Corporate Counsel Daily, Employee’s evidence insufficient to prove fraud against medical group, (Jun 24, 2025)

By Molly Platnick

The court found a former employee did not plead fraud with enough particularity to survive the medical group’s motion for judgment on the pleadings.

The U.S. District Court for the Eastern District of Kentucky granted a medical group’s motion for judgment on the pleadings in a qui tam lawsuit brought by a former employee. The former employee alleged the group had committed fraud in violation of the False Claims Act (FCA) and the Kentucky Medicare Fraud Statute, Ky. Rev. Stat. Ann. §205.8463, because one of the physicians performed unnecessary medical procedures to collect Medicaid payments. The medical group raised defenses and introduced a severance agreement signed by the former employee. The court ruled the severance agreement did not release the medical group, but the employee’s fraud claim failed because she did not offer any evidence of specific fraudulent acts. The court dismissed the complaint with prejudice, finding the employee could not fix the defects, even if given leave to amend (U.S. ex rel. Elfers v. Allen, No. 2:22-cv-00083-GFVT-EBA (E.D. Ky. Jun. 16, 2025)).

The relator was a former employee of the medical group. She alleged the physician overdiagnoses patients with glaucoma and performs unnecessary eye surgeries in order to submit false Medicaid claims. The former employee’s evidence was the disproportionate number of the surgeries the physician performs for the number of patients he sees. She also introduced testimonial introduce from patients who report the physician was “focused on getting [them] to agree to surgery.”

The former employee brought this qui tam case to recover damages on behalf of Kentucky and the United States. The medical group claimed the instant case is “part of a pattern” of frivolous lawsuits brought by the former employee’s lawyers. The same legal team brought an earlier qui tam case against the medical group and some motions were “literally copied-and-pasted (verbatim) from a brief” filed in that case.

The complaint asserted claims under the federal FCA and state law. The medical group filed a motion seeking judgment on the pleadings, arguing 1) the FCA’s qui tam mechanism is unconstitutional, 2) the employee’s claim is barred by the severance agreement she signed, 3) she did not state her FCA claim with particularity, and 4) the Kentucky statute does not provide a private right of action. The court stayed the constitutional claim pending resolution of the other issues.

Severance agreement. As part of its motion for judgment on the pleadings, the medical group submitted a copy of the severance agreement signed by the former employee. Sixth Circuit case law requires the attorney general’s consent for a relator to seek a voluntary dismissal of a qui tam action. The court rejected the medical group’s argument that State Farm Mut. Auto Ins. Co. v. Angelo, 95 F.4th 419 (6th Cir. 2024), allows relators to release their claims “in some circumstances.” The court interpreted the State Farm decision as “in essence” a court order for specific performance of a provision in the contract between State Farm and the relator in that case. The decision thus left intact the general principle that “a party cannot unilaterally dismiss a qui tam action” and the government must “consent to dismissal.” The instant case, the court found, is distinguished from State Farm because the severance agreement does not include a provision requiring the former employee to dismiss the action. The former employe’s claim under the False Claims Act was not barred by the severance agreement she signed.

Particularity. The Sixth Circuit’s decision in Yuhasz v. Brush Wellman, Inc., 341 F.3d 559 (6th Cir. 2003), established a heightened pleading standard for Rule 9(b) particularity in FCA cases. Under Yuhasz, a plaintiff must show the “time, place, and content” of the alleged false claim, the fraudulent scheme, the defendant’s fraudulent intent, and injury in fact caused by the fraud. Additionally, a relator must “cite at least one specific occurrence of a false claim being submitted to the government.” Here, the former employee described a fraudulent scheme but did not allege any concrete instances of a false claim submitted to the government. She accused the physician of regularly performing unnecessary ocular surgeries to collect profits from Medicaid. However, her only proof of this fraud was the disparity between the number of patients versus number of surgeries and limited testimony from former patients. The court was not persuaded this is enough to meet the heightened Rule 9(b) standard. The court concluded, even if the former employee had successfully alleged the physician engaged in a fraudulent scheme, she failed to identify a single concrete false claim he submitted to Medicaid.

Leave to amend. The Sixth Circuit qualified Rule 15 in U.S. ex rel. Ibanez v. Bristol-Myers Squibb Co., 874 F.3d 905 (6th Cir. 2017). The federal rules freely grant parties leave to amend their complaint “where justice so requires.” In Bristol-Meyers Squibb, the court clarified justice does not require a district court to grant leave where parties have “fully argued” and the court has “duly considered” all 12(b)(6) motions to dismiss. Instead, in a later case, the circuit court affirmed a district court’s discretion to deny leave to amend a complaint that was dismissed based on Rule 9(b) failure to plead with particularity. Here, the former employee did not file a motion to amend and only offered a response to the medical group’s motion seeking judgment on the pleadings. Her response not only did not include information to support her fraud allegations, but the court also called it a “legal version of Frankenstein’s monster,” noting it was full of typos and formatting issues. The court concluded, even if it granted leave to amend, the former employee would not be able to plead her case with the required specificity.

State claim. In her response, the former employee stated, “Relator’s claims are filed under federal law and no Kentucky law is required.” The medical group interpreted this as the employee abandoning her claim under the state statute. The court agreed without offering further analysis.

The case is No. 2:22-cv-00083-GFVT-EBA.

Judge: Van Tatenhove, G.

Attorneys: Alan J. Statman (Statman, Harris & Eyrich LLC) and Anthony Dominick Romeo (Deters Law Firm) for Barb Elfers. Dennis P. Kennedy (Dressman Benzinger Lavelle P.S.C.) for MD Zegary Allen, Summit Medical Group, Inc. d/b/a St. Elizabeth Physicians and Saint Elizabeth Medical Center, Inc.

Companies: Summit Medical Group, Inc. d/b/a St. Elizabeth Physicians; Saint Elizabeth Medical Center, Inc.

Cases: CaseDecisions FCANews GCNNews MedicaidNews QuiTamNews KentuckyNews