Labor & Employment Law Daily Wrap Up, WHISTLEBLOWERS—D.C. Cir.: D.C. Circuit affirms dismissal of False Claims Act case against skilled nursing facilities, therapy provider, (Aug 14, 2025)

By Wendy Biddle, J.D.

The appeals court upheld the lower court's ruling on public disclosure bar and Rule 9(b) requirements.

The U.S. Court of Appeals for the D.C. Circuit affirmed the dismissal of a False Claims Act qui tam lawsuit against skilled nursing facility operators and a therapy contractor. The three-judge panel unanimously upheld the district court's dismissal of claims against therapy provider RehabCare Group East, LLC based on the FCA's public disclosure bar, finding that the relator failed to qualify as an original source under the FCA. The court also affirmed dismissal of most claims against the skilled nursing facility defendants for failure to satisfy Rule 9(b)'s particularity requirements, though Circuit Judge Katsas dissented in part regarding certain marketing gift allegations (U.S. ex. rel. Winnon v. Lozano, Jr., No. 23-7139 (D.C. Cir. Aug. 12, 2025)).

Background. The relator, worked for two partners who owned and operated eight skilled nursing facilities in Texas. After the relator was promoted to controller and given access to the financial operations of the facilities she noticed irregularities in the Medicare and Medicaid reimbursements. She alleged that seventeen defendants collectively orchestrated a scheme to maximize profits by exploiting Medicare and Texas Medicaid programs.

The relator alleged three kickback schemes. She alleged that the facility defendants offered bonuses to employees who hit Medicare census targets. She also alleged that one of the partners created sham medical directorships, which did not have any written compensation agreements specifying the medical directors pay or duties. She also alleged that a facility funneled thousands of dollars to hospital discharge planners under the guise of “marketing gifts” including alcohol, food, and advertisements, in order to ensure a constant flow of patient referrals.

She also alleged that a contracted rehab provider for the facilities artificially inflated patient therapy hours and intensity to push patients into higher Medicare reimbursement categories. She alleged that RehabCare, the therapy provider, “padded” invoices which were then passed up to the government through the skilled nursing facilities reimbursement claims.

Each group of defendants moved to dismiss. The district court dismissed the allegations against RehabCare finding that they were previously disclosed to the public in a prior case. The court also dismissed the allegations against the skilled nursing facility defendants for failing to meet the heightened pleading standard of Rule 9(b). The relator appealed the rulings.

Public disclosure of RehabCare’s claims. The court noted that the relator’s main challenge was distinguishing her allegations against RehabCare from those in a prior healthcare fraud case (United States ex rel. Halpin & Fahey v. Kindred Healthcare, Inc. No. 11-12139-RGS (D. Mass.)). The court used the established "who, what, when, and where" framework from Springfield Terminal to determine whether the essential elements of fraud had been publicly disclosed.

The court found that every element the relator alleged was previously disclosed in the Halpin complaint. Both cases involved RehabCare allegedly submitting false Medicare claims for unreasonable or unnecessary therapy services during overlapping time periods at skilled nursing facilities. The court rejected the relator's arguments that identifying eight specific Texas facilities or extending the timeframe by seven months created meaningful distinctions from the nationwide Halpin allegations.

The court emphasized that identifying additional examples of an already-exposed scheme does not revive an otherwise barred claim. The existence of a corporate integrity agreement between RehabCare and HHS/OIG, along with a government press release announcing the Halpin settlement, further supported the public disclosure finding.

Original source requirements. Having established public disclosure, the burden shifted to the relator to prove original source status under either of two statutory pathways: voluntary disclosure to the government before public disclosure, or possession of independent knowledge that materially adds to publicly disclosed information and voluntary provision of that information to the government before filing.

The court found the relator failed both tests. Her complaint contained only conclusory statements that she had submitted required disclosure statements and complied with statutory conditions, without alleging when she disclosed information or to whom. The court characterized these as legal conclusions rather than factual allegations.

Regarding independent knowledge, the court determined the relator relied on publicly accessible data such as provider summary reports and monthly facility data, which undermined any assertion of independence. Even assuming she gathered information independently, the court found her allegations failed to materially add to information disclosed in Halpin, providing at best additional examples of an already-disclosed scheme rather than sufficiently significant information that would influence the government's prosecution decision.

Rule 9(b) analysis for SNF defendants. The court then moved on to the district court’s dismissal of the claims against the skilled nursing facilities defendants. The court applied Rule 9(b)'s heightened pleading standard to the relator's various theories against the skilled nursing facility defendants.

For the employee bonus allegations, the court found insufficient details connecting incentive payments to actual patient referrals or submitted claims. The complaint identified only one employee who received a bonus but failed to identify Medicare patients involved or establish that services were provided resulting in reimbursement claims.

For the medical directorship arrangements, the court distinguished the case from United States ex rel. Kaczmarcyk v. SCCI Health Servs. Corp., No. H-99-1031, (S.D. Tex. Mar. 11, 2004), where sufficient detail was provided about sham arrangements. Here, the relator failed to identify specific agreements conditioning payment on referrals, when or where such agreements were made, or how payments resulted in submitted claims. The court found her allegations based on overheard conversations and suspicious payment patterns insufficient to transform conjecture into the reliable indicia required under Rule 9(b).

The court also concluded that the relator failed to satisfy Rule 9(b) in the inflated billing claims for therapy. The court found that the relator’s reliance on statistical anomalies fell short of satisfying the heightened pleading standard because they were not accompanied by any specific details of the fraudulent scheme.

Marketing gifts claims. The majority found the marketing gift claims came close to satisfying Rule 9(b) but ultimately fell short of establishing the necessary bridge between the gifts and the submission of false claims. While acknowledging the intuitive appeal of the relator's argument that businesses do not spend money without expecting returns, the court required more than details about gifts themselves.

The court noted the relator provided specific gifts, dates, and recipients but lacked concrete allegations connecting remuneration to actual false claims. The analysis emphasized that intent to induce referrals alone does not establish an FCA violation without showing claims were actually submitted for reimbursement.

Dissenting opinion on marketing gift claims. Circuit Judge Katsas dissented regarding the marketing gift claims, finding them sufficient under both Rule 9(b) and plausibility standards. He noted the complaint alleged 45 gifts totaling over $23,000 between February 2013 and May 2015, with detailed records showing dates, costs, and recipients including named physicians and hospital discharge personnel.

Judge Katsas emphasized that the SNF defendants' characterization of these payments as marketing efforts constituted "a virtual admission of AKS violations," since marketing a skilled nursing facility inherently involves seeking patient referrals. He found the necessary inference that gifts caused additional referrals and submission of false claims to be strong given the number, frequency, duration, and nature of the gifts.

The dissent argued that while identifying specific tainted referrals would strengthen the complaint, such detail is not indispensable when facts support a strong inference that false claims were submitted. Judge Katsas concluded the complaint provided sufficient allegations to survive a motion to dismiss under applicable pleading standards.

The case is No. 23-7139.

Judge: Childs, J.M.

Attorneys: Joe D. Whitley (Womble Bond Dickinson LLP) for Ramiro Lozano.

Cases: Whistleblowers Procedure DistrictofColumbiaNews