reimbursement from the Centers for
Medicare and Medicaid Services (“CMS”) for those bad debts.
42 C.F.R. § 413.89(b), (e). There are four longstanding require‐
ments for a debt to be reimbursable:
 The debt “must be related to covered ser‐
vices and derived from deductible and coin‐
surance amounts”;
 The provider “must be able to establish that
reasonable collection efforts were made”;
 The debt must be “actually uncollectible
when claimed as worthless”; and
4 No. 21‐2610
 “Sound business judgment [must establish]
that there was no likelihood of recovery at
any time in the future.”
Id. § 413.89(e); see also 31 Fed. Reg. 14808, 14813 (Nov. 22, 1966)
(delineating these requirements).
CMS has promulgated specific rules for what actions a
provider must take to meet the second requirement—“rea‐
sonable collection efforts.” For years, those rules were con‐
tained in CMS’s Provider Reimbursement Manual. Then, in
2020, CMS retroactively codified those regulations at 42 C.F.R.
§ 413.89(e)(2). CMS explained that the rules had not changed;
rather, the newly codified regulations expressed longstanding
policies. 85 Fed. Reg. 58432, 58989–96 (Sept. 18, 2020).
Under § 413.89(e)(2), a provider’s reasonable collection ef‐
forts must last at least 120 days after the issuance of the origi‐
nal bill before a debt is written off as uncollectible. A provider
is also required to “[s]tart a new 120‐day collection period
each time a payment is received within a 120‐day collection
period.” Id. § 413.89(e)(2)(i)(A)(5). If a provider takes the ap‐
propriate steps, it may seek reimbursement for debts from
CMS when it submits its annual cost report. Hospitals are en‐
titled to recover 65 percent of their allowable bad debts for
any fiscal year after 2012. Id. § 413.89(h)(1)(v).
B
This appeal reviews the district court’s dismissal of the re‐
lators’ claims under Federal Rule of Civil Procedure 12(b)(6),
so we must accept all well‐pleaded facts as true and draw all
reasonable inferences in their favor. United States ex rel. Prose
v. Molina Healthcare of Ill., Inc., 17 F.4th 732, 738–39 (7th Cir.
No. 21‐2610 5
2021). The following facts are taken from the relators’ opera‐
tive Second Amended Complaint.
The UCMC bad debt scheme. Beginning in 2004, UCMC con‐
tracted with MBO to provide billing and collection services.
Under the contract, UCMC paid MBO a monthly rate based
on the number of MBO employees working full‐time to collect
debts owed to UCMC. They amended the contract in 2016 to
allow MBO to handle additional UCMC accounts, including
Medicare and Medicaid accounts receivable. Some of MBO’s
duties involved collecting debts that Medicare beneficiaries
owed to UCMC, which would ultimately report many of
those debts to CMS as Medicare bad debts.
UCMC authorized MBO to have up to nine employees
working on the Medicare/Medicaid project. Instead, MBO as‐
signed only two employees to work on collecting UCMC’s
Medicare and Medicaid beneficiary debt while falsely invoic‐
ing UCMC for the remaining authorized employees. Keith
Sauter, UCMC’s Financial Director, managed this arrange‐
ment. Sauter profited by receiving purported “consulting
fees” from MBO in exchange for not reporting MBO’s false
invoices to UCMC executives.
When UCMC learned of MBO and Sauter’s deception, the
hospital system terminated Sauter’s employment and began
an internal audit of MBO’s invoices. The audit confirmed that
MBO had overbilled UCMC by at least $270,000 for the Med‐
icare/Medicaid project between November 2016 and Septem‐
ber 2017. In January 2018, UCMC’s legal department sent
MBO a letter. UCMC asserted that MBO had breached the
contract by submitting inflated invoices, including those for
the Medicare/Medicaid project, and it demanded approxi‐
mately $700,000 in refunds.
6 No. 21‐2610
The complaint alleges that, due to the audit, in late 2017
UCMC learned that MBO had only one person working part‐
time pursuing its Medicare beneficiary debt. Thus, after
conducting the audit, UCMC effectively learned it was impos‐
sible that MBO had complied with federal regulations con‐
cerning reasonable collection efforts for the Medicare bad
debts that UCMC had reported for the period between No‐
vember 2016 and September 2017. At the time, UCMC’s inter‐
nal procedures for filling out cost reports dictated that the
hospital system automatically submitted any amounts that
MBO deemed uncollectable Medicare bad debts to the gov‐
ernment.
In the latter half of 2017, UCMC submitted a cost report
covering July 1, 2016 to June 30, 2017. UCMC certified that it
had complied with all applicable regulations, and it sought
reimbursement for Medicare bad debts, claiming approxi‐
mately $1.16 million in adjusted reimbursable debt. Accord‐
ing to the relators, the certification was false because UCMC
knew of the procedures MBO followed when collecting debts.
Despite that knowledge, UCMC never amended the 2017 cost
report.
The Trustmark bad debt scheme. Trustmark has the same
ownership and management as MBO, and the two companies
share facilities, equipment, and employees. During the rele‐
vant period, Trustmark conducted MBO’s bad debt collec‐
tions for clients other than UCMC. The relators allege that
Trustmark, when handling debt collection for other clients,
declared Medicare beneficiary debts owed to its clients to be
reimbursable bad debts. Trustmark did so even though it ig‐
nored the requirements for reimbursable bad debts under 42
C.F.R. § 413.89.
No. 21‐2610 7
There are three mechanisms through which the relators al‐
lege Trustmark violated the bad debt regulations:
 Disregarding the requirement that at least
120 days have passed after the first state‐
ment was mailed to the beneficiary, id.§ 413.89(e)(2)(i)(A)(5);
 Disregarding the requirement of sending the
beneficiary multiple statements, see id.
