United States Ex Rel. Wilkins v. United Health Group, Inc.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______________

No. 10-2747

______________

UNITED STATES EX REL. CHARLES WILKINS;

DARYL WILLIS,

Appellants

v.

UNITED HEALTH GROUP, INCORPORATED;

AMERICHOICE;

AMERICHOICE OF NEW JERSEY, INC.

______________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civ. No. 1-08-cv-03425)

Honorable Robert B. Kugler, District Judge

______________

Argued March 24, 2011

BEFORE: FUENTES, SMITH, and GREENBERG,

Circuit Judges

(Filed: June 30, 2011)

______________

Ross Begelman, Esq. (argued)

Marc M. Orlow, Esq.

Begelman, Orlow & Melletz

411 Route 70 East, Suite 245

Cherry Hill, NJ 08034

Attorneys for appellants

Michael C. Theis, Esq. (argued)

Jaasi J. Munanka, Esq.

Hogan Lovells US

1200 Seventeenth Street, Suite 1500

Denver, CO 80202

William P. Deni, Jr., Esq.

Bruce A. Levy, Esq.

Ellen Lubensky, Esq.

Gibbons

One Gateway Center

Newark, NJ 07102-5310

Attorneys for appellees

Tony West , Esq.

Assistant Attorney General

Paul J. Fishman, Esq.

United States Attorney

2

Douglas N. Letter, Esq.

Teal Luthy Miller, Esq. (argued)

Attorneys, Appellate Staff

Civil Division, Room 7234

U.S. Department of Justice

950 Pennsylvania Ave., N.W.,

Washington, DC 20530-0001

Attorneys for amicus curiae United States

______________

OPINION OF THE COURT

______________

GREENBERG, Circuit Judge.

I. INTRODUCTION

This matter comes on before this Court on an appeal from

an order the District Court entered on May 13, 2010, granting

the motion of appellees United Health Group, AmeriChoice, and

AmeriChoice-New Jersey (collectively “appellees”) under

Federal Rule of Civil Procedure 12(b)(6) to dismiss Charles

Wilkins‟ and Daryl Willis‟ (collectively “appellants”) qui tam

action1 based on the False Claims Act (“FCA”), 31 U.S.C. §

1

Private individuals can bring qui tam actions on behalf of the

Government in exchange for their right to retain some portion of

any resulting damages award. See Schindler Elevator Corp. v.

U.S. ex rel. Kirk, 131 S.Ct. 1885, 1889 (2011); Vt. Agency of

3

3729, for failure to state a claim on which relief may be granted.

Appellants have alleged that appellees, through their

participation in federally funded health insurance programs,

certified that they were in compliance with all healthcare laws

and regulations even though they knowingly violated several

Medicare marketing regulations, resulting in their submission of

false claims for payment to the federal government. Appellants

further alleged that AmeriChoice-NJ violated the FCA by

illegally providing kickbacks in violation of the Medicare Anti-

Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b, to a New

Jersey medical clinic to induce the clinic to switch its patients to

AmeriChoice-NJ‟s Medicare and Medicaid programs.

Moreover, appellants have alleged that AmeriChoice-NJ agents

violated the AKS by enticing doctors to provide the names of

patients eligible for Medicare and Medicaid programs. Thus,

this action involves two distinct types of claims with which we

will deal separately.

In addition to involving two distinct types of claims, the

action implicates the two medical programs to which we already

have referred, Medicare, a federally subsidized health insurance

program for the elderly and certain disabled persons, see 42

U.S.C. § 1395c and d, and Medicaid, a cooperative federal-state

public assistance program pursuant to which the federal

government makes matching funds available to pay for certain

medical services furnished to needy individuals, see 42 U.S.C. §

1396. Some elderly poor are “dual eligible” under both

Natural Res. v. U.S. ex rel. Stevens, 529 U.S. 765, 769-70, 120

S.Ct. 1858, 1860-61 (2000).

4

programs.2 Though appellants mention both programs in their

complaint, this case is essentially a Medicare case arising, as the

District Court indicated at the outset of its opinion, “out of

alleged fraudulent claims to Medicare.” United States ex rel.

Wilkins v. United Health Group, Inc., Civ. No. 08-3425, 2010

U.S. Dist. LEXIS 47080, at *1 (D.N.J. May 13, 2010)

(“Wilkins”).

