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Godecke v. Kinetic Concepts, Inc., ___ F.3d ___, No. 18-55246 (9th Cir. Sept. 6, 2019)

False Claims Act complaint based on improper Medicare billing codes adequately pleaded falsity, scienter, and materiality.

Geraldine Godecke worked as the Director of Medicare Cash and Collections at Kinetic Concepts, Inc. (KCI), a company that manufactures vacuum-assisted wound closure equipment. To receive payment from Medicare, KCI must obtain a physician’s written order before delivering equipment to a patient. After KCI fired her, Godecke (as a relator) filed a whistleblower suit under the federal False Claims Act. She alleged that KCI submitted claims to Medicare for equipment delivered to patients before it received a physician order, using billing codes incorrectly indicating that all reimbursement requirements were met. The district court granted KCI’s motion to dismiss, ruling that Godecke did not plausibly allege that KCI submitted claims with improper billing codes, or acted with scienter.

The Ninth Circuit reversed, holding that Godecke’s complaint adequately alleged False Claims Act violations. The Court explained that a relator is not required to identify specific examples of false claims, but need only allege details of a scheme to submit false claims paired with reliable indicia that leads to a strong inference that false claims were actually submitted. Here, Godecke’s complaint adequately alleged that KCI knowingly implemented a scheme to submit improperly coded claims that masked the fact that payment requirements were lacking. Finally, the Court considered KCI’s alternative argument for affirmance that the alleged false claims were immaterial. Applying Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016), the Court held that Godecke had plausibly alleged materiality by pleading that the prior written order requirement had resulted from extensive negotiations between KCI and Medicare representatives, and that Medicare would not have paid if it had known there were no prior written orders.

The bulletin describing the Ninth Circuit’s decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, Horvitz & Levy LLP, and is republished with permission. For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.

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