§ 413.89(e)(2)(i)(A)(4), (6); and
 Skipping review of many debts entirely.
As representative examples of how Trustmark’s bad debt
scheme operated, the relators point to debts that Trustmark
handled on behalf of its client Community Hospital.
The operative complaint gives three examples in which
MBO and Trustmark (acting on behalf of Trustmark’s client,
Community Hospital) wrote off patient deductibles as Medi‐
care bad debts fewer than 120 days after the date of service.
Trustmark also had access to Community Hospital’s software
systems. Once Sibley and Trustmark CEO Justin Manning ap‐
proved Bad Debt Write Off Reports, those amounts were au‐
tomatically classified as Medicare bad debts. Later, the debts
were included in Community Hospital’s cost report for that
accounting period.
Like UCMC, Community Hospital submitted to the
government a cost report for July 1, 2016 to June 30, 2017.
Community Hospital certified compliance with all applicable
regulations, and it reported $539,100 in reimbursable Medi‐
care bad debt. According to the complaint, that certification
was false because Trustmark had failed to undertake reason‐
able collection efforts under 42 C.F.R. § 413.89 before
8 No. 21‐2610
declaring the debts owed to Community Hospital to be Med‐
icare bad debts. Thus, the relators allege, the 2017 Community
Hospital cost report “is a representative example of Trust‐
mark causing Community Hospital to submit a false claim
[to] the Government” in violation of the False Claims Act.
The relators’ complaints and terminations. Sibley began work
for MBO as a manager in its customer service call center in
September 2016. She then became a Director of Trustmark,
overseeing about 12 employees. At first, Sibley reported di‐
rectly to Manning, but in February 2017 he instructed her to
report to Sandra Schade, a Vice President at Trustmark.
Sibley investigated and then confronted Manning after she
learned her name was listed on the invoices sent to UCMC,
even though she had not worked on those accounts. She also
knew UCMC automatically logged any debt recorded as
Medicare bad debt in its accounting systems, and she was
aware of the requirement of reasonable collection efforts. Si‐
bley sent Manning Bad Debt Turn Over Error Spreadsheets
showing why various patient debts could not be categorized
as Medicare bad debts under 42 C.F.R. § 413.89. Eventually,
Manning refused to accept them. Sibley alleges Manning and
Schade created a hostile work environment to induce her to
quit. Shortly after Sibley suffered a medical event, Schade ter‐
minated her employment.
Collins began work as a manager in Trustmark’s bad debt
collections and legal departments in 2016. She oversaw em‐
ployees in each department. Collins learned that Trustmark
used software systems to automatically report bad debt write‐
offs to its clients. In March 2017, Schade told Collins to cate‐
gorize the debts of certain Medicare beneficiaries as Medicare
bad debts. The patients in question had not received multiple
No. 21‐2610 9
statements, and fewer than 120 days had passed since their
first statements had been issued. Collins protested that this
practice violated federal regulations. Schade instructed Col‐
lins to follow her directions and prohibited Collins from using
the term “illegal.” After terminating Sibley, Schade demoted
Collins. Collins refused to accept the demotion, so she was
fired.
Lopez was a customer service representative with MBO,
and her duties included obtaining payments from patients. In
October 2016, Lopez spoke to Manning about her concerns
with MBO’s billing practices, such as double billing. Months
later, Lopez detailed her findings in support of her belief that
MBO was illegally billing. MBO then terminated Lopez’s em‐
ployment.
C
The relators filed a complaint against several defendants
in the United States District Court for the Northern District of
Illinois, alleging numerous violations of the False Claims Act
(“FCA”). The United States, Illinois, and Indiana each de‐
clined to intervene. Later, the relators filed their First
Amended Complaint, naming UCMC, MBO, and Trustmark
as defendants. Following the defendants’ motion, the district
court dismissed that complaint in its entirety. The relators
then filed their Second Amended Complaint, which the de‐
fendants also moved to dismiss.
The district court again granted the defendants’ motion to
dismiss, this time declining to permit any further amendment.
The court concluded that the claim against UCMC could not
proceed because the relators had not identified any point at
which the hospital system had recognized overpayment by
10 No. 21‐2610
the government. The claims against MBO and Trustmark
stemming from the bad debt schemes were also subject to dis‐
missal because those allegations were “not linked to a single
example of a false statement made in connection with Medi‐
care reimbursements.” In the court’s view, the cost reports
that UCMC and Community Hospital submitted could not
support viable FCA claims unless either entity had no bad
debt. Finally, the court dismissed the relators’ retaliation
claims because they could not show that reasonable employ‐
ees in their positions would have believed MBO and
Trustmark were causing the submission of false claims to the
government. The relators appealed.
II
We review de novo an appeal from a district court’s grant
of a Rule 12(b)(6) motion to dismiss. United States ex rel. Berko‐
witz v. Automation Aids, Inc., 896 F.3d 834, 839 (7th Cir. 2018).
We accept all well‐pleaded facts as true and draw all reason‐
able inferences in the relators’ favor. Our task is to decide
whether the relators stated a claim for relief that is plausible
on its face. Id.We begin with the relators’ claim for relief against UCMC
alleged in Count II of the Second Amended Complaint. Under
the FCA, a provision forbidding reverse false claims estab‐
lishes liability for any person who “knowingly conceals or
knowingly and improperly avoids or decreases an obligation
to pay or transmit money or property to the Government.” 31
U.S.C. § 3729(a)(1)(G). Within the statute, the term “obliga‐
tion” means “an established duty, whether or not fixed, aris‐
ing from an express or implied contractual, grantor‐grantee,
or licensor‐licensee relationship, from a fee‐based or similar
No. 21‐2610 11
relationship, from statute or regulation, or from the retention
of any overpayment.” Id. § 3729(b)(3).
