Christine Martino-Fleming v. South Bay Mental Health Centers

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

___________________________________

)

UNITED STATES OF AMERICA ex rel. )

CHRISTINE MARTINO-FLEMING, Relator )

) Civil Action

Plaintiffs, ) No. 15-13065-PBS

)

v. )

)

SOUTH BAY MENTAL HEALTH CENTER, )

INC.; COMMUNITY INTERVENTION )

SERVICES, INC.; H.I.G. GROWTH )

PARTNERS, LLC; H.I.G. CAPITAL, )

LLC; PETER J. SCANLON; AND )

KEVIN P. SHEEHAN )

)

Defendants. )

_________________________________ )

MEMORANDUM AND ORDER

September 21, 2018

Saris, C.J.

INTRODUCTION

Relator Christine Martino-Fleming brings this action under

the federal False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq.,

against South Bay Mental Health Center, Inc. (“South Bay”), and

its owners and operators. She alleges that South Bay routinely

submitted bills for the mental-health services of unlicensed,

unqualified, and unsupervised employees to MassHealth, the

Massachusetts Medicaid program, and its contractors. The

Defendants are South Bay; H.I.G. Growth Partners, LLC (“H.I.G.

Growth”), and H.I.G. Capital, LLC (“H.I.G. Capital”)

(collectively, “H.I.G. Defendants”); Community Intervention

Services, Inc. (“C.I.S.”); Peter J. Scanlon; and Kevin P.

Sheehan.

Relator’s Complaint asserts counts under both the FCA and

its Massachusetts counterpart. The Commonwealth subsequently

intervened and filed a 27-count Complaint-in-Intervention. The

United States elected not to intervene. Defendants have filed

motions to dismiss both complaints under Rule 12(b)(6) and Rule

9(b) of the Federal Rules of Civil Procedure.

Because the Commonwealth has intervened, its Complaint-in-

Intervention supersedes the Relator’s Complaint with respect to

the state-law claims. The motions to dismiss regarding those

claims are discussed in a separate opinion, with which the Court

assumes familiarity. This memorandum addresses the Relator’s

three federal-law counts that remain at issue: False Claims, 31

U.S.C. § 3729(a)(1)(A) (Count 1); False Statements Material to

False Claims, 31 U.S.C. § 3729(a)(1)(B) (Count 2); and Reverse

False Claims, 31 U.S.C. § 3729(a)(1)(G) (Count 3).

For the reasons stated below, the Court DENIES the motions

to dismiss Counts 1 and 2, and ALLOWS the motions to dismiss

Count 3.

FACTUAL BACKGROUND

The facts below are taken from the Relator’s 250-paragraph

Second Amended Complaint (“SAC”). Many are disputed.

I. MassHealth

The Massachusetts Medicaid program, known as MassHealth,

covers mental-health services. It is jointly financed by the

federal and state governments. The state has promulgated

regulations governing mental-health services provided by the

MassHealth program. See generally 130 Mass. Code Regs.

§§ 401.401-650.035. Among other things, MassHealth regulations

provide that unlicensed counselors must be under the “direct and

continuous supervision” of a licensed psychiatrist,

psychologist, independent clinical social worker, or psychiatric

nurse to provide mental health services. Id. § 429.424.

Most MassHealth beneficiaries enroll in managed care plans

such as a Managed Care Organization (“MCO”) plan or a Primary

Care Clinician (“PCC”) plan. People not enrolled in these plans

receive mental-health services on a fee-for-service basis. The

MCOs contract with MassHealth, and MassHealth pays for the

services. The MCOs manage the healthcare services and have their

own authorization requirements. Id. § 508.004(B)(3). The

Massachusetts Behavioral Health Program (“MBHP”) administers and

pays for mental-health services provided to MassHealth members

enrolled in a PCC plan and has its own terms as well. See id.

§ 450.124(A). MassHealth pays MBHP and the MCOs a fixed monthly

fee for each MassHealth member.

II. South Bay

South Bay is a mental-health center that offers services to

patients throughout the Commonwealth in its 17 satellite

clinics. It is a for-profit corporation established under the

laws of Massachusetts. It was founded in 1986 by Defendant Dr.

Peter Scanlon, who was its sole officer and director, and owned

all outstanding capital stock until April 2012.