The District Court held that appellants‟ allegations failed

to state a plausible claim for relief under the FCA for two

reasons: (1) appellants failed to identify a single false claim that

appellees submitted to the Government, and (2) the marketing

regulations that appellants claimed appellees violated were not

relevant to the Government‟s decision to pay appellees‟

Medicare claims. In addition, the Court dismissed appellants‟

AKS claims because they did not include an allegation that

appellees certified that they were in compliance with the AKS or

that such compliance was a relevant consideration when the

Government processed their Medicare claims. Inasmuch as we

agree with the Court‟s disposition of appellants‟ Medicare

marketing regulations claims but disagree with its holding with

respect to appellants‟ AKS claims, we partially will affirm and

2

Appellants state in their brief that dual eligible individuals

receive their prescription drug coverage from Medicaid, but

amicus curiae United States seems to describe Medicaid‟s

responsibility more broadly with respect to dual eligible

individuals. We are not concerned, however, with the division

between Medicare and Medicaid of responsibility for benefits

for dual eligible individuals on this appeal and thus will not

address that point.

5

partially will reverse the Court‟s May 13, 2010 order and we

will remand the case to the District Court for further

proceedings.

II. FACTS AND PROCEDURAL HISTORY

In view of the procedural posture of this case, we set

forth the facts as appellants have alleged them, and decide the

appeal on the basis of those allegations and, in doing so, will

construe the complaint in the light most favorable to appellants.

See Lexington Nat. Ins. Corp. v. Ranger Ins. Co., 326 F.3d 416,

417 (3d Cir. 2003).

United Health provides access to health care services and

resources and AmeriChoice and AmeriChoice-NJ are United

Health subsidiaries offering Medicare Advantage (“MA”)

plans.3 Under MA plans, AmeriChoice and AmeriChoice-NJ

provide individuals enrolled in Medicare with health care

3

Medicare Advantage, otherwise known as Medicare “Part C,”

authorizes qualified individuals to opt out of traditional fee-for-

service coverage under Medicare Parts A and B and enroll in

privately-run managed care plans that provide coverage for both

inpatient and outpatient services. 42 U.S.C. §§ 1395w-21,

1395w-28. United Health also offers qualified individuals

coverage under Medicare Part D which is a voluntary

prescription drug benefit program. See 42 U.S.C. § 1395w-101

et seq.

6

services and submit claims to the Government for

reimbursement based on the number of patients enrolled in their

Medicare programs.4 Organizations which provide services

under Medicare do so pursuant to contracts with the Centers for

Medicare and Medicaid Services (“CMS”), a division of the

Department of Health and Human Services charged with

administering the Medicare and Medicaid programs. See 42

C.F.R. § 422.503(a). Each month, as participants offering MA

plans, appellees certify to CMS that they continue to comply

with all of the CMS MA guidelines including MA marketing

regulations and the AKS.

Wilkins and Willis began employment with United

Health Group and AmeriChoice in 2007, Willis as a general

manager for Medicare/Medicaid marketing and sales and

Wilkins as a sales representative. In April 2008, United Health

terminated Wilkins‟ employment in reaction to his complaints

concerning what he perceived were United Health‟s illegal

practices which are the basis for this action. Similarly, at some

point during 2008, United Health, after demoting Willis for his

conduct in making complaints to his supervisors about what he

perceived were United Health‟s illegal practices, went further

4

The Government pays MA plan participants a set amount of

money based on the plans‟ enrollees‟ risk factors and other

characteristics rather than paying them a fee for specific services

performed. See 42 C.F.R. §§ 422.300 et seq. CMS makes

advance monthly payments to participants calculated on the

number of enrollees, adjusted to reflect risk and variations in

rates within the plan‟s service area. See 42 C.F.R. §§ 422.304,

423.315.

7

and terminated his employment.

On July 10, 2008, appellants filed this qui tam action

under seal in the District Court alleging that appellees‟ sales

representatives violated the FCA by offering physicians illegal

kickbacks and violating MA marketing rules while accepting

payments from government funded health insurance programs.