UCMC contends this claim was properly dismissed for
two reasons: (1) the relators did not plead facts sufficient to
show UCMC had an obligation to the government; and (2) the
operative complaint does not plausibly allege that UCMC
acted knowingly in avoiding any such obligation.
A
The first step in analyzing whether the Second Amended
Complaint sufficiently pleaded facts showing UCMC had an
established duty to repay the government is determining the
applicable pleading standard. It is uncontested that the
heightened pleading requirements of Federal Rule of Civil
Procedure 9(b) apply to reverse false claims under
§ 3729(a)(1)(G). That rule provides that a plaintiff alleging
fraud “must state with particularity the circumstances consti‐
tuting fraud.” FED. R. CIV. P. 9(b). That is, the relators must
describe the “who, what, when, where, and how” of the
fraud—“the first paragraph of any newspaper story.” Berko‐
witz, 896 F.3d at 839 (citation omitted). Though the exact de‐
tails that must be included in a pleading vary based on the
facts of a given case, plaintiffs must inject “precision and some
measure of substantiation into their allegations of fraud.”
United States ex rel. Mamalakis v. Anesthetix Mgmt. LLC, 20 F.4th
295, 301 (7th Cir. 2021) (quoting United States ex rel. Presser v.
Acacia Mental Health Clinic, LLC, 836 F.3d 770, 776 (7th Cir.
2016)).
Now consider the question of whether the facts pleaded in
the Second Amended Complaint give rise to an established
duty by UCMC to repay the government. According to the
12 No. 21‐2610
relators, UCMC incurred an “obligation” to pay the govern‐
ment once it discovered that MBO had wrongfully caused
UCMC to report Medicare bad debts on its cost reports de‐
spite a lack of compliance with the regulatory requirements.
UCMC disagrees. It contends that the relators do not ade‐
quately plead the existence of an obligation because they do
not allege the details of either (1) the collection efforts UCMC
expended on its own accounts, or (2) the work performed by
the two MBO employees who were typically responsible for
working on Medicare debts owed to the hospital system. If
UCMC did not violate the regulatory requirements to obtain
any payments, it incurred no obligation to repay the govern‐
ment.
There is no dispute that under Medicare regulations and
CMS guidance, hospitals such as UCMC are permitted to pur‐
sue collection of their own debts. Yet, the Second Amended
Complaint does not include allegations about whether UCMC
made any collection efforts before referring debts to MBO for
collection. Without pleading that UCMC declined to conduct
its own collection efforts, the relators have not alleged
UCMC’s failure to comply with the requirements under 42
C.F.R. § 413.89 with sufficient “precision” to defeat dismissal
under Rules 9(b) and 12(b)(6). See Mamalakis, 20 F.4th at 301;
Presser, 836 F.3d at 776.
Even more, the Second Amended Complaint alleges that
two MBO employees spent a significant amount of their time
attempting to collect the debts that Medicare beneficiaries
owed to UCMC. But the relators do not specifically allege an‐
ything about what the two employees did, on a day‐to‐day
basis, in connection with that work. Instead, the relators al‐
lege only that MBO provided far fewer employees than the
No. 21‐2610 13
number for which UCMC had contracted. From this, the Sec‐
ond Amended Complaint infers that MBO cannot possibly
have provided UCMC with reasonable collection efforts un‐
der § 413.89.
Under Rule 9(b), though, “generalized allegations” of
fraudulent practices are insufficient. Mamalakis, 20 F.4th at
301–02. Rather, to defeat dismissal, “specific representative
examples” of false submissions are required. Id. at 302. Mama‐
lakis involved allegations that an anesthesiology practice
fraudulently billed Medicare and Medicaid at the elevated
medical‐direction billing rate for services that only qualified
for the lower, medically supervised rate under applicable reg‐
ulations. Id. at 297–99. Our court held that specific examples—
there, the precise medical procedures that were performed on
certain dates and billed at the medical‐direction rate by spe‐
cific doctors, despite failing to meet the regulatory require‐
ments—were necessary to defeat dismissal of the relator’s
complaint at the Rule 12(b)(6) stage. See id. at 302–03.
Mamalakis teaches that the relators here must allege
specific examples of patient debts. Those debts must have
been incorporated into UCMC’s cost reports as reimbursable
Medicare bad debts despite not meeting the regulatory re‐
quirements, which would render them false claims. But the
relators effectively concede they have not identified any spe‐
cific patient debts that were unlawfully included in UCMC’s
cost reports. The pertinent allegations involve a “failure of de‐
gree” related to understaffing, not an objective lack of compli‐
ance with the regulation in any specific case. We therefore
hold that the allegations against UCMC fail to adequately set
out the requisite “who, what, when, where, and how” of the
14 No. 21‐2610
fraud. Id. at 301; see also Presser, 836 F.3d at 776, 779–80 (up‐
holding a partial dismissal based on that standard).
B
Even if we were to conclude the relators adequately al‐
leged that UCMC had an “obligation” under 31 U.S.C.
§ 3729(b)(3), to defeat dismissal the relators also must allege
facts from which it could be reasonably inferred that UCMC
acted knowingly in avoiding such an obligation. Applying
that standard, we agree with UCMC that the operative com‐
plaint also falls short with respect to the hospital system’s
state of mind.
The scienter requirement of 31 U.S.C. § 3729(a)(1)(G) en‐
tails a defendant acting “knowingly” in two ways: the defend‐
ant must have known that it (1) had an obligation to the
United States, and (2) was avoiding that obligation. United
States ex rel. Harper v. Muskingum Watershed Conservancy Dist.,
842 F.3d 430, 436–37 (6th Cir. 2016).1 A defendant’s duty to
pay the government must be formally “established” before
FCA liability for reverse false claims attaches, 31 U.S.C.