South Bay employs therapists and other professionals who do

not meet the MassHealth licensing requirements or the

requirements of its contractors. Moreover, a vast majority of

unlicensed staff therapists at South Bay clinics had no

qualified supervisor, and many South Bay clinics did not have

qualified clinic directors. Despite these alleged violations of

state law and contractual requirements, South Bay was reimbursed

for services provided by unlicensed and improperly supervised

professionals. Claim submissions by these unlicensed and

improperly supervised professionals were false and fraudulent,

Relator alleges.

III. South Bay’s Acquisition by Private Equity Investors

In April 2012, after conducting due diligence, H.I.G.

Capital and H.I.G. Growth purchased South Bay through C.I.S.

H.I.G. Capital is a Delaware limited liability company described

as a “leading global private equity investment firm with $21

billion of equity capital under management.” H.I.G. Growth, also

a Delaware limited liability company, is a capital-investment

affiliate of H.I.G. Capital and is also a multi-billion dollar

private equity company. Sheehan, the Chief Executive Officer

(“CEO”) of C.I.S., had over 30 years of behavioral health

experience.

After the acquisition, the officers and members of the

Boards of Directors of South Bay and C.I.S. overlapped:

Name South Bay C.I.S. Other

Position(s) Position(s) Position(s)

Sheehan President, CEO, Director

Director

Scanlon Treasurer, Chief Clinical

Director Officer,

Director (until

2012)

Steven Loose Director Director Managing

Director of

H.I.G.

Growth;

Senior

Member of

H.I.G.

Capital

Nicolas Scola Director Clerk, Director Principal of

H.I.G.

Growth and

H.I.G.

Capital

Eric Tencer Director Director Principal of

H.I.G.

Growth and

H.I.G.

Capital

From April 2012 on, the Board members of C.I.S. were

“heavily involved in the operational decisions of South Bay,

including approving contracts, strategic planning, budgeting,

and earnings issues.”

IV. The Whistleblower

Relator Christine Martino-Fleming is a licensed mental-

health counselor. She was employed by South Bay from June 2008

until September 2013. Thereafter, she worked for C.I.S. from

September 2013 to September 2014. Initially a Job Coach at South

Bay, she became the Coordinator of Staff Development and

Training, and was responsible for keeping track of employee

turnover. In this role, Martino-Fleming learned that all South

Bay clinics were not compliant with the Massachusetts

regulations for mental-health centers because they had staff

therapists who were unqualified, unlicensed, and unsupervised.

Between 2009 and 2015, over 60 percent of regional directors,

over 80 percent of clinical directors, and over 75 percent of

supervisors across all South Bay facilities were not properly

licensed according to MassHealth regulations, and there was a

“systemic failure to hire qualified individuals.”

Beginning in 2012, Martino-Fleming informed Scanlon and

Sheehan, as well as other C.I.S. officers, that a significant

percentage of employees at South Bay “lacked the requisite

qualifications to see, diagnose or treat patients on their own,”

and that supervisors were also unqualified in violation of

MassHealth regulations and MBHP/MCO requirements. She brought

these issues to the Boards of C.I.S. and South Bay.

V. Tiger Teams

In 2013, Scola (a principal of the H.I.G. Defendants and

senior member of H.I.G. Capital) began to examine the employee

retention issue at South Bay.1 Relator told him that South Bay’s

clinicians lacked the licensure and educational background

required by MassHealth regulations, and that they were not being

appropriately supervised. Accordingly, Scola was told none of

the billing for their services was appropriate.

As a result of these concerns, “Tiger Teams” were tasked

with investigating the cause of employee turnover and

deficiencies in the supervision of licensed clinicians at South

Bay. According to Relator, a Tiger Team was a “team of

specialists in a particular field brought together to work on

specific tasks.” These teams discovered that employees with only

associate’s degrees were diagnosing and treating patients

without supervision. They also found that clinicians sent their

notes to other sites to be signed by licensed supervisors, but

did not receive the direct and continuous supervision as

necessary. The investigation concluded that the “lack of

1 The employee retention issue is described in more detail in the

Court’s memorandum on the Commonwealth’s Complaint.

appropriate qualifications and independent licensure of

Supervisors, a lack of supervision of staff therapists, and a

lack of properly credentialed clinicians” were all leading to

high employee turnover.

The Tiger Teams recommended to the C.I.S. Board that South

Bay hire a “substantial” number of qualified supervisors “in

accordance with the legal requirements of MassHealth and its

administrative companies” to oversee the clinicians. The C.I.S.

Board rejected the recommendation of the Tiger Teams. Sheehan

and the C.I.S. Board thought the Tiger Teams were an “enormous

waste of time.”

LEGAL FRAMEWORK

“In alleging fraud or mistake, a party must state with

particularity the circumstances constituting fraud or mistake.”

Fed. R. Civ. P. 9(b). Allegations that a defendant violated the

federal False Claims Act (“FCA”) must meet this “particularity”

requirement. See D'Agostino v. ev3, Inc., 845 F.3d 1, 10 (1st

Cir. 2016).

“Rule 9(b) requires a relator to allege with particularity

the who, what, when, where, and how of the fraud.” D’Agostino,

845 F.3d at 10 (citing United States ex rel. Ge v. Takeda Pharm.

Co., 737 F.3d 116, 123 (1st Cir. 2013)). There is no “‘checklist

of mandatory requirements’ that each allegation in a complaint

must meet to satisfy Rule 9(b),” but

details concerning the dates of the claims, the

content of the forms or bills submitted, their

identification numbers, the amount of money charged to

the government, the particular goods or services for

which the government was billed, the individuals

involved in the billing, and the length of time

between the alleged fraudulent practices and the

submission of claims based on those practices are the

types of information that may help a relator to state

his or her claims with particularity.

Lawton ex rel. United States v. Takeda Pharm. Co., 842 F.3d 125,

131 (1st Cir. 2016) (quoting United States ex rel. Karvelas v.

Melrose-Wakefield Hosp., 360 F.3d 220, 233 (1st Cir. 2004)).

“[A]llegations limited to describing the defendant’s scheme and

intent are insufficient.” D’Agostino, 845 F.3d at 10. “Although

some questions [may] remain unanswered, the complaint as a whole

[must be] sufficiently particular to pass muster under the FCA.”

United States ex rel. Gagne v. City of Worcester, 565 F.3d 40,

45 (1st Cir. 2009) (quoting United States ex rel. Rost v.

Pfizer, Inc., 507 F.3d 720, 732 (1st Cir. 2007)).

The First Circuit has applied a “more flexible” Rule 9(b)

standard in certain cases where a defendant is alleged to have

induced third parties to file false claims. See United States ex

rel. Allen v. Alere Home Monitoring, Inc., Civ. No. 16-11372-

PBS, 2018 WL 4119667, at *6 (D. Mass. Aug. 29, 2018) (and cases

cited). This line of cases holds that Rule 9(b) may be satisfied

where reliable indicia, such as factual or statistical evidence,

“strengthen the inference of fraud beyond possibility” even

without details as to each false claim. Id.

In any event, “[b]ecause FCA liability attaches only to

false claims merely alleging facts related to a defendant’s

alleged misconduct is not enough.” Takeda Pharm. Co., 737 F.3d

at 124 (emphasis in original) (internal citation omitted).

“Thus, the allegations must also establish that the fraudulent

conduct actually caused the submission of false claims to the

government for payment.” D’Agostino, 845 F.3d at 10 (citing

Takeda Pharm. Co., 737 F.3d at 124).

DISCUSSION

I. False Claims and False Statements (Counts 1 and 2)

In Count 1, Relator alleges that all Defendants knowingly,

or in deliberate ignorance or reckless disregard for the truth,

caused false claims to be presented to the United States for

payment from MassHealth, MBHP, and MCOs in violation of 31

U.S.C. § 3729(a)(1)(A). The claims were allegedly false in

material ways because Defendants misrepresented compliance with

the MassHealth regulations concerning the supervision and

qualifications of clinicians. In Count 2, Relator alleges that

Defendants knowingly made false statements about the

qualifications of individual practitioners in violation of 31

U.S.C. § 3729(a)(1)(B). The Relator does not assert an alter ego

or veil piercing theory; rather, her argument hinges on direct

liability.

A. Causation

Defendants argue that Relator does not articulate how any

of them directly caused South Bay to submit false claims. Their

primary argument is that the alleged failure to stop South Bay’s

policy and practice of submitting false claims for services by

unqualified and unsupervised clinicians is insufficient to

impose FCA liability on H.I.G. and C.I.S. They argue that the

FCA requires “affirmative” steps to “cause” the submission of

claims in order to impose liability.

The FCA, in relevant part, creates liability for

anyone who

(A) knowingly presents, or causes to be presented, a

false or fraudulent claim for payment or

approval; [or who]

(B) knowingly makes, uses, or causes to be made or

used, a false record or statement material to a

false or fraudulent claim.

31 U.S.C. § 3729(a)(1). No intent to defraud is required by the

statute. Id. § 3729(b)(1) (“[T]he terms ‘knowing’ and

‘knowingly’ . . . require no proof of specific intent to

defraud.”); Universal Health Servs., Inc. v. United States ex

rel. Escobar, 136 S. Ct. 1989, 1999 n.2 (2016).

The purpose of the FCA is “to reach any person who

knowingly assisted in causing the government to pay claims which

were grounded in fraud, without regard to whether that person

had direct contractual relations with the government.” United

States ex rel. Marcus v. Hess, 317 U.S. 537, 544-45 (1943),

superseded by statute on other grounds as recognized in

Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S.

401, 412 (2011).

“Generally, mere knowledge of the submission of claims and

knowledge of the falsity of those claims is insufficient to

establish ‘causation’ under the FCA.” United States v. President

and Fellows of Harvard Coll., 323 F. Supp. 2d 151, 186 (D. Mass.

2004). “To ‘cause’ the presentation of false claims under the

FCA, some degree of participation in the claims process is

required.” Id. at 186-87. However, the FCA does not always

require an “affirmative act” to impose liability. For example,

“a defendant may be liable if it operates under a policy that

causes others to present false claims.” Id. at 187. Moreover,

[w]here the defendant has an ongoing business

relationship with a repeated false claimant, and the

defendant knows of the false claims, yet does not cease

doing business with the claimant or disclose the false

claims to the United States, the defendant’s ostrich-

like behavior itself becomes “a course of conduct that

allowed fraudulent claims to be presented to the federal

government.”

Id. (quoting United States ex rel. Long v. SCS Bus. & Tech.

Inst., 999 F.Supp. 78, 91 (D.D.C. 1998)). A defendant may be

liable where the submission of false claims by another entity

was the foreseeable result of a business practice. See, e.g.,

United States ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d

39, 52 (D. Mass. 2001).

Here, the Relator alleges that she and the Tiger Teams

expressly informed the CEO and Boards of C.I.S. and South Bay

that the supervision of clinical workers violated state

regulations and recommended that a substantial number of

licensed supervisors be hired to fix the problem, and that the

recommendation was rejected. The allegation that C.I.S. and

Sheehan, the CEO, knowingly ratified the prior policy of

submitting false claims by rejecting recommendations to bring

South Bay into regulatory compliance constitutes sufficient

participation in the claims process to trigger FCA liability.

Because it is alleged that H.I.G. members and principals

formed a majority of the C.I.S. and South Bay Boards, and were

directly involved in the operations of South Bay, the motion to

dismiss the H.I.G. entities is also denied. A parent may be

liable for the submission of false claims by a subsidiary where

the parent had direct involvement in the claims process. See,

e.g., United States ex rel. Hockett v. Columbia/HCA Healthcare

Corp., 498 F. Supp. 2d 25, 62-63 (D.D.C. 2007) (pointing out the

“frequency and level of detail” of communication between

subsidiary and corporate officials as well as the parent’s

involvement in fraudulent activity); cf. United States v.

Bestfoods, 524 U.S. 51, 68 (1998) (holding, under different

statute, that parent company may be liable when it operates a

facility, as evidenced by parent’s participation in the

activities of the facility).

Finally, because of Scanlon’s role at South Bay as the sole

owner and person primarily responsible for ensuring compliance

with MassHealth regulations, Relator plausibly alleges Scanlon

had sufficient participation in submission of the false claims

to be liable under the FCA.

B. Materiality

Next, Defendants argue that the Complaint fails to allege

that the violations of the state regulations were material or

that they knew about the materiality. This argument is

unpersuasive. For the reasons stated in the Court’s memorandum

regarding the Commonwealth’s Complaint-in-Intervention, the

Court concludes that the Relator adequately alleges that the

violations of the MassHealth regulations are indeed material,

and that each defendant knew about, or was deliberately ignorant

of, those violations.

The Court addresses separately the claims submitted to the

MCOs and MBHP. Defendants argue that Relator has not

sufficiently pleaded that violations of the MassHealth

regulations were material to payment decisions made by the MCOs

and MBHP, which have their own supervision and credentialing

criteria. This argument is without merit because Plaintiffs have

alleged that MBHP and the MCOs would deny payment had they known

of South Bay’s failure to comply with MassHealth regulations.

However, Defendants also argue that Relator fails to allege

with particularity which requirements South Bay failed to meet

under the different contracts of each MCO and MBHP. The Court

agrees. Although these contractual criteria are mentioned in

multiple places throughout the SAC, Relator does not appear to

base Counts 1 or 2 on breaches of these separate requirements,

nor does she allege that the violations of these contractual

provisions are material to the extent they are different from

the state regulations. Thus, the motion to dismiss is allowed

insofar as it is based on the MCO or MBHP criteria.

II. Reverse False Claims (Count 3)

Relator alleges that Defendants knowingly concealed,

avoided, or decreased an obligation to pay money to the United

States. The theory is that South Bay’s failure to return the

overpayments once it was aware of the regulatory violations

constitutes a reverse false claim, and that Scanlon, Sheehan,

C.I.S., and H.I.G. are liable under the reverse false claims

provision because they were “aware of the overpayments and

responsible to report them, but failed to do so.” Relator states

that this is only an alternative theory of liability. Perhaps

for this reason, it is a poorly briefed and underdeveloped

claim.

The reverse false claims provision of the FCA imposes

liability in two scenarios. First, it applies when a person

“knowingly makes, uses, or causes to be made or used, a false

record or statement material to an obligation to pay or transmit

money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G).

Second, it applies when a person “knowingly conceals or

knowingly and improperly avoids or decreases an obligation to

pay or transmit money or property to the Government.” Id.

Although the Complaint uses language from both scenarios, only

the second is meaningfully advanced.

By statute, an “obligation” is “an established duty,

whether fixed or not, arising from . . . the retention of any

overpayment.” 31 U.S.C. § 3729(b)(3). As relevant to this case,

the term “overpayment” means “any funds that a person receives

or retains under [Medicare or Medicaid] to which the person,

after applicable reconciliation, is not entitled.” 42 U.S.C.

§ 1320a-7k(d)(4)(B). Moreover, if a person –- which includes a

“provider of services, supplier, [or] medicaid managed care

organization” -- has received an overpayment, the person must

“report and return the overpayment” to the government. 42 U.S.C.

§ 1320a-7k(d)(1)(A), (d)(4)(C)(i).

Relator’s Complaint fails to adequately allege that any of

the Defendants incurred an “obligation” within this statutory

framework. As a general matter, “to retain -- to not return --

an overpayment constitutes a violation of the FCA.” Kane ex rel.

United States v. Healthfirst, Inc., 120 F. Supp. 3d 370, 394

(S.D.N.Y. 2015). But “there is no liability for obligations to

pay that are merely potential or contingent.” United States ex

rel. Barrick v. Parker-Migliorini Int’l, LLC, 878 F.3d 1224,

1231 (10th Cir. 2017), petition for cert. filed, No. 17-1509

(U.S. May 7, 2018). Indeed, the Senate specifically struck

“contingent” duties from the proposed statutory language. 1 John

T. Boese, Civil False Claims and Qui Tam Actions § 2.01[L], at

2-84 (4th ed. Supp. 2018). Nor can reverse-FCA liability be

premised solely on the same conduct that gives rise to

traditional presentment or false-statement claims. See Pencheng

Si v. Laogai Research Found., 71 F. Supp. 3d 73, 97 (D.D.C.

2014); accord Boese, Civil False Claims and Qui Tam Actions §

2.01[L] at 2-83 (“[R]everse false claim liability cannot be

premised solely on the conduct that creates the obligation.”).

Under these principles, South Bay cannot be liable for a

reverse false claim because Relator does not adequately allege

that South Bay took any action independent of the main FCA

theories already discussed. Because South Bay’s conduct forms

the foundation for the reverse-FCA theory against the other

Defendants, Relator’s reverse-FCA claims against them fail as

well. That is, Relator has not adequately explained how any of

the other Defendants had an “established” -- as opposed to a

potential or contingent – “obligation” to repay funds to the

government. In this case, an “overpayment” only exists where the

recipient, “after applicable reconciliation, is not entitled” to

the disputed funds. 42 U.S.C. § 1320a-7k(d)(4)(B). Here, there

is no allegation that any such “reconciliation” occurred, nor is

it clear what that would look like given that the parties’

entitlement vel non to Medicaid reimbursements is the subject of

this very litigation.

