Health Law Daily Wrap Up, QUI TAM (WHISTLEBLOWER SUITS)—D. Mass.: FCA allows certain relator claims to proceed after government settlement, (Apr 4, 2025)

By Sherri M. Schroeder, J.D.

However, the claims in question did not satisfy the special pleading requirements of Rule 9(b).

The federal district court in Massachusetts has held that the False Claims Act (FCA) and its Anti-Kickback Statute allow a relator to pursue non-intervened, non-released claims after the government has settled intervened claims. Before the court were a motion to dismiss filed by defendant Exagen, Inc., and a motion for leave to amend filed by relator Omni Healthcare, Inc. Although the court was not persuaded by Exagen’s argument that the FCA does not allow relators to prosecute an alleged false claim after the government has intervened and agreed to a settlement, the court nevertheless granted Exagen’s motion to dismiss with prejudice because Omni had failed to plead its claims with the required particularity, scienter, and causation required under Federal Rule of Civil Procedure (9b). The court then denied Omni’s motion to amend (U.S. ex rel. Omni Healthcare, Inc. v. Exagen, Inc., No. 21-cv-10950-ADB (D. Mass. Mar. 31, 2025)).

Facts. Omni is a multi-specialty medical professional group offering a range of medical services at its various locations. Exagen develops and sells testing products for auto-immune patients under the brand name “AVISE.” In 2021, Omni filed an qui tam action under the FCA and its state-law analogues alleging Exagen had engaged in an illegal scheme to induce physicians to make lab-testing referrals. The United States partially intervened in the case for purposes of entering a settlement, limiting its intervention to the “Covered Conduct” defined in the settlement agreement (SA). The SA contained two release provisions: one released Exagen from the U.S.’s claims for the Covered Conduct, and the other released Exagen from any claims Omni, as relator, had or could have for the Covered Conduct. After the SA was signed, the court dismissed with prejudice Omni’s amended complaint and claims against the U.S. and Exagen for the Covered Conduct, dismissed without prejudice any remaining claims against Exagen as to the U.S., and retained jurisdiction solely as to Omni’s remaining, non-released claims outside of the Covered Conduct.

Exagen then moved to dismiss any of the amended complaint’s claims that were outside of the Covered Conduct, arguing (1) no such claims existed; (2) the FCA does not authorize a relator to continue to litigate an action after the government dismissed the case; (3) Omni failed to plead the elements of a claim under the FCA, including scienter and causation; and (4) Omni did not comply with Rule 9(b)’s heightened pleading requirements. Rather than opposing the motion, Omni moved for leave to file a second amended complaint with additional factual allegations alleging Exagen’s referral scheme extended beyond the physician providers referred to in the Covered Conduct of the SA to include laboratories and phlebotomists.

Non-intervened, non-released claims. The court first acknowledged that the SA specifically resolved only claims related to the physician referral arrangement specified in the Covered Conduct, which contemplated the possibility that the government could bring future claims for non-Covered Conduct. Then, the court acknowledged that the SA expressly reserved claims related to non-Covered Conduct only as to the government, not Omni. However, Exagen presented no reason why Omni should not be allowed to pursue FCA claims on which the government has not intervened. In keeping with case precedent, the court held that Omni could pursue the non-settled, non-intervened claims.

Pleading requirements. However, “to avoid futility,” the court stated the Omni’s proposed amendments to its complaint must satisfy Rules 9(b) and 15. Here, the court was unable to find that the proposed amendments described the purported illegal kickback scheme between Exagen and independent laboratories and phlebotomists with sufficient particularity. According to the court, Omni did not sufficiently identify the “claims” that were unlawfully submitted to the government or explain why the alleged reimbursements amounted to kickbacks or how the alleged kickback scheme with third-party contractors related to the unlawful physician referrals. Instead, Omni made only conclusory allegations and references that were not sufficient to plead fraud.

As to scienter, to establish that Exagen acted knowingly and willfully, the court required that Omni allege that Exagen acted “with knowledge that its conduct was unlawful.” However, the proposed amended complaint remained “largely silent” on Exagen’s scienter, instead relying primarily on “conclusory statements as to how Exagen employed its industry knowledge to implement the purported scheme,” according to the court. From these statements, alone, the court could not infer that Exagen acted “knowingly and willfully.”

The court also found that Omni’s proposed amended complaint fell similarly short on pleading causation. According to the First Circuit’s opinion in U.S. v. Regeneron Pharms, Inc., 128 F.4th 324, 327 (1st Cir. 2025), a plaintiff “must show that an illicit kickback was the but-for cause of a submitted claim.” However, the court was unable to find that Omni had sufficiently alleged that the purported kickback scheme was the but-for cause of the third-party contractors’ use of Exagen’s tests. Rather, according to the court, the proposed amended complaint “largely describes the purported kickback scheme and then seemingly asks the Court to infer that the scheme led to the use of Exagen’s tests.”

Conclusion. Concluding that Omni’s proposed amendments to its complaint were futile, the court decided it need not go further. Therefore, it denied Omni’s motion to amend, denied Omni’s state-law claims because Omni failed to plead that any claims were actually submitted to the respective state health care programs, and granted with prejudice Exagen’s motion to dismiss.

The case is No. 21-cv-10950-ADB.

Judge: Burroughs, A.

Attorneys: Abraham R. George, U.S. Attorney's Office, for U.S. Jonathan W. Fitch (Fitch Law Partners LLP) for Omni Healthcare. Andrew Ryan Hayes (Hooper, Lundy & Bookman, PC) for Exagen, Inc.

Companies: Omni Healthcare; Exagen, Inc.

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