The Seventh Circuit recently reversed a lower court’s ruling that an amended complaint in a qui tam lawsuit filed under the False Claims Act (FCA) alleging fraudulent anesthesiology billing practices failed to meet the pleading standard under Rule 9(b) of the Federal Rules of Civil Procedure. In U.S. ex. rel. Mamalakis vs. Anesthetix Management LLC, — F.4th —-, 2021 WL 5818476 (Dec. 8, 2021), the Seventh Circuit reversed the district court’s dismissal and held that the amended complaint included enough detail to satisfy Rule 9(b)’s pleading benchmark, allowing the case to move forward.

The case was brought by Dr. John Mamalakis, a Wisconsin-based anesthesiologist, against his former employer, Anesthetix Management LLC, d/b/a Anesthetix of TeamHealth, a company acquired by TeamHealth Holdings, Inc. (“TeamHealth”). Dr. Mamalakis claimed that TeamHealth fraudulently overbilled Medicare and Medicaid for services performed by its anesthesiologists. The original complaint only included general allegations. After dismissal (and the U.S. government declining to intervene), Dr. Mamalakis filed an amended complaint with ten specific examples of allegedly fraudulent billing.

Under federal regulations, procedures that are “personally performed” by anesthesiologists qualify for the highest billing rate. Procedures that are “medically directed” by anesthesiologists qualify for payments at a lower rate, but one that is significantly higher than the rate paid for procedures that are merely “medically supervised.” To qualify for the “medically directed” billing rate, the anesthesiologist may direct a resident or intern, certified registered nurse anesthetist, anesthesiologist assistant, or student nurse anesthetist in up to four concurrent procedures. The anesthesiologist must personally perform or participate in seven steps detailed in the regulations. If the anesthesiologist does not satisfy these conditions, a procedure may not be billed as “medically directed.”

Dr. Mamalakis alleged that TeamHealth instituted a policy of billing “100% medical direction across the board,” irrespective of whether the above conditions were met. Specifically, Dr. Mamalakis alleged that anesthesiologists regularly “failed to perform preanesthetic exams and evaluations, did not personally prescribe anesthesia plans, did not monitor the patient at frequent intervals during procedures, did not participate in the most demanding parts of the procedure, and sometimes were not physically present to handle emergencies.” Dr. Mamalakis further alleged that TeamHealth was aware of these failings but persisted in billing services as medically directed, therefore knowingly submitting false claims to the government. Dr. Mamalakis specifically alleged that he brought his concerns about fraudulent billing to the attention of the medical director and the TeamHealth CEO to no avail.

In his amended complaint, Dr. Mamalakis alleged ten examples of incidents where TeamHealth knowingly billed services as medically directed despite anesthesiologists failing to meet the above conditions. Each of these examples identified the procedure in question, the anesthesiologist involved, and the specific deficiencies in the conditions required to bill the service as medically directed. The district court dismissed the amended complaint, however, reasoning that the majority of Dr. Mamalakis’s examples failed to provide particularized factual support for the allegation that the anesthesiologists fraudulently billed at the medical-direction rate. The district court further reasoned that the background allegations regarding TeamHealth’s billing policies were “insufficient to plead fraud with the specificity required by the rule.”

On appeal, the Seventh Circuit reversed this ruling, reasoning that although Dr. Mamalakis could not provide billing invoices, this was not fatal to his claim. The court noted that Dr. Mamalakis’s claims were based on his direct knowledge of the billing practices at TeamHealth and his own attempts to bring this to the attention of management. Six of the examples also included direct allegations that fraudulent bills were submitted to government payors. Therefore, the appellate court concluded that the examples provided in the amended complaint formed a sufficiently “particularized basis from which to plausibly infer that at least on these occasions, TeamHealth presented false claims to the government” and that Dr. Mamalakis “injected enough precision and substantiation into his allegations of fraud to entitle him to move forward with his case.”

Specific examples of alleged fraudulent billing practices based on personal observation appear to be enough to survive dismissal of an FCA action in the Seventh Circuit, even if the relator cannot provide financial records to substantiate his claims.