With respect to Scanlon and Sheehan, Relator also has not

plausibly alleged that they “knowingly” or “improperly”

concealed or avoided any overpayments. See Boese, Civil False

Claims and Qui Tam Actions § 2.01[L] at 2-83 (noting that

“improperly” denotes “either improper motive or inherently

improper means”).31 U.S.C. § 3729(a)(1)(G). Finally, with

respect to C.I.S. and the H.I.G. Defendants, it is not alleged

that these Defendants are “persons” as defined by statute

because they are not a “provider of services, supplier, or

managed care organization.” Accordingly, the reverse-FCA count

is dismissed as to all Defendants.

III. Remaining Arguments (All Counts)

A. Particularity Under Rule 9(b)

Defendants also argue that the SAC is not pleaded with

sufficient particularity as required by Fed. R. Civ. P. 9(b).

This argument is rejected for the same reasons stated in the

memorandum addressing the Commonwealth’s Complaint-in-

Intervention.

B Supervision of Clinicians

Defendants argue the claims alleged are not false as a

matter of law because “an unlicensed clinician need not receive

clinical supervision from his or her administrative supervisor.”

Distinguishing between “administration supervision” and

“licensure supervision,” they contend that South Bay’s

unlicensed clinicians received adequate licensure supervision

(as opposed to administrative supervision), which in their view,

is sufficient under the regulations.

Relator cites two MassHealth regulations applicable to

supervision. First, all staff members must receive supervision

appropriate to the person’s skills and level of professional

development. See 130 Mass. Code Regs. § 429.438(E)(1)

(“Frequency and extent of supervision must conform to the

licensing standards of each discipline’s Board of

Registration.”). Second, 130 Mass. Code Regs. § 429.424 sets

forth the “Qualifications of Professional Staff Members

Authorized to Render Billable Mental Health Center Services by

Core Discipline.” It provides that “[a]ll unlicensed counselors

. . . must be under the direct and continuous supervision of a

fully qualified professional staff member trained in one of the

core disciplines” of psychiatry, social work, psychology, and

psychiatric nursing. Id. §§ 429.424(A)-(D), (F)(1).

Relator alleges that South Bay failed to provide both types

of supervision. She further alleges that files were effectively

rubber-stamped by so-called “licensed signatories,” who would

sign off on documents without meeting patients or counselors.

Moreover, she alleges that unlicensed, unqualified clinicians

did not receive any supervision whatsoever for the first 90

days. These allegations are sufficient to state a claim.

Defendants also argue that the SAC must be dismissed

because the regulations allow clinic directors to be “licensed,

certified, or registered to practice in one of the core

disciplines listed,” 130 Mass. Code Regs. § 429.423, and

although Relator alleges that they were unlicensed, she did not

specify whether they were also unregistered or uncertified. It

is true that the focus of Relator’s SAC is that the treating

professionals are unlicensed. However, she also alleges that

therapists “lacked the correct type of license, registration or

certification in one of the core disciplines” as required by the

regulations. Therefore, this argument is without merit.

C. Capitated Payments

Finally, Defendants argue that the claims involving MCOs

and MBHP fail because these government contractors are paid on a

capitated basis at a fixed rate per patient regardless of the

service offered. A “claim” is defined by statute to include

claims of payment of government funds made to government

contractors. See 31 U.S.C. § 3729(b)(2). Here, Relator alleges

that South Bay submitted false claims and made false statements

to Medicaid contractors who paid the bills with Medicaid funds

as a result. The fact that Medicaid did not suffer damages

because it paid a capitated rate does not negate liability

because liability attaches to the “claim for payment.” United

States v. United Healthcare Ins. Co., 848 F.3d 1161, 1173 (9th

Cir. 2016) (“Proof of damage to the government is not

required.”).

ORDER

The Court dismisses Count 3 (reverse false claims) as to

all Defendants. Counts 1 and 2 remain viable. Accordingly, the

motions to dismiss by South Bay (Dkt. No. 101), the H.I.G. and

C.I.S. Defendants (Dkt. No. 103), Sheehan (Dkt. No. 106), and

Scanlon (Dkt. No. 109) are ALLOWED IN PART and DENIED IN PART.

/s/ PATTI B. SARIS____________

Honorable Patti B. Saris

Chief U.S. District Judge