Labor & Employment Law Daily Wrap Up, WHISTLEBLOWERS—D.D.C.: Former employee, patient have no fraud claim against Texas medical center, (Jun 26, 2025)

By Molly Platnick

The former employe and her husband did not meet the elements of a False Claims Act fraud claim and did not have enough evidence to amend their complaint.

The federal district court for the District of Columbia granted a health care company’s motion to dismiss in a qui tam case brought by a former employee and her husband, a former patient. The couple’s complaint alleged the company violated patient privacy laws to fraudulently collect money from Medicaid and Medicare. The court ruled the couple did not sufficiently plead fraud because they did not show the medical company committed a false act that was material with scienter. The court found the couple’s evidence was “muddled” and more indicative of poor oversight than fraud. Because the evidence was so weak, the court determined it would be futile to allow the couple to amend again and denied their motion for leave to file a second amended complaint (Manley v. HCA Holdings, Inc., No. 17-cv-2699 (APM) (D.D.C. June 17, 2025)).

Allegations. The defendant is a regional acute care hospital in Brownsville, Texas, and its health care parent company. The relators are a married couple from Brownsville. The wife was a Level 3 Trauma Manager at the medical center from 2011 through 2015. The husband was a patient at the center in April 2014. The couple alleged they observed the center engage in “numerous violations of laws and regulations” meant to protect patient privacy and health records. Specifically, they pointed to ineffective employee and contractor background checks, unsecure physical spaces, and workstation computers without “privacy screens” that did not automatically enter automatic sleep mode when left unattended. These legal violations, the relators argued, rendered “meaningful use” attestations and certifications submitted to Medicaid and Medicare “materially false.”

Lawsuit filed. The couple brought this qui tam lawsuit under the False Claims Act (FCA) in December 2017. In November 2018, they filed an amended complaint. The government announced in April 2023 it would not intervene in the action and the court unsealed the amended complaint and allowed it to be served on the health care company and medical center. The parties filed a motion to dismiss in November 2023, which the relators opposed. The relators also requested leave to amend and submitted a proposed second amended complaint, which the health care company opposed.

Motion to dismiss. The issue was whether the couple met the necessary elements of an FCA fraud claim. A relator successfully pleads an FCA fraud claim if she plausibly alleges (1) falsity, (2) materiality, and (3) scienter.

Meaningful use attestations. The first question in the “trifecta” is whether the couple sufficiently alleged the health care companies created a fraudulent scheme to collection millions of dollars in Medicaid and Medicare payments from HHS. The health care companies argued the pleadings did not contain any specific payment violations. The court took it one step further, finding the relators’ claims did not allege falsity because there was no connection between the allegations in the complaint and a false claim made to the government. The court called the center’s purportedly poor background checks and unsecured computers a “lack of oversight,” not indicators of fraud.

Even if the relators had sufficiently alleged fraud, the court ruled, their meaningful use attestation claim must be dismissed because it failed to show scienter. The relators did not identify anyone at the center who would have had actual knowledge of issues like the computers and whether that person had any role in submitting the meaningful use attestations to HHS.

The court also noted “internal inconsistencies” in the pleadings and the absence of any exhibits explaining the alleged false claims.

Conditions of participation. The couple’s condition-of-participation claims were based on an FCA theory of “implied false certification.” Under the Supreme Court’s decision in Universal Health v. Escobar, 579 U.S. 176 (2016), a defendant will be held liable for implied false certification if the plaintiff can show (1) the fraudulent claim included a “representation about the goods or services provided,” and (2) the representations were “misleading half-truths” because the defendant failed to disclose “noncompliance with material statutory, regulatory, or contractual requirements.” Here, the couple listed many instances of noncompliance but did not allege a specific false representation related to this noncompliance. The court ruled it could not determine whether the noncompliance constituted “misleading half-truths” without specific representations and concluded there were not enough relevant facts to sustain a fraud claim.

Materiality. In Escobar, the Supreme Court held materiality requires more than “minor or insubstantial” noncompliance and lower courts should favor resolving materiality claims on a motion to dismiss. Here, the court ascertained the couples’ only support for the materiality of the noncompliance alleged is “mere say so.” Because they did not assert “a single instance” of HHS withholding payment because of a false meaningful use attestation, the court could not find any, let alone substantial, noncompliance.

Motion for leave to file second amended complaint. The remaining issue was whether the relators should be allowed to amend their complaint again after having failed to state a claim under the FCA. Rule 15(a) states courts should “freely give leave” to amend but also permits a court to deny leave if amending would be “futile” and not survive a motion to dismiss. Here, the couple sought leave to amend to add testimonial evidence in support of their claim the unsecured computers created a security risk. The court reaffirmed these issues are unrelated to a fraud claim and would not establish a false meaningful use attestation.

The court also questioned the veracity of the couple’s claims regarding the medical center’s patient privacy procedures. Many of the witnesses the relators interviewed reported the medical center had policies requiring employees to log off from their computers. One witness directly contradicted the couples’ claim there was no way to send encrypted emails, stating “all emails that contained electronic protected health information had to be encrypted.” Several others said the center had robust training on HIPAA and internal patient privacy procedures. Based on this evidence, the court determined granting the relators leave to amend their complaint would be futile.

The case is No. 17-cv-2699 (APM).

Judge: Mehta, A.

Attorneys: James Edward Miller (Miller Shah LLP) for Connie Manley. Benton Gregory Peterson, U.S. Attorney’s Office, for the U.S. Alice Stevens Fisher (Latham & Watkins LLP) for HCA Holdings, Inc. and Valley Regional Medical Center.

Companies: HCA Holdings, Inc.; Valley Regional Medical Center

Cases: Whistleblowers Privacy Procedure DistrictofColumbiaNews