Frazier Ex Rel. United States v. Iasis Healthcare Corp. , 392 F. App'x 535 ( 2010 )

FILED
NOT FOR PUBLICATION AUG 12 2010
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
JERRE FRAZIER, ex rel. United States of No. 08-16243
America,
D.C. No. 2:05-CV-00766-JAT
Plaintiff - Appellant,
v. MEMORANDUM *
IASIS HEALTHCARE CORPORATION,
Defendant - Appellee.
JERRE FRAZIER, ex rel. United States of No. 08-16305
America,
D.C. No. 2:05-cv-00766-JAT
Plaintiff - Appellee,
v.
IASIS HEALTHCARE CORPORATION,
Defendant - Appellant.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Appeals from the United States District Court
for the District of Arizona
James A. Teilborg, District Judge, Presiding
Argued and Submitted March 9, 2010
San Francisco, California
Before: WALLACE, GRABER, and McKEOWN, Circuit Judges.
Qui tam relator Jerre Frazier, the former Chief Compliance Officer and Vice
President, Ethics and Business Practices, of IASIS Healthcare Corp., brought a
complaint alleging violations of the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-
3731. Frazier alleges two types of violations. Frazier first asserts that IASIS
Healthcare submitted claims for reimbursement from federally funded health care
programs for medically unnecessary procedures. Second, Frazier alleges that, to
obtain valuable Medicare referrals, IASIS Healthcare and/or the hospitals it owns
entered into prohibited financial relationships with and/or provided prohibited
kickbacks to doctors in violation of the Stark Act, 42 U.S.C. § 1395nn, and the
anti-kickback provision of the Health Insurance Portability and Accountability Act
of 1996 (“Anti-Kickback Provision”), 42 U.S.C. § 1320a-7b(b)(2). Frazier alleges
that IASIS hospitals submitted claims for referrals generated by doctors in
prohibited financial relationships and thus falsely certified its compliance with
Medicare requirements when it filed its annual cost reports.
2
The district court correctly determined that Frazier failed to comply with
Federal Rule of Civil Procedure 9(b) by failing to plead his claims with sufficient
particularity. Consistent with the requirements of Rule 9(b), Frazier must plead
“the who, what, when, where, and how” of IASIS Healthcare’s alleged false claims
with particularity sufficient to provide IASIS Healthcare with enough notice to
defend the suit. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.
2003) (internal quotation marks omitted). Frazier is not required to plead
representative examples of false claims submitted to the Government to support
every allegation, but he must plead with sufficient particularity to lead to a strong
inference that false claims were actually submitted. Ebeid v. Lungwitz, No. 09-
16122, slip op. 11249, 11259 (9th Cir. Aug. 9, 2010).
Frazier’s allegations regarding medically unnecessary procedures were
conclusory at best. Although it is not mandatory that Frazier provide
representative examples, such examples would go a long way in providing the
necessary particularity under Rule 9(b). At a minimum, he must provide “reliable
indicia” that IASIS Healthcare submitted claims for medically unnecessary
procedures. Id. The Second Amended Complaint fails in this regard.
3
To plead fraud based on falsely certified compliance with the Stark Act and
the Anti-Kickback Provision sufficiently,1 Frazier must allege (1) a false claim (2)
made with scienter (3) that was material to the government’s decision to pay and
(4) an actual claim on the government fisc. United States ex rel. Hendow v.
University of Phoenix, 461 F.3d 1166, 1171-73 (9th Cir. 2006). Materiality is
sufficiently pleaded only where certification of compliance with the relevant law,
rule, or regulation “is a prerequisite to obtaining a government benefit” and “a sine
qua non of receipt of state funding.” United States ex rel. Hopper v. Anton, 91
F.3d 1261, 1266-67 (9th Cir. 1996). Again, Frazier need not provide
representative examples to plead express false certification, so long as he
sufficiently alleges an illegal kickback scheme violating the Stark Act or the Anti-
Kickback Provision and provides a sufficient basis to infer that IASIS Healthcare
or its hospitals expressly certified compliance with those provisions as part of the
process of submitting Medicare and Medicaid claims for patients referred by
doctors involved in those schemes. The Second Amended Complaint also fails in
this regard.
1
Although we recently adopted the theory of implied false certification,
Ebeid, slip op. at 11254, Frazier’s complaint alleges only that IASIS Healthcare
expressly certified compliance with the Stark Act and the Anti-Kickback Provision.
Implied false certification is thus not at issue here.
4
Despite Frazier’s failure of pleading, the district court erred in dismissing his
Second Amended Complaint with prejudice. Leave to amend should be freely
granted “‘when justice so requires.’” Bly-Magee v. California, 236 F.3d 1014,
1019 (9th Cir. 2001) (quoting Fed. R. Civ. P. 15(a)). In dismissing the complaint
with prejudice, the district court relied heavily on the “advanced” age of this case
and on the fact that it was Frazier’s third complaint. The court did not give
sufficient weight to the fact that the first two complaints were filed under seal and
that the motion to dismiss the Second Amended Complaint was the first time that
Frazier’s claims were subject to a Rule 9(b) sufficiency analysis. Accordingly,
Frazier should be permitted to amend his complaint.
Finally, on IASIS Healthcare’s cross-appeal, the district court erred in
denying IASIS Healthcare’s motion for surrender on mootness grounds. The
question of sanctions is not a judgment on the merits, but “a determination of a
collateral issue and a determination of a collateral issue may be made after the
principal suit has been terminated.” Retail Flooring Dealers of Am., Inc. v.
Beaulieu of Am., LLC, 339 F.3d 1146, 1150 (9th Cir. 2003).
Frazier incorrectly asserts that there is “no basis for sanctions under any
theory.” Sanctions, including dismissal of the complaint, may be granted under the
court’s inherent power. Gomez v. Vernon, 255 F.3d 1118, 1133-34 (9th Cir. 2001).
5
Frazier is also incorrect in asserting that the motion is moot because “any arguably
privileged documents” were returned without review or utilization in this case.
That characterization begs the question as to whether there was abuse of the
judicial process that tainted the proceedings before the documents were returned.
Id.The district court’s order denying the motion for surrender on mootness
grounds is reversed, and the district court should consider, after in camera review,
whether sanctions are appropriate.
REVERSED and REMANDED for proceedings consistent with this
disposition.
6