§ 3729(b)(3), and there is no liability for potential or contin‐
gent obligations. United States ex rel. Barrick v. Parker‐Migliorini
Int’l, LLC, 878 F.3d 1224, 1230–31 (10th Cir. 2017) (collecting
cases).
By the terms of the Second Amended Complaint, the rela‐
tors’ allegations do not fit comfortably within this framework.
Notably, the operative complaint states that UCMC “never
1Accord United States v. Walgreen Co., 2021 WL 5760307, at *12–13
(W.D. Va. Dec. 3, 2021); United States ex rel. Hendrickson v. Bank of Am., N.A.,
343 F. Supp. 3d 610, 635–36 (N.D. Tex. 2018), aff’d, 779 F. App’x 250 (5th
Cir. 2019).
No. 21‐2610 15
determined how much Medicare bad debt [it] reported from
November 2016 to August 2017 in [its] cost report received
collection effort – let alone reasonable collection effort.” Thus,
the relators themselves disavow any notion that UCMC had
actual knowledge of an obligation to repay the government.
To meet the applicable standard, then, they must allege facts
that would show UCMC acted in either “deliberate igno‐
rance” or “reckless disregard” of the truth or falsity of the in‐
formation at issue. 31 U.S.C. § 3729(b)(1)(A)(ii)–(iii). Because
Rule 9(b) governs, “generalized allegations” of understaffing
will not suffice. Mamalakis, 20 F.4th at 301–02.
The only basis the relators have alleged for imputing to
UCMC the knowledge that it had violated the law is that the
internal audit revealed fewer than nine MBO/Trustmark em‐
ployees worked on collections for the Medicare/Medicaid
project. To conclude that UCMC knew it had an obligation to
repay the government, one must assume the following:
 For specific debts that Medicare beneficiar‐
ies owed to UCMC, the two MBO employees
who regularly worked on UCMC’s Medi‐
care accounts did not meet the requirements
for reasonable collection efforts under 42
C.F.R. § 413.89;
 UCMC did not itself perform sufficient ad‐
ditional review of the debts in question, ei‐
ther itself or in combination with MBO, or
assign them to another debt collector, before
declaring them to be reimbursable Medicare
bad debts;
16 No. 21‐2610
 Those debts were included in a cost report
that UCMC submitted to the government;
and
 The government had reimbursed UCMC for
those debts.
Under Rule 9(b), these inferential leaps ask too much. See
Berkowitz, 896 F.3d at 841–42 (holding dismissal was appropri‐
ate because the relator’s reliance on several broad inferences
prevented him from plausibly alleging fraud). The relators’
allegations require the court to stack inference upon
inference, and their core premise—that staffing only two em‐
ployees automatically equates to the absence of reasonable
collection efforts—is unsound.
Where a defendant’s obligation to pay the government
“depends on multiple assumptions,” it is “potential and con‐
tingent” and thus non‐actionable under 31 U.S.C.
§ 3729(a)(1)(G). Barrick, 878 F.3d at 1232. Likewise, in Olson v.
Fairview Health Services of Minnesota, the Eighth Circuit held
that the dismissal of a relator’s claim under § 3729(a)(1)(G)
was proper. 831 F.3d 1063, 1074 (8th Cir. 2016). That claim was
based on a defendant hospital’s utilization of a statutory
exemption from a reduction in reimbursement rates; the rele‐
vant state agency later concluded that the defendant’s statu‐
tory interpretation was incorrect, and it was not entitled to use
the exemption. Id. at 1066–68, 1072. Until the state agency is‐
sued the defendant a letter of explanation and a notice of re‐
covery in connection with its use of the exemption, the Eighth
Circuit explained, the defendant at most had a potential lia‐
bility—not an established duty. Id. at 1074. We find persuasive
the approach to analyzing § 3729(a)(1)(G) that our fellow cir‐
cuits have taken in Barrick and Olson.
No. 21‐2610 17
Here, the relators are unable to dispute that any obligation
to pay the government that UCMC might have had depends
on several assumptions. If, for instance, the two MBO employ‐
ees had complied with 42 C.F.R. § 413.89 by issuing billing
statements and follow‐up letters to the Medicare beneficiaries
who were indebted to UCMC, no obligation to repay the gov‐
ernment would have arisen. The same is true if the debts in
question were never incorporated into a UCMC cost report.
Despite having multiple opportunities to do so, the relators
did not plead the details of the work that the two MBO em‐
ployees performed on a day‐to‐day basis, nor did they plead
that UCMC failed to take independent steps to collect debts
that Medicare beneficiaries owed to it. Such facts would have
avoided the need for many of these assumptions.
Given these contingencies, upon discovering MBO’s un‐
derstaffing UCMC “did not have an obligation to remit the
reimbursement back to the government; at most, [UCMC]
merely had a potential liability and not an established duty.”
Olson, 831 F.3d at 1074. UCMC thus cannot have acted know‐
ingly in avoiding any obligation to repay the government,
and the absence of scienter is an independent basis on which
we affirm the district court’s dismissal of the relators’ claim
against UCMC. We hold that Count II of the Second Amended
Complaint fails to state a claim on which relief can be granted.
III
Next, we turn to the direct false claims against MBO and
Trustmark. This section first discusses the requirements for
pleading a direct false claim under the FCA. Then, we con‐
sider the claims against MBO (Count I) and Trustmark (Count
III).
18 No. 21‐2610
A
Under 31 U.S.C. § 3729(a)(1)(A), liability is established if a
person “knowingly presents, or causes to be presented, a false
or fraudulent claim for payment or approval.” Liability also
attaches if a person “knowingly makes, uses, or causes to be
made or used, a false record or statement material to a false
or fraudulent claim.” Id. § 3729(a)(1)(B). There is no dispute
that Rule 9(b)’s heightened pleading standard applies. Berko‐
witz, 896 F.3d at 839. As noted earlier, specific representative
examples of fraudulent claims are required to defeat dismis‐
sal. Mamalakis, 20 F.4th at 301–02.
MBO and Trustmark first argue that they may not be held
liable because the relators fail to allege that they made state‐
ments to the government to obtain payment. The relators re‐
spond that under § 3729(a), defendants may be held liable for
causing a false claim to be made to the government, even
where the defendant does not directly submit the false claim
for payment.
The relators have the stronger argument under both the
statute and applicable case law. Start with the statute. Sec‐
tion 3729(a) establishes liability for a defendant that know‐
ingly “causes to be presented” a false claim, or “causes to be
made or used … a false record or statement material to” a
false claim. Those phrases denote liability for defendants who
do not submit claims for payment directly to the government.
Case law leads to the same result. In United States ex rel.
Sheet Metal Workers International Ass’n, Local Union 20 v. Horn‐
ing Investments, LLC, a subcontractor prepared payroll reports
for a contractor, which the subcontractor knew later for‐
warded them to the government for payment. 828 F.3d 587,
No. 21‐2610 19
590–91 (7th Cir. 2016). This court held that the relator had pre‐
sented “more than enough” evidence of the first element of a
direct FCA claim under § 3729—that the defendant made a
statement in order to receive money from the government. Id.
at 592. As the court noted, “False Claims Act liability can at‐
tach to any claim that eventually is submitted to the govern‐
ment, even if it goes through an intermediary.” Id. (citation
omitted).
Likewise, other circuits have “made clear that unlawful
acts by non‐submitting entities may give rise to a false or
fraudulent claim even if the claim is submitted by an innocent
party.” United States ex rel. Hutcheson v. Blackstone Med., Inc.,
647 F.3d 377, 390 (1st Cir. 2011) (citations omitted); accord
United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243–
44 (3d Cir. 2004) (reaching the same conclusion). So, we reject
MBO and Trustmark’s contention that they may not be held
liable under the FCA because they did not submit requests for
payment directly to the government.
B
The next question, then, is whether the relators have al‐
leged facts sufficient to state a cause of action against MBO
under § 3729(a)(1)(A) and (B). Underlying that claim, Count I,
is the same factual basis as in Count II against UCMC. By
providing fewer than the nine full‐time employees for which
UCMC had contracted, the relators allege, MBO caused
UCMC to seek reimbursement for ineligible debts that were
not subject to reasonable collection efforts. On that basis, the
cost reports in which UCMC sought reimbursement for Med‐
icare bad debts are alleged to contain false claims.
20 No. 21‐2610
As discussed, the district court correctly required the rela‐
tors to “provide specific representative examples” of false
claims. Mamalakis, 20 F.4th at 302. But the relators did not in‐
clude specific representative examples of patient debts that
were included in UCMC’s cost reports as reimbursable Med‐
icare bad debts despite a lack of compliance with 42 C.F.R.
§ 413.89’s objective requirements. They rely only on MBO’s
understaffing of the Medicare/Medicaid project. So, the direct
FCA claim against MBO must be dismissed.
The relators’ allegations also cannot give rise to a plausible
inference of FCA liability when they rely on UCMC’s decision
to contract for nine full‐time employees to work on Medicare
and Medicaid debts. According to the Second Amended Com‐
plaint, UCMC employee Sauter artificially inflated the num‐
ber of MBO employees needed to work on UCMC’s accounts.
He did this to receive kickbacks. It is therefore at least as likely
that nine full‐time employees were not necessary to perform
reasonable collection efforts under 42 C.F.R. § 413.89 for debts
owed to UCMC as it is that fewer than nine full‐time employ‐
ees were incapable of meeting the regulation’s requirements.
The operative complaint does not include allegations about
the number of individual debts UCMC referred to MBO, nor
does it specifically allege how long it would take an average
employee to complete reasonable collection efforts under the
regulation. Therefore, the Second Amended Complaint
pleads facts “merely consistent with” MBO’s liability under
§ 3729. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omit‐
ted). Count I fails to state a claim on which relief can be
granted.
No. 21‐2610 21
C
Applying the same standard to the relators’ claim against
Trustmark, alleged in Count III, yields a different analysis and
result. The operative complaint alleges three specific exam‐
ples of debts, owed to Community Hospital by its Medicare
beneficiary patients and assigned to Trustmark for collection,
that were written off as Medicare bad debts without being
subject to reasonable collection efforts under 42 C.F.R.
§ 413.89. Because the three debts were categorized as Medi‐
care bad debts before 120 days had passed from the date of
service, it was impossible for Community Hospital to have
undertaken reasonable collections efforts at the time those
debts were categorized and automatically incorporated into
the hospital’s 2017 cost report. A collection effort cannot be
reasonable under the regulation if it does not last at least 120
days from the date after the first bill is issued to the patient,
see 42 C.F.R. § 413.89(e)(2)(i)(A), and the first bill necessarily
follows the date of service.
These are the types of specific representative examples of
fraudulent activity that our court recently held are sufficient
to defeat dismissal at the Rule 12(b)(6) stage. See Mamalakis, 20
F.4th at 302–03. The relators have specifically alleged the me‐
chanics of how Trustmark improperly declared these three
patients’ debts as Medicare bad debts and then incorporated
them into Community Hospital’s 2017 cost report, which
sought reimbursement from the government. According to
the Second Amended Complaint, in 2017 Community Hospi‐
tal sought reimbursement for Medicare bad debts incurred in
the second half of 2016, which it later received. The reimburs‐
able debts allegedly included the three patient debts in
22 No. 21‐2610
question. Community Hospital also certified compliance with
applicable regulations.
The operative complaint plausibly alleges that the regula‐
tory requirements for reasonable collection efforts, as well as
Trustmark’s certification of compliance, were material to the
government’s decision to reimburse the Medicare bad debts
claimed by Community Hospital. This includes those three
representative debts. See Mamalakis, 20 F.4th at 300; Prose, 17
F.4th at 740, 742–44. Trustmark made no argument as to ma‐
teriality in its appellate brief, so it has forfeited the issue.
Scheidler v. Indiana, 914 F.3d 535, 540 (7th Cir. 2019).
At oral argument, counsel for Trustmark contended that
the relators’ allegations do not meet the materiality standard
set out in Universal Health Services, Inc. v. United States ex rel.
Escobar, 579 U.S. 176 (2016). Even if this argument were not
forfeited in the briefing, it would not prevail. Trustmark is
correct that under Escobar not all misrepresentations or omis‐
sions are material. See id. at 193–95. But the prerequisite of rea‐
sonable collection efforts is hardly an archetypal example of
an immaterial regulatory requirement. To the contrary, it is
difficult to imagine that the government would knowingly
and systematically reimburse Medicare providers for pur‐
ported “bad debts” that they did not actually attempt, in good
faith, to collect. In any event, Trustmark’s belated materiality
argument is more appropriate for summary judgment or trial.
See Prose, 17 F.4th at 740, 743–44 (noting that relators face
higher burdens to show materiality at summary judgment
and trial than at the Rule 12(b)(6) stage).
Drawing all reasonable inferences in the relators’ favor,
we hold that they have pleaded facts that would be sufficient
to establish § 3729 liability against Trustmark. Thus, the
No. 21‐2610 23
district court’s dismissal of Count III is reversed, and the re‐
lators are entitled to proceed to discovery on that claim.
IV
Each relator also alleges retaliation against MBO and
Trustmark in Counts IV, V, and VI of the Second Amended
Complaint. In reviewing these claims, we first delineate the
correct pleading standard for a claim under this section of the
statute. Then, we apply that standard to each retaliation
claim, considering the differences between the specific facts
alleged by each relator.
A
Under 31 U.S.C. § 3730(h), an employee, contractor, or
agent is entitled to relief if he or she “is discharged, demoted,
suspended, threatened, harassed, or in any other manner dis‐
criminated against in the terms and conditions of employ‐
ment because of lawful acts done … in furtherance of” an
action under the FCA or “other efforts to stop” a violation of
the statute. Id. § 3730(h)(1). To recover, a former employee
must prove that she engaged in protected conduct and was
fired because of that conduct. Id.; Halasa v. ITT Educ. Servs.,
Inc., 690 F.3d 844, 847 (7th Cir. 2012). In determining whether
the former employee engaged in protected conduct, we ask
whether “(1) the employee in good faith believes, and (2) a
reasonable employee in the same or similar circumstances
might believe, that the employer is committing fraud against
the government.” United States ex rel. Uhlig v. Fluor Corp., 839
F.3d 628, 635 (7th Cir. 2016) (citations omitted).
Just as with the reverse false claim against UCMC and the
direct false claims against MBO and Trustmark, all of which
arise under § 3729, whether or not Rule 9(b)’s particularity
24 No. 21‐2610
requirement applies informs our review of the § 3730(h) retal‐
iation claims. Other circuits have held that Rule 9(b) does not
apply to FCA retaliation claims. United States ex rel. Chorches
v. Am. Med. Response, Inc., 865 F.3d 71, 95 (2d Cir. 2017) (col‐
lecting cases from the Fourth, Ninth, and D.C. Circuits).2 This
conclusion is logical because a § 3730(h) claim does not allege
fraud. It is a retaliation claim similar to those that plaintiffs
bring under federal anti‐discrimination statutes, such as Title
VII. Rule 9(b) does not apply to these types of retaliation
claims. See, e.g., EEOC v. Concentra Health Servs., Inc., 496 F.3d
773, 781–82 (7th Cir. 2007). Thus, we join the other circuits to
consider the issue and hold that a § 3730(h) claim need not be
pleaded with particularity under Rule 9(b).
With this in mind, we turn to the district court’s analysis
of the relators’ retaliation claims. Relying on Uhlig and Halasa,
the district court ruled the relators could not “show” that a
reasonable employee in their positions would have believed
MBO and Trustmark were causing false claims to be submit‐
ted to the government. Yet, both cases on which the district
court relied were decided at summary judgment. See Uhlig,
839 F.3d at 633; Halasa, 690 F.3d at 847–48.3 There, the issues
2 Smith v. Clark/Smoot/Russell, 796 F.3d 424, 433 (4th Cir. 2015) (stating
that FCA retaliation allegations “need pass only Civil Procedure Rule
8(a)’s relatively low notice‐pleadings muster—in contrast to Rule 9(b)’s
specificity requirements”); Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d
1097, 1103 (9th Cir. 2008); United States ex rel. Williams v. Martin‐Baker Air‐
craft Co., 389 F.3d 1251, 1259 (D.C. Cir. 2004).
3 Thedistrict court also referenced United States ex rel. Crews v. NCS
Healthcare of Illinois, Inc., 460 F.3d 853 (7th Cir. 2006), which was decided
at summary judgment as well.
No. 21‐2610 25
concerned the quantum of evidence that each relator had ad‐
duced in support of his retaliation claim.
Here, the case was before the district court on a Rule
12(b)(6) motion to dismiss. Uhlig and Halasa were decided af‐
ter the parties had identified specific, admissible evidence. See
Grant v. Trs. of Ind. Univ., 870 F.3d 562, 568 (7th Cir. 2017) (de‐
scribing the evidentiary burden that a non‐movant faces at
summary judgment). By contrast, a ruling on a motion to dis‐
miss considers only the pleadings and draws all reasonable
inferences in the pleader’s favor. Prose, 17 F.4th at 738–39. At
this stage, a court asks only whether the plaintiff has pleaded
a facially plausible claim by alleging “factual content that al‐
lows the court to draw the reasonable inference that the de‐
fendant is liable for the misconduct alleged.” Berkowitz, 896
F.3d at 839 (quoting Iqbal, 556 U.S. at 678). And because Rule
9(b) does not apply, the relators satisfied their burden to de‐
feat dismissal so long as they provided “some specific facts to
support the legal claims asserted in the complaint.” Bilek v.
Fed. Ins. Co., 8 F.4th 581, 586 (7th Cir. 2021) (internal quotation
marks omitted).
Properly framed, then, the relators were not required to
“show” that reasonable employees in their positions would
have believed their employers were submitting false claims to
the government. They were only required to allege facts that,
when viewed in their favor, support the inference that it was
objectively reasonable for them to believe their employers
were committing fraud against the government. See id. at 588;
Uhlig, 839 F.3d at 635.
By relying heavily on Uhlig and Halasa to dismiss the rela‐
tors’ retaliation claims—without discussing the differences in
procedural posture or the need to accept the pleaded facts as
26 No. 21‐2610
true and draw all reasonable inferences in the relators’ fa‐
vor—the district court erred. Further scrutiny of each relator’s
§ 3730(h) claim is necessary.
B
Consider first Sibley’s retaliation claim. She asserts she
was a Director of Trustmark, overseeing about 12 employees.
She learned MBO was billing UCMC for nine full‐time em‐
ployees, including herself, while providing only the equiva‐
lent of one. Sibley knew UCMC automatically logged any
debts that MBO recorded as Medicare bad debts in UCMC’s
accounting systems, and she knew of the requirements under
42 C.F.R. § 413.89 for reasonable collection efforts. Therefore,
she knew MBO’s reports caused UCMC to report patient
debts that were not subject to reasonable collection efforts as
Medicare bad debts on cost reports it submitted to the gov‐
ernment. She confronted Manning about the invoices MBO
sent to UCMC, at which point he became upset. Sibley also
sent Manning the Bad Debt Turn Over Error Spreadsheets de‐
tailing the reasons she believed Trustmark was not permitted
to write off certain patient debts as Medicare bad debts.
These allegations support an inference that a “reasonable
employee in the same or similar circumstances might be‐
lieve[] that the employer is committing fraud against the gov‐
ernment.” Uhlig, 839 F.3d at 635. Sibley was not a low‐level
employee; she occupied a managerial role at Trustmark. Im‐
portantly, Sibley has alleged knowledge that (1) MBO logged
debts that were not subject to reasonable collection efforts as
Medicare bad debts; (2) the debts in question were automati‐
cally integrated into UCMC’s cost reports, and (3) seeking
reimbursement for such debts was in violation of regulatory
requirements. Sibley’s knowledge was personal, which
No. 21‐2610 27
distinguishes it from the “secondhand knowledge” this court
concluded was insufficient to defeat summary judgment in
Uhlig. See id. So, a reasonable employee in her position plau‐
sibly would have believed MBO and Trustmark were causing
UCMC to submit false claims to the government by filing cost
reports seeking reimbursements for debts that were ineligible
under the applicable regulation.
Turning to causation, MBO cannot dispute that the facts
Sibley alleges in support of her retaliation claim meet the ap‐
plicable standard. The alleged facts—including Sibley’s com‐
plaints, Manning’s anger when Sibley raised concerns about
false invoices, his refusal to accept the Bad Debt Turn Over
Error Spreadsheets, and the decision to fire Sibley just after
her medical event—permit an inference that Sibley was fired
“because of” her efforts to stop potential violations of the
FCA. See 31 U.S.C. § 3730(h); Halasa, 690 F.3d at 847–48. We
therefore reverse the dismissal of Count IV of the Second
Amended Complaint.
C
Next, we consider Collins’s retaliation claim. Collins was
a manager in Trustmark’s bad debt collections and legal de‐
partments. Through her job responsibilities, she learned
Trustmark used software systems to automatically report bad
debt write‐offs to its clients. Schade instructed Collins to write
off Medicare beneficiary debts as Medicare bad debts before
120 days had passed from the date of the patient’s first state‐
ment and before the patient had received multiple statements.
Collins objected to that practice as “illegal,” arguing it vio‐
lated federal regulations. Schade then demoted Collins and
fired her when she refused to accept the demotion.
28 No. 21‐2610
Drawing all reasonable inferences in Collins’s favor, we
conclude that she has alleged sufficient facts to show that she
engaged in protected activity under the FCA. The discussion
of § 3730(h)’s scope in Halasa is instructive, notwithstanding
the different procedural posture. There, an employee re‐
ported several potentially unlawful practices to his internal
supervisor and company executives. 690 F.3d at 846–47. In re‐
viewing the district court’s grant of summary judgment to the
employer, this court noted that Congress amended the FCA
“to protect employees from being fired for undertaking ‘other
efforts to stop’ violations of the Act, such as reporting sus‐
pected misconduct to internal supervisors.” Id. at 847–48. Be‐
cause the plaintiff‐employee had investigated allegations of
his employer’s noncompliance with statutory requirements
and then reported his findings to supervisors, the court was
“satisfied that [his] evidence would permit a trier of fact to
find that he engaged in ‘efforts to stop’ potential FCA viola‐
tions.” Id. at 848.
Similarly, Collins alleges that she investigated Trust‐
mark’s noncompliance with regulatory requirements and re‐
ported her findings to supervisors, including Schade. Under
§ 3730(h) and Halasa, Collins pleads facts to support the infer‐
ence that she engaged in protected “efforts to stop” potential
violations of the FCA. Collins alleges she knew 42 C.F.R.
§ 413.89 required healthcare providers to take certain steps,
such as waiting 120 days from the date the patient first re‐
ceives a billing statement, before declaring patient debts to be
reimbursable Medicare bad debts. Because of Collins’s posi‐
tion and her understanding of the software systems that
Trustmark and its clients used, her knowledge that MBO and
Trustmark were violating the regulation by writing off patient
No. 21‐2610 29
debts owed to their hospital clients as Medicare bad debts was
personal—not secondhand.
Thus, we infer from the well‐pleaded facts that a reasona‐
ble employee in Collins’s position would have believed that
MBO and Trustmark were causing their hospital clients to
submit false claims to the government. MBO and Trustmark
do not offer any meaningful response for why they believe
Collins did not engage in protected activity when she pro‐
tested the categorization of ineligible debts as Medicare bad
debts when speaking with Schade.
As to causation, at this stage Collins’s allegations also
meet the statutory requirement that she was fired “because
of” her protected conduct. 31 U.S.C. § 3730(h); Halasa, 690 F.3d
at 847. The Second Amended Complaint alleges that Schade
reacted negatively to Collins raising the issue of regulatory
requirements and prohibited her from using the term “ille‐
gal” on the job. Collins was then demoted because of her con‐
cerns, and she was fired when she refused to accept the de‐
motion. These facts support an inference that the causation
element was satisfied.
Against this, MBO and Trustmark argue that Collins has
not pleaded a connection between her internal complaints
and the overbilling of UCMC. But that assertion is beside the
point, as § 3730(h) only requires that Collins allege she was
fired “because of” her “other efforts to stop” potential FCA
violations. Protected conduct includes reporting suspected
misconduct to supervisors. Halasa, 690 F.3d at 847–48. A spe‐
cific connection to UCMC, which was only one of the clients
that MBO and Trustmark serviced, is not necessary to support
Collins’s retaliation claim. Collins has adequately alleged that
she engaged in protected activity and was fired because of
30 No. 21‐2610
that activity. She has thus stated a claim for relief under
§ 3730(h), and we reverse the district court’s dismissal of
Count V of the Second Amended Complaint.
D
Finally, we turn to Lopez’s retaliation claim. The factual
underpinnings of her claim are quite different from those that
support Sibley and Collins’s claims. Unlike Sibley and Col‐
lins, Lopez was not a manager, but rather a customer service
representative with MBO. She did not work on projects relat‐
ing to writing off patient debts as Medicare bad debts. In‐
stead, Lopez sought to obtain payments from patients, often
following the text of scripts her supervisors provided. More‐
over, when Lopez voiced concerns about MBO’s billing prac‐
tices to Manning, those concerns related to patient complaints
of double billing, not MBO’s compliance with bad debt regu‐
lations.
Though we accept the facts pleaded in the Second
Amended Complaint as true, we conclude that Lopez lacked
a reasonable basis for believing MBO was causing the submis‐
sion of false claims to the government. The operative com‐
plaint does not allege Lopez had personal knowledge of either
(1) 42 C.F.R. § 413.89 and its requirements for reasonable col‐
lection efforts; or (2) how MBO and Trustmark’s hospital cli‐
ents handled debts that those defendants labeled as Medicare
bad debts. Lopez lacked firsthand knowledge of these facts,
and she has not alleged secondhand knowledge. Thus, even if
Lopez were to prove the facts she has alleged, she would nev‐
ertheless be unable to recover on her retaliation claim. See
Uhlig, 839 F.3d at 635; United States ex rel. Ziebell v. Fox Valley
Workforce Dev. Bd., Inc., 806 F.3d 946, 953 (7th Cir. 2015).
No. 21‐2610 31
Although the Second Amended Complaint asserts Lopez
believed MBO’s double billing was “illegal,” it does not eluci‐
date why this would be so. Nor does the complaint explain
how the double billing about which Lopez complained had
anything to do with claims that were submitted to the govern‐
ment for payment. Even crediting all well‐pleaded facts as
true and drawing all reasonable inferences in Lopez’s favor,
Prose, 17 F.4th at 738–39, her report of illegal activity lacked
the required “reasonable objective basis.” Lang v. Northwest‐
ern Univ., 472 F.3d 493, 495 (7th Cir. 2006). Accordingly, we
affirm the district court’s dismissal of Count VI of the Second
Amended Complaint.
V
In conclusion, the relators’ reverse false claim against
UCMC is subject to dismissal because they have not pleaded
facts sufficient to show that UCMC either had an obligation
to the government or acted knowingly in avoiding that obli‐
gation. And because the relators have not pleaded specific
examples of noncompliant debts for which UCMC sought re‐
imbursement, we also uphold the dismissal of the direct false
claim against MBO. As to Trustmark’s client Community
Hospital, though, the relators have pleaded specific examples.
So, their direct false claim against Trustmark may proceed.
On the retaliation claims, Sibley and Collins have alleged
an objectively reasonable basis for believing their employers
were causing fraudulent claims to be submitted to the govern‐
ment. They have also sufficiently alleged causation. Thus, the
dismissal of their retaliation claims is reversed. But Lopez has
not alleged facts that would show she had an objectively rea‐
sonable basis for believing her employer was causing
32 No. 21‐2610
fraudulent claims to be submitted to the government, so her
claim was properly dismissed.
Our disposition of the district court’s dismissal of the Sec‐
ond Amended Complaint is as follows:
Count I, direct false claim against MBO—Affirmed;
Count II, reverse false claim against UCMC—Affirmed;
Count III, direct false claim against Trustmark—Reversed;
Count IV, Sibley retaliation claim—Reversed;
Count V, Collins retaliation claim—Reversed; and
Count VI, Lopez retaliation—Affirmed
The judgment of the district court is AFFIRMED in part and
REVERSED in part, and the case is REMANDED to the district
court for proceedings consistent with this opinion.