Software company's qui tam against potential customer dismissed for lack of particularity

by Ben Vernia | April 21st, 2011

On April 20, Judge Reggie B. Walton of the District of Columbia issued an order in U.S. ex rel. Digital Healthcare, Inc. v. Affiliated Computer Services, inc., dismissing the case for lack of particularity under Fed. R. Civ. P. 9(b), but denying the defendant’s motion to dismiss on public disclosure grounds.

The whistleblower in the unusual case was the maker of software to detect and prevent errors by Medicaid fiscal intermediaries in the coordination of benefits in cases of Medicaid beneficiaries who also possess third-party insurance. Before filing suit, the relator had conducted a study – for which the defendant and other fiscal intermediary contractors had voluntarily provided data – comparing Medicaid claims against a database of persons with private insurance. The relator presented its findings – 21% to 36% of the defendant’s Medicaid beneficiaries held private insurance, the company claimed – to the defendant, and offered to sell it software to prevent the erroneous claims. The defendant refused, and the relator sued, alleging submission of false claims and conspiracy, as well as violations of several state false claims acts.

Judge Walton reviewed several public disclosures of problems in coordination of Medicaid benefits, but concluded that although these provided important background information, they did not rise to the level of “allegations or transactions” required by former 31 U.S.C. 3730(e)(4)(A). GAO reports were “devoid of any allegations of fraud or wrongdoing by anyone,” Judge Walton wrote, and statements by Senators Grassley and Coburn “spoke to” the problem, but did not “identify any particular forms of fraud that may have been contributing to the third-party payer problem or allege wrongdoing on the part of pharmacy benefits managers or Medicaid fiscal agents.” Overall, the public disclosures fell short of the statutory standard for triggering the bar.

Judge Walton was more sympathetic to the defendant’s claim that the complaint lacked particularity, however. The complaint not only failed to identify any specific culpable individuals (which he found particularly troubling in light of the conspiracy allegation), but it also failed to identify a single false claim submitted to the government or improperly paid by Medicaid. He disagreed with the relator that its complaint contained examples of such claims, and noted that although under the law of the D.C. Circuit, the relator’s burden would be eased if the documents are in the exclusive possession of the information needed to satisfy the rule, the relator had not alleged this in its complaint. Although Judge Walton was skeptical that permitting the relator to amend would solve the problem, he granted it leave to try.

With regard to the state-law claims, Judge Walton declined to exercise supplemental jurisdiction over these pendent matters.

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