Specifically, appellants alleged that: (1) United Health used

marketing flyers that CMS did not approve beforehand; (2) its

licensed sales agents engaged in marketing activities in the

waiting rooms of clinics and doctors‟ offices; (3) non-licensed

individuals engaged in marketing activities; (4) United Health

commonly used an excessive number of sales representatives at

presentations in an attempt to “overwhelm the public;” (5) sales

representatives asked persons to raise their hands at

presentations if they were eligible for both Medicare and

Medicaid; (6) marketing personnel chased people in

supermarkets to ask them whether they were dual eligible; (7)

United Health used brokers to engage in door-to-door

solicitation; (8) United Health sales agents gave out prizes at

Medicare presentations in excess of $15 in value contrary to

CMS guidelines; (9) AmeriChoice‟s sales representatives paid

$27,000 to a medical clinic, Reliance Medical Group, to switch

certain eligible beneficiaries to its Medicare and Medicaid plans;

(10) United Health‟s sales representatives offered payments to

physicians in exchange for the physicians providing appellees

with the names of potential new enrollees eligible for Medicare

and Medicaid; (11) United Health failed to maintain and

8

implement a compliance program.5 App. at 39-46.

After appellants filed this action the Government

investigated their claims, and, during the investigation, in

accordance with the FCA‟s requirements the case remained

under seal. On May 26, 2009, after the Government finished its

investigation, it notified the parties that it would not intervene in

the case. See 31 U.S.C. § 3730(b)(4)(B).6 On August 5, 2009,

appellants filed an amended complaint which pleaded an FCA

claim predicated on the allegations we discuss above and nine

claims based on violations of state law.7 Notwithstanding the

seeming specificity of appellants‟ complaint, they do not

identify any specific claim for payment that United Health made

5

Even though this last claim appears to be separate from

appellants‟ claims based on marketing violations and illegal

kickback payments, appellants do not make any separate

arguments based on appellees‟ failure to maintain a compliance

program.

6

The Government did not move to dismiss the action, as it could

have done under 31 U.S.C. § 3730(c)(2)(A).

7

The state law claims alleged that appellees‟ actions violated

state false claims act provisions of New Jersey, Florida, Indiana,

Michigan, Tennessee, Texas, and New York law. In addition,

Wilkins and Willis individually alleged that appellees violated

the New Jersey Conscientious Employee Protection Act, N.J.

Stat. Ann. § 34:19-1 et seq. (West 2000). These state law

allegations are not at issue in this appeal.

9

to the federal Government in violation of the FCA. The

complaint, however, does allege that CMS makes advanced

monthly payments to United Health for each enrollee in its plans

and that United Health certifies each month its “continued

compliance with all of the CMS [Medicare Advantage]

Guidelines and based on such certification, United Defendants

continues [sic] to receive the monthly capitation payment.” Am.

Compl. at 10.8 Thus appellants contend that appellees, by

submitting claims for payment to CMS while failing to comply

with the Medicare laws and regulations, including the AKS,

presented false claims to the Government in violation of the

FCA.

After the Government declined to intervene, appellees

moved to dismiss the complaint under Federal Rule of Civil

Procedure 12(b)(6) for failure to state a claim upon which relief

could be granted and Federal Rule of Civil Procedure 9(b) for

failure to plead fraud with particularity.9 The District Court

granted appellees‟ motion for failure to state a claim and

therefore did not address appellees‟ alternative argument for

dismissal that appellants failed to plead their claims with the

8

The parties have included the original complaint but not the

amended complaint in their joint appendix. We, however, have

examined both versions of the complaint, and have considered

both in our disposition of this appeal.

9

We have held that plaintiffs must plead FCA claims with

particularity in accordance with Rule 9(b). See U.S. ex rel.

LaCorte v. SmithKline Beecham Clinical Labs., 149 F.3d 227,

234 (3d Cir. 1998).

10

particularity that Rule 9(b) requires. The Court dismissed the

complaint because appellants did not identify “even a single

claim for payment to the Government.” Wilkins, 2010 U.S.

Dist. LEXIS 47080, at *13. Moreover, the Court held that

United Health‟s failure to comply with marketing guidelines and

regulations that were not relevant to the Government‟s decision

to issue payment could not be the basis for a recovery for an

FCA violation. The Court also rejected appellants‟ FCA claims

that they based on violations of the AKS, finding that appellants

failed to allege that United Health certified compliance with the

AKS and also failed to allege that the Government predicated its

funding decisions on such a certification. Finally, the Court

declined to exercise supplemental jurisdiction over appellants‟

state law claims and denied appellants‟ request for leave to

amend the complaint.

Appellants filed a timely notice of appeal from the

District Court‟s May 13, 2010 order, challenging the Court‟s

decision granting appellees‟ motion to dismiss and arguing that,

in any event, when the Court determined that it would dismiss

the complaint it should have done so without prejudice and/or

allