Jane Winter v. Gardens Regional Hospital ( 2020 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JANE WINTER, ex rel. United States No. 18-55020
of America,
Plaintiff-Appellant, D.C. No.
2:14-cv-08850-
v. JFW-E
GARDENS REGIONAL HOSPITAL AND
MEDICAL CENTER, INC., DBA Tri- OPINION
City Regional Medical Center, a
California corporation;
ROLLINSNELSON LTC CORP., a
California corporation; VICKI
ROLLINS; BILL NELSON; S&W
HEALTH MANAGEMENT SERVICES,
INC., a California corporation;
BERYL WEINER; PRODE PASCUAL,
M.D.; RAFAELITO VICTORIA, M.D.;
ARNOLD LING, M.D.; CYNTHIA
MILLER-DOBALIAN, M.D.; EDGARDO
BINOYA, M.D.; NAMIKO NERIO,
M.D.; MANUEL SACAPANO, M.D.,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
John F. Walter, District Judge, Presiding
Argued and Submitted September 13, 2019
Pasadena, California
2 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
Filed March 23, 2020
Before: Johnnie B. Rawlinson, John B. Owens,
and Mark J. Bennett, Circuit Judges.
Opinion by Judge Bennett
SUMMARY *
False Claims Act
The panel reversed the district court’s dismissal for
failure to state a claim and remanded in an action under the
False Claims Act, alleging that defendants submitted, or
caused to be submitted, Medicare claims falsely certifying
that patients’ inpatient hospitalizations were medically
necessary.
Plaintiff alleged that the admissions were not medically
necessary and were contraindicated by the patients’ medical
records and the hospital’s own admissions criteria. The
district court held that “to prevail on an FCA claim, a
plaintiff must show that a defendant knowingly made an
objectively false representation,” and so a statement that
implicates a doctor’s clinical judgment can never state a
claim under the FCA because “subjective medical opinions
. . . cannot be proven to be objectively false.”
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 3
The panel held that a plaintiff need not allege falsity
beyond the requirements adopted by Congress in the FCA,
which primarily punishes those who submit, conspire to
submit, or aid in the submission of false or fraudulent claims.
The panel stated that Congress imposed no requirement of
objective falsity, and the panel had no authority to rewrite
the statute to add such a requirement. The panel held that a
doctor’s clinical opinion must be judged under the same
standard as any other representation. A doctor, like anyone
else, can express an opinion that he knows to be false, or that
he makes in reckless disregard of its truth or falsity.
Agreeing with other circuits, the panel therefore held that a
false certification of medical necessity can give rise to FCA
liability. The panel also held that a false certification of
medical necessity can be material because medical necessity
is a statutory prerequisite to Medicare reimbursement.
COUNSEL
Michael J. Khouri (argued), Andrew G. Goodman, and
Jennifer W. Gatewood, Khouri Law Firm APC, Irvine,
California, for Plaintiff-Appellant.
Thad A. Davis (argued), Gibson Dunn & Crutcher LLP, San
Francisco, California; James L. Zelenay Jr., Gibson Dunn &
Crutcher LLP, Los Angeles, California; for Defendants-
Appellees Beryl Weiner and S&W Health Management
Services, Inc.
Matthew Umhofer (argued) and Elizabeth J. Lee, Spertus
Landes & Umhofer LLP, Los Angeles, California, for
Defendants-Appellees RollinsNelson LTC Corp., Vicki
Rollins, and Bill Nelson.
4 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
Raymond J. McMahon, Doyle Schafer McMahon, Irvine,
California, for Defendants-Appellees Arnold Ling, M.D.;
Cynthia Miller-Dobalian, M.D.; and Edgardo Binoya, M.D.
Michael D. Gonzalez and Andrea D. Vazquez, Law Offices
of Michael D. Gonzalez, Glendale, California; Kenneth R.
Pedroza and Matthew S. Levinson, Cole Pedroza LLP, for
Defendant-Appellee Prode Pascual, M.D.
Craig B. Garner, Garner Health Law Corporation, Marina
Del Rey, California, for Defendant-Appellee Rafaelito
Victoria, M.D.
No appearance by Defendants-Appellees Gardens Regional
Hospital and Medical Center, Inc.; Namiko Nerio, M.D.;
and Manuel Sacapano, M.D.
Benjamin M. Shultz (argued), Michael S. Raab, and Charles
W. Scarborough, Appellate Staff; Nicola T. Hanna, United
States Attorney; Civil Division, United States Department of
Justice, Washington, D.C.; for Amicus Curiae United States
of America.
James F. Segroves, Kelly H. Hibbert, and Nancy B.
Halstead, Reed Smith LLP, Washington, D.C.; Mark E.
Reagan, Hooper Lundy & Bookman PC, San Francisco,
California; for Amici Curiae American Health Care
Association, National Center for Assisted Living, and
California Association of Health Facilities.
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 5
OPINION
BENNETT, Circuit Judge:
Appellant-Relator Jane Winter (“Winter”), the former
Director of Care Management at Gardens Regional Hospital
(“Gardens Regional”), brought this qui tam action under the
False Claims Act (“FCA”), 31 U.S.C. §§ 3729–33. Winter
alleges Defendants 1 submitted, or caused to be submitted,
Medicare claims falsely certifying that patients’ inpatient
hospitalizations were medically necessary. Winter alleges
that the admissions were not medically necessary and were
contraindicated by the patients’ medical records and the
hospital’s own admissions criteria. The district court
dismissed Winter’s second amended complaint (“the
complaint”) for failure to state a claim. The district court
held that “to prevail on an FCA claim, a plaintiff must show
that a defendant knowingly made an objectively false
representation,” so a statement that implicates a doctor’s
clinical judgment can never state a claim under the FCA
because “subjective medical opinions . . . cannot be proven
to be objectively false.”
We have jurisdiction under 28 U.S.C. § 1291. We hold
that a plaintiff need not allege falsity beyond the
requirements adopted by Congress in the FCA, which
primarily punishes those who submit, conspire to submit, or
aid in the submission of false or fraudulent claims. Congress
imposed no requirement of proving “objective falsity,” and
we have no authority to rewrite the statute to add such a
1
The Defendants include Gardens Regional Hospital, the hospital
management company (S&W Health Management Services) and its
owners (RollinsNelson, Rollins, Nelson, and Weiner), and individual
physicians who diagnosed and admitted patients.
6 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
requirement. A doctor’s clinical opinion must be judged
under the same standard as any other representation. A
doctor, like anyone else, can express an opinion that he
knows to be false, or that he makes in reckless disregard of
its truth or falsity. See 31 U.S.C. § 3729(b)(1). We therefore
hold that a false certification of medical necessity can give
rise to FCA liability. 2 We also hold that a false certification
of medical necessity can be material because medical
necessity is a statutory prerequisite to Medicare
reimbursement. Accordingly, we reverse and remand.
BACKGROUND
A. The “Medical Necessity” Requirement
The Medicare program provides basic health insurance
for individuals who are 65 or older, disabled, or have end-
stage renal disease. 42 U.S.C. § 1395c. “[N]o payment may
be made . . . for any expenses incurred for items or services
. . . [that] are not reasonable and necessary for the diagnosis
or treatment of illness or injury or to improve the functioning
of a malformed body member[.]” 42 U.S.C.
§ 1395y(a)(1)(A). Medicare reimburses providers for
inpatient hospitalization only if “a physician certifies that
such services are required to be given on an inpatient basis
for such individual’s medical treatment, or that inpatient
diagnostic study is medically required and such services are
necessary for such purpose[.]” 42 U.S.C. § 1395f(a)(3).
The Department of Health and Human Services, Centers
for Medicare & Medicaid Services (“CMS”), administers the
2
The FCA covers claims that are “false or fraudulent.” 31 U.S.C.
§ 3729(a)(1). For convenience, we will generally use “false” to mean
“false or fraudulent.”
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 7
Medicare program and issues guidance governing
reimbursement. CMS defines a “reasonable and necessary”
service as one that “meets, but does not exceed, the patient’s
medical need,” and is furnished “in accordance with
accepted standards of medical practice for the diagnosis or
treatment of the patient’s condition . . . in a setting
appropriate to the patient’s medical needs and condition[.]”
CMS, Medicare Program Integrity Manual § 13.5.4 (2019).
The Medicare program tells patients that “medically
necessary” means health care services that are “needed to
diagnose or treat an illness, injury, condition, disease, or its
symptoms and that meet accepted standards of medicine.”
CMS, Medicare & You 2020: The Official U.S. Government
Medicare Handbook 114 (2019).
Admitting a patient to the hospital for inpatient—as
opposed to outpatient—treatment requires a formal
admission order from a doctor “who is knowledgeable about
the patient’s hospital course, medical plan of care, and
current condition.” 42 C.F.R. § 412.3(b). Inpatient
admission “is generally appropriate for payment under
Medicare Part A when the admitting physician expects the
patient to require hospital care that crosses two midnights,”
but inpatient admission can also be appropriate under other
circumstances if “supported by the medical record.” Id.
§ 412.3(d)(1), (3).
The Medicare program trusts doctors to use their clinical
judgment based on “complex medical factors,” but does not
give them unfettered discretion to decide whether inpatient
admission is medically necessary: “The factors that lead to a
particular clinical expectation must be documented in the
medical record in order to be granted consideration.” Id.
§ 412.3(d)(1)(i) (emphasis added). And the regulations
consider medical necessity a question of fact: “No
8 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
presumptive weight shall be assigned to the physician’s
order under § 412.3 or the physician’s certification . . . in
determining the medical necessity of inpatient hospital
services . . . . A physician’s order or certification will be
evaluated in the context of the evidence in the medical
record.” Id. § 412.46(b).
B. The False Claims Act
The FCA imposes significant civil liability on any person
who, inter alia, (A) “knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or
approval,” (B) “knowingly makes, uses, or causes to be
made or used, a false record or statement material to a false
or fraudulent claim,” or (C) “conspires to commit a violation
of subparagraph (A), [or] (B)[.]” 31 U.S.C. § 3729(a)(1).
The Act allows private plaintiffs to enforce its provisions by
bringing a qui tam suit on behalf of the United States. Id.
§ 3730(b).
A plaintiff must allege: “(1) a false statement or
fraudulent course of conduct, (2) made with the scienter,
(3) that was material, causing, (4) the government to pay out
money or forfeit moneys due.” United States ex rel. Campie
v. Gilead Scis., Inc., 862 F.3d 890, 899 (9th Cir. 2017).
Winter’s allegations fall under a “false certification” theory
of FCA liability. 3 See Universal Health Servs., Inc. v.
United States ex rel. Escobar, 136 S. Ct. 1989, 2001 (2016).
Because medical necessity is a condition of payment, every
Medicare claim includes an express or implied certification
that treatment was medically necessary. Claims for
unnecessary treatment are false claims. Defendants act with
the required scienter if they know the treatment was not
3
The complaint alleges both express and implied false certification.
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 9
medically necessary, or act in deliberate ignorance or
reckless disregard of whether the treatment was medically
necessary. See 31 U.S.C. § 3729(b)(1).
C. The Allegations in Winter’s Complaint 4
Winter, a registered nurse, became the Director of Care
Management and Emergency Room at Gardens Regional in
August 2014, and came to the job with thirteen years of
experience as a director of case management at hospitals in
Southern California and Utah.
Winter reviewed hospital admissions using the
admissions criteria adopted by Gardens Regional—the
InterQual Level of Care Criteria 2014 (“the InterQual
criteria”). The InterQual criteria, promulgated by McKesson
Health Solutions LLC and updated annually, “are reviewed
and validated by a national panel of clinicians and medical
experts,” and represent “a synthesis of evidence-based
standards of care, current practices, and consensus from
licensed specialists and/or primary care physicians.”
Medicare uses the criteria to evaluate claims for payment.
And, as the criteria require a secondary review of all care
decisions, Winter’s job included reviewing Garden Regional
patients’ medical records and applying the criteria to
evaluate the medical necessity of hospital admissions.
In mid-July 2014, Defendant RollinsNelson—which
owned and operated nursing facilities in the Los Angeles
area—acquired a 50% ownership interest in Defendant
S&W, the management company that oversaw operations at
4
All facts are taken from Winter’s second amended complaint. “We
accept all factual allegations in the complaint as true and construe the
pleadings in the light most favorable to the nonmoving party.” Outdoor
Media Grp., Inc. v. City of Beaumont, 506 F.3d 895, 900 (9th Cir. 2007).
10 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
Gardens Regional. RollinsNelson then began jointly
managing the hospital with S&W. When Winter started
work, she noticed that the emergency room saw an unusually
high number of patients transported from RollinsNelson
nursing homes, including from a facility sixty miles away.
The RollinsNelson patients were not just treated on an
outpatient basis or held overnight for observation—most
were admitted for inpatient hospitalization. In August 2014,
83.5% of the patients transported from RollinsNelson
nursing homes were admitted to Gardens Regional for
inpatient treatment—an unusually high admissions rate
based on Winter’s experience and judgment.
Winter was concerned about this pattern and scrutinized
Gardens Regional’s admissions statistics, comparing July
and August 2014 to prior months. She realized that the spike
in admissions from RollinsNelson nursing homes
corresponded with RollinsNelson’s acquisition of S&W.
Not only did the number of admissions increase, the number
of Medicare beneficiaries admitted rose as well. The number
of Medicare beneficiaries admitted in August 2014, for
example, surpassed that of any month before RollinsNelson
began managing the hospital. Winter alleges that
RollinsNelson and S&W—including the individual owners
of both entities—“exerted direct pressure on physicians to
admit patients to [Gardens Regional] and cause false claims
to be submitted based on false certifications of medical
necessity.”
Winter’s complaint details sixty-five separate patient
admissions—identified by the admitting physician, patient’s
initials, chief complaint, diagnosis, length of admission, the
Medicare billing code, and the amount billed to Medicare—
that Winter alleges did not meet Gardens Regional’s
admissions criteria and were unsupported by the patients’
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 11
medical records. She alleges that none of the admissions
were medically necessary. Winter observed several trends:
i) admitting patients for urinary tract infections (“UTIs”)
ordinarily treated on an outpatient basis with oral antibiotics;
ii) admitting patients for septicemia with no evidence of
sepsis in their records; and iii) admitting patients for
pneumonia or bronchitis with no evidence of such diseases
in their medical records. Winter estimates that in less than
two months—between July 14 and September 9, 2014—
Gardens Regional submitted $1,287,701.62 in false claims
to the Medicare program.
Winter repeatedly tried to bring her concerns to the
attention of hospital management, with no success. In her
first week, she reported the high number of unnecessary
admissions to the hospital’s Chief Operating Officer. After
receiving no response, she reached out to the hospital’s Chief
Executive Officer. When she still received no response, she
tried confronting Dr. Sacapano directly. He told her: “You
know who I’m getting pressure from.” Winter understood
Dr. Sacapano to mean the hospital management.
At the beginning of September 2014, Defendants
Rollins, Nelson and Weiner—the owners of S&W and
RollinsNelson—“called an urgent impromptu meeting,” and
“instructed case management not to question the admissions
to [Gardens Regional.]” When Winter tried to speak up,
Rollins cut her off, using profanity. Shortly after the
meeting, Rollins instructed one of the hospital’s case
managers to “coach” physicians, explaining in an email that
“[t]hese Mds will most likely increase their admits because
their documentation will be ‘assisted.’”
In November 2014, Gardens Regional fired Winter and
replaced her with an employee who had never questioned
12 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
any inpatient admissions. Winter filed her complaint a week
later.
D. Procedural History
In November 2017, after the Government had declined
to intervene and Winter had filed the second amended
complaint, Defendants RollinsNelson, Rollins, Nelson,
S&W, Weiner and Dr. Pascual filed motions to dismiss the
complaint for failure to state a claim. 5 The district court
granted the motions, dismissing Winter’s three FCA claims
against all Defendants for the same reasons: (1) because a
determination of “medical necessity” is a “subjective
medical opinion[] that cannot be proven to be objectively
false,” and (2) because the alleged false statements, which
the district court characterized as the “failure to meet
InterQual criteria,” were not material. 6
STANDARD OF REVIEW
We review the grant of a motion to dismiss de novo.
Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025,
1030 (9th Cir. 2008). “In reviewing the dismissal of a
complaint, we inquire whether the complaint’s factual
5
At oral argument, Winter’s counsel acknowledged that Dr.
Sacapano and Dr. Nerio had not yet been served with the second
amended complaint when the district court, in granting the moving
Defendants’ motions to dismiss, sua sponte dismissed the complaint
against them as well. Oral Argument at 10:58, Winter v. Gardens
Regional Hosp., et al., No. 18-55020 (9th Cir. Sept. 13, 2019),
https://www.ca9.uscourts.gov/media/view_video.php?pk_vid=0000016
196.
6
The district court did not dismiss Winter’s retaliation claim against
Gardens Regional. Winter voluntarily dismissed that claim without
prejudice to allow for an appeal.
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 13
allegations, together with all reasonable inferences, state a
plausible claim for relief.” Cafasso, United States ex rel. v.
Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054 (9th Cir.
2011). As with all fraud allegations, a plaintiff must plead
FCA claims “with particularity” under Federal Rule of Civil
Procedure 9(b). Id.
DISCUSSION
A. Winter properly alleges false or fraudulent
statements
We interpret the FCA broadly, in keeping with the
Congress’s intention “to reach all types of fraud, without
qualification, that might result in financial loss to the
Government.” United States v. Neifert-White Co., 390 U.S.
228, 232 (1968). For that reason, the Supreme Court “has
consistently refused to accept a rigid, restrictive reading” of
the FCA, id., and has cautioned courts against “adopting a
circumscribed view of what it means for a claim to be false
or fraudulent,” Escobar, 136 S. Ct. at 2002 (quoting United
States v. Sci. Applications Int’l Corp., 626 F.3d 1257, 1270
(D.C. Cir. 2010)).
“[W]e start, as always, with the language of the statute.”
Id. at 1999 (quoting Allison Engine Co. v. United States ex
rel. Sanders, 553 U.S. 662, 668 (2008)). The plain language
of the FCA imposes liability for presenting, or causing to be
presented, a “false or fraudulent claim for payment or
approval,” making “a false record or statement material to a
false or fraudulent claim,” or conspiring to do either.
31 U.S.C. § 3729(1)(A)–(C). Because Congress did not
define “false or fraudulent,” we presume it incorporated the
common-law definitions, including the rule that a statement
need not contain an “express falsehood” to be actionable.
Escobar, 136 S. Ct. at 1999 (“[I]t is a settled principle of
14 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
interpretation that, absent other indication, Congress intends
to incorporate the well-settled meaning of the common-law
terms it uses.” (quoting Sekhar v. United States, 570 U.S.
729, 732 (2013))). And, in at least one respect, Congress
intended for the FCA to be broader than the common law:
Under the FCA, “‘knowingly’ . . . require[s] no proof of
specific intent to defraud.” 31 U.S.C. § 3729(b)(1)(B).
“[O]pinions are not, and have never been, completely
insulated from scrutiny.” United States v. Paulus, 894 F.3d
267, 275–76 (6th Cir. 2018) (upholding conviction for
Medicare fraud where physician justified unnecessary
procedures by exaggerating his interpretation of medical
tests); see also Hooper v. Lockheed Martin Corp., 688 F.3d
1037, 1049 (9th Cir. 2012) (holding that false estimates “can
be a source of liability under the FCA”). Under the common
law, a subjective opinion is fraudulent if it implies the
existence of facts that do not exist, or if it is not honestly
held. Restatement (Second) of Torts § 525; id. § 539. As
the Supreme Court recognized, “the expression of an opinion
may carry with it an implied assertion, not only that the
speaker knows no facts which would preclude such an
opinion, but that he does know facts which justify it.”
Omnicare, Inc. v. Laborers Dist. Council Const. Indus.
Pension Fund, 575 U.S. 175, 191 (2015) (quoting W. Page
Keeton et al., Prosser and Keeton on the Law of Torts § 109,
at 760 (5th ed. 1984)).
Defendants and amici curiae American Health Care
Association, National Center for Assisted Living, and
California Association of Health Facilities urge this court to
hold the FCA requires a plaintiff to plead an “objective
falsehood.” But “[n]othing in the text of the False Claims
Act supports [Defendants’] proposed restriction.” Escobar,
136 S. Ct. at 2001. Under the plain language of the statute,
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 15
the FCA imposes liability for all “false or fraudulent
claims”—it does not distinguish between “objective” and
“subjective” falsity or carve out an exception for clinical
judgments and opinions.
Defendants are correct that if clinical judgments can be
fraudulent under the FCA, doctors will be exposed to
liability they would not face under Defendants’ view of the
law. “But policy arguments cannot supersede the clear
statutory text.” Id. at 2002. Our role is “to apply, not amend,
the work of the People’s representatives.” Henson v.
Santander Consumer USA Inc., 137 S. Ct. 1718, 1726
(2017). And the Supreme Court has already addressed
Defendants’ concern: “Instead of adopting a circumscribed
view of what it means for a claim to be false or fraudulent,
concerns about fair notice and open-ended liability can be
effectively addressed through strict enforcement of the Act’s
materiality and scienter requirements.” Escobar, 136 S. Ct.
at 2002 (quotation marks, alterations, and citation omitted).
We have similarly explained that the FCA requires “the
‘knowing presentation of what is known to be false’” and
that “[t]he phrase ‘known to be false’. . . does not mean
‘scientifically untrue’; it means ‘a lie.’ The Act is concerned
with ferreting out ‘wrongdoing,’ not scientific errors.”
Wang v. FMC Corp., 975 F.2d 1412, 1421 (9th Cir. 1992)
(citations omitted), overruled on other grounds by United
States ex rel. Hartpence v. Kinetic Concepts, Inc., 792 F.3d
1121 (9th Cir. 2015) (en banc). This does not mean, as the
district court understood it, that only “objectively false”
statements can give rise to FCA liability. It means that
falsity is a necessary, but not sufficient, requirement for FCA
liability—after alleging a false statement, a plaintiff must
still establish scienter. Id. (“What is false as a matter of
science is not, by that very fact, wrong as a matter of
16 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
morals.”). To be clear, a “scientifically untrue” statement is
“false”—even if it may not be actionable because it was not
made with the requisite intent. And an opinion with no basis
in fact can be fraudulent if expressed with scienter.
We are not alone in concluding that a false certification
of medical necessity can give rise to FCA liability. In United
States ex rel. Riley v. St. Luke’s Episcopal Hospital, the Fifth
Circuit recognized that “claims for medically unnecessary
treatment are actionable under the FCA.” 355 F.3d 370, 376
(5th Cir. 2004). The plaintiff alleged the defendants filed
false claims “for services that were . . . medically
unnecessary,” id. at 373, and the Fifth Circuit reversed the
district court’s dismissal for failure to state a claim,
explaining that because the complaint alleged that the
defendants ordered medical services “knowing they were
unnecessary,” the statements were lies, not simply errors. Id.
at 376.
Likewise, in United States ex rel. Polukoff v. St. Mark’s
Hospital, the Tenth Circuit recognized “[i]t is possible for a
medical judgment to be ‘false or fraudulent’ as proscribed
by the FCA[.]” 895 F.3d 730, 742 (10th Cir. 2018). The
court looked to CMS’s definition of “medically necessary,”
and held, “a doctor’s certification to the government that a
procedure is ‘reasonable and necessary’ is ‘false’ under the
FCA if the procedure was not reasonable and necessary
under the government’s definition of the phrase.” Id. at 743.
The Third Circuit reached a similar conclusion in United
States ex rel. Druding v. Care Alternatives, No. 18-3298,
2020 WL 1038083 (3d Cir. Mar. 4, 2020), rejecting the
“bright-line rule that a doctor’s clinical judgment cannot be
‘false.’” Id. at *7 (holding that, in the context of certifying
terminal illness, “for purposes of FCA falsity, a claim may
be ‘false’ under a theory of legal falsity, where it fails to
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 17
comply with statutory and regulatory requirements,” and that
“a physician’s judgment may be scrutinized and considered
‘false,’” id. at *9).
The Eleventh Circuit’s recent decision in United States
v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019), is not
directly to the contrary. In AseraCare, the Eleventh Circuit
held that “a clinical judgment of terminal illness warranting
hospice benefits under Medicare cannot be deemed false, for
purposes of the False Claims Act, when there is only a
reasonable disagreement between medical experts as to the
accuracy of that conclusion, with no other evidence to prove
the falsity of the assessment.” Id. at 1281 (emphases added).
We recognize that the court also said “a claim that certifies
that a patient is terminally ill . . . cannot be ‘false’—and thus
cannot trigger FCA liability—if the underlying clinical
judgment does not reflect an objective falsehood.” Id. at
1296–97. But we conclude that our decision today does not
conflict with AseraCare for two reasons.
First, the Eleventh Circuit was not asked whether a
medical opinion could ever be false or fraudulent, but
whether a reasonable disagreement between physicians,
without more, was sufficient to prove falsity at summary
judgment. Id. at 1297–98. Notwithstanding the Eleventh
Circuit’s language about “objective falsehoods,” the court
clearly did not consider all subjective statements—including
medical opinions—to be incapable of falsity, and identified
circumstances in which a medical opinion would be false. 7
7
For example, “if the [doctor] does not actually hold that opinion”
or simply “rubber-stamp[s] whatever file was put in front of him,” if the
opinion is “based on information that the physician knew, or had reason
to know, was incorrect,” or if “no reasonable physician” would agree
18 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
Second, the Eleventh Circuit recognized that its
“objective falsehood” requirement did not necessarily apply
to a physician’s certification of medical necessity—
explicitly distinguishing Polukoff. Id. at 1300 n.15. Rather,
the court explained that the “hospice-benefit provision at
issue” purposefully defers to “whether a physician has based
a recommendation for hospice treatment on a genuinely-held
clinical opinion” whether a patient was terminally ill. 8 Id.;
see also id. at 1295. In fact, after holding that physicians’
hospice-eligibility determinations are entitled to deference,
the Eleventh Circuit explained that the less-deferential
medical necessity requirement remained an important
safeguard: “The Government’s argument that our reading of
the eligibility framework would ‘tie CMS’s hands’ and
‘require improper reimbursements’ is contrary to the plain
design of the law” because “CMS is statutorily prohibited
from reimbursing providers for services ‘which are not
reasonable and necessary[.]’” Id. at 1295 (alteration and
citation omitted). Thus, for the same reason the Eleventh
Circuit recognized AseraCare did not conflict with Polukoff,
we believe our decision does not conflict with AseraCare.
And to the extent that AseraCare can be read to graft any
type of “objective falsity” requirement onto the FCA, we
with the doctor’s opinion, “based on the evidence[.]” AseraCare,
938 F.3d at 1302.
8
A patient must have less than six months to live to be eligible for
hospice care. AseraCare, 938 F.3d at 1282. But, as the Eleventh Circuit
explained, CMS “repeatedly emphasized that ‘[p]redicting life
expectancy is not an exact science,’ [and that] ‘certifying physicians
have the best clinical experience, competence and judgment to make the
determination that an individual is terminally ill.’” Id. at 1295 (quoting
75 Fed. Reg. 70372, 70448 (Nov. 17, 2010) and 78 Fed. Reg. 48234,
48247 (Aug. 7, 2013)). By contrast, a certification of medical necessity
is not entitled to deference. 42 C.F.R. § 412.46(b).
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 19
reject that proposition. See Druding, 2020 WL 1038083,
at *8.
In sum, we hold that the FCA does not require a plaintiff
to plead an “objective falsehood.” A physician’s
certification that inpatient hospitalization was “medically
necessary” can be false or fraudulent for the same reasons
any opinion can be false or fraudulent. These reasons
include if the opinion is not honestly held, or if it implies the
existence of facts—namely, that inpatient hospitalization is
needed to diagnose or treat a medical condition, in
accordance with accepted standards of medical practice—
that do not exist. See Polukoff, 895 F.3d at 742–43.
We now turn to Winter’s complaint. We accept all facts
alleged as true and draw all inferences in Winter’s favor, and
conclude that her complaint plausibly alleges false
certifications of medical necessity.
First, the complaint “alleges a ‘scheme’ connoting
knowing misconduct.” Riley, 355 F.3d at 376.
RollinsNelson and S&W—and their individual owners
Rollins, Nelson and Weiner—had a motive to falsify
Medicare claims and pressure doctors to increase
admissions. Gardens Regional relied on Medicare for a
“significant portion” of its revenue, and the spike in
admissions corresponded with an increased number of
Medicare beneficiaries in its care. Moreover, the increased
admissions of RollinsNelson patients began when
RollinsNelson started managing Gardens Regional.
Second, not only does Winter identify suspect trends in
inpatient admissions—for example, hospitalizing patients
for UTIs—she also alleges statistics showing an overall
increase in hospitalizations once RollinsNelson started
managing the hospital. For example, the daily occupancy
20 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
rate jumped by almost 10%, the number of Medicare
beneficiaries became the highest it had ever been by a
significant margin, and the admissions rate from
RollinsNelson nursing homes was over 80%. Plus, the large
number of admissions that did not meet the criteria, and the
fact that the vast majority of admissions came from a single
doctor—Dr. Pascual, who had contractually agreed to use
the InterQual criteria—decreases the likelihood that any
given admission was an outlier.
Third, Winter’s detailed allegations as to each Medicare
claim support an inference of falsity. This is not a complaint
that “identifies a general sort of fraudulent conduct but
specifies no particular circumstances of any discrete
fraudulent statement[.]” Cafasso, 637 F.3d at 1057. The
complaint identifies sixty-five allegedly false claims in great
detail, listing the date of admission, the admitting physician,
the patient’s chief complaint and diagnosis, and the amount
billed to Medicare. The complaint alleges that each
admission failed to satisfy the hospital’s own admissions
criteria—the InterQual criteria that Gardens Regional and
Dr. Pascual had contractually agreed to use and that Winter’s
job as Director of Care Management required her to apply.
And, as the district court recognized, the InterQual criteria
represent the “consensus of medical professionals’
opinions,” so a failure to satisfy the criteria also means that
the admission went against the medical consensus.
Finally, we note that many of the allegations supporting
an inference of scienter also support an inference of falsity.
Cf. AseraCare, 938 F.3d at 1304–05 (remanding for district
court to consider evidence related to scienter in determining
falsity on summary judgment). For example, when
confronted, Dr. Sacapano corroborated Winter’s suspicions,
telling her that hospital management pressured him into
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 21
recommending patients for medically unnecessary inpatient
admission. And following Winter’s numerous attempts to
bring her concerns to the attention of hospital management,
Defendants Rollins, Nelson, and Weiner held a meeting
where they instructed Winter and other staff not to question
the admissions.
Defendants argue that “Winter has alleged nothing more
than her competing opinion with the treating physicians who
actually saw the patients at issue.” The district court
similarly dismissed the complaint because Winter’s
“contention that the medical provider’s certifications were
false is based on her own after-the-fact review of [Gardens
Regional’s] admission records.” To begin with, an opinion
can establish falsity. See Paulus, 894 F.3d at 270, 277
(affirming doctor’s conviction for healthcare fraud by
performing medically unnecessary procedures and holding
that experts’ “opinions, having been accepted into evidence,
are sufficient to carry the government’s burden of proof”);
cf. AseraCare, 938 F.3d at 1300 (distinguishing Paulus
because in AseraCare “the Government’s expert witness
declined to conclude that [the clinical judgments of]
AseraCare’s physicians . . . were unreasonable or wrong”).
Winter alleges more than just a reasonable difference of
opinion. In addition to the allegations discussed above, she
alleges that a number of the hospital admissions were for
diagnoses that had been disproven by laboratory tests, and
that several admissions were for psychiatric treatment, even
though Gardens Regional was not a psychiatric hospital—
and one of those patients never even saw a psychiatrist.
Even if we were to discount Winter’s evaluation of the
medical records, as the district court did, the other facts she
alleges would be sufficient to make her allegations of fraud
plausible.
22 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
But more importantly, assessing medical necessity based
on an “after-the-fact review” of patients’ medical records
was Winter’s job. At the motion to dismiss stage, her
assessment is “entitled to the presumption of truth[.]” Starr
v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). “The standard
at this stage of the litigation is not that plaintiff’s explanation
must be true or even probable. The factual allegations of the
complaint need only ‘plausibly suggest an entitlement to
relief.’” Id. at 1216–17 (quoting Ashcroft v. Iqbal, 556 U.S.
662, 681 (2009)). Winter’s complaint satisfies that
standard. 9
B. Winter properly alleges material false or
fraudulent statements
The district court also held that Winter failed to allege
any material false statements. We disagree.
“[T]he term ‘material’ means having a natural tendency
to influence, or be capable of influencing, the payment or
receipt of money or property.” 31 U.S.C. § 3729(b)(4).
“Under any understanding of the concept, materiality ‘looks
to the effect on the likely or actual behavior of the recipient
of the alleged misrepresentation.’” Escobar, 136 S. Ct.
at 2002 (quoting 26 Samuel Williston & Richard A. Lord,
9
FCA claims must also be pleaded with particularity under Federal
Rule of Civil Procedure 9(b). Cafasso, 637 F.3d at 1054. While a
plaintiff need not “allege ‘all facts supporting each and every instance’
of billing submitted,” she must “provide enough detail ‘to give
[defendants] notice of the particular misconduct which is alleged to
constitute the fraud charged so that [they] can defend against the charge
and not just deny that [they have] done anything wrong.’” Ebeid ex rel.
United States v. Lungwitz, 616 F.3d 993, 999 (9th Cir. 2010) (quoting
United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048,
1051–52 (9th Cir. 2001)). Winter’s detailed allegations clearly suffice
to put Defendants on notice of their alleged false statements.
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 23
Williston on Contracts § 69:12 (4th ed. 2003)) (alteration
omitted). No “single fact or occurrence” determines
materiality—“the Government’s decision to expressly
identify a provision as a condition of payment is relevant,
but not automatically dispositive.” Id. at 2001, 2003
(citation omitted). For a false statement to be material, a
plaintiff must plausibly allege that the statutory violations
are “so central” to the claims that the government “would
not have paid these claims had it known of these violations.”
Id. at 2004; see also id. at 2003 (“[P]roof of materiality can
include . . . evidence that the defendant knows that the
Government consistently refuses to pay claims in the mine
run of cases based on noncompliance with the particular
statutory, regulatory, or contractual requirement.”).
The district court analyzed whether failure to meet the
InterQual criteria was material and concluded that it was not
because “[t]here is no mention of the InterQual criteria in
any of the relevant statutes or regulations.” This misreads
the complaint. Winter does not allege that failure to satisfy
the InterQual criteria made Defendants’ Medicare claims per
se false—although, as discussed above, she claims that the
InterQual criteria support her allegations because they
reflect a medical consensus. Rather, she alleges that
“[Defendants’] claims for payment . . . were false in that the
services claimed for (inpatient hospital admissions) were not
medically necessary and economical,” and that Defendants
submitted “false certifications of . . . medical necessity.”
We conclude that a false certification of medical
necessity can be material. The medical necessity
requirement is not an “insignificant regulatory or contractual
violation[.]” Escobar, 136 S. Ct. at 2004. Congress
prohibited payment for treatment “not reasonable and
necessary for the diagnosis or treatment of illness or injury
24 WINTER V. GARDENS REGIONAL HOSP. & MED. CTR.
or to improve the functioning of a malformed body
member[.]” 42 U.S.C. § 1395y(a)(1)(A). And Medicare
pays for inpatient hospitalization “only if . . . such services
are required to be given on an inpatient basis for such
individual’s medical treatment[.]” Id. § 1395f(a)(3)
(emphasis added). In fact, Medicare regulations require all
doctors to sign an acknowledgment that states,
Medicare payment to hospitals is based in
part on each patient’s principal and
secondary diagnoses and the major
procedures performed on the patient, as
attested to by the patient’s attending
physician by virtue of his or her signature in
the medical record. Anyone who
misrepresents, falsifies, or conceals essential
information required for payment of Federal
funds, may be subject to fine, imprisonment,
or civil penalty under applicable Federal
laws.
42 C.F.R. § 412.46(a)(2). In addition to highlighting the
above Medicare statutes and regulations, Winter’s complaint
alleges that the government “would not” have “paid”
Defendants’ false claims “if the true facts were known.” In
sum, Winter alleges that Defendants’ false certification of
the medical necessity requirement is “so central” to the
Medicare program that the government “would not have paid
these claims had it known” that the inpatient hospitalizations
were, in fact, unnecessary. Escobar, 136 S. Ct. at 2004.
Thus, Winter has “sufficiently ple[d] materiality at this stage
of the case.” Campie, 862 F.3d at 907.
WINTER V. GARDENS REGIONAL HOSP. & MED. CTR. 25
C. Scienter
Defendants urge us to determine whether Winter
adequately alleged scienter. The district court did not reach
this issue but expressed doubt that Winter had. Although we
may consider alternate grounds for upholding the district
court’s decision, see Islamic Republic of Iran v. Boeing Co.,
771 F.2d 1279, 1288 (9th Cir. 1985), we decline to do so
here.
We remind the district court, however, that under Rule
9(b), scienter need not be pleaded with particularity, but may
be alleged generally. Fed. R. Civ. P. 9(b). A complaint
needs only to allege facts supporting a plausible inference of
scienter. United States ex rel. Lee v. Corinthian Colls.,
655 F.3d 984, 997 (9th Cir. 2011). And unlike in common
law fraud claims, a plaintiff need not prove a “specific intent
to defraud” under the FCA—the Act imposes liability on any
person acting “knowingly,” which includes acting with
“actual knowledge,” as well as acting “in deliberate
ignorance,” or “in reckless disregard of the truth or falsity of
the information[.]” 31 U.S.C. § 3729(b)(1). As the Supreme
Court noted in another Medicare case, “[p]rotection of the
public fisc requires that those who seek public funds act with
scrupulous regard for the requirements of law[.]” Heckler v.
Cmty. Health Servs. of Crawford Cty., Inc., 467 U.S. 51, 63
(1984).
CONCLUSION
We hold that a plaintiff need not plead an “objective
falsehood” to state a claim under the FCA, and that a false
certification of medical necessity can be material.
Accordingly, we reverse the district court’s dismissal of
Winter’s complaint and remand for further proceedings
consistent with this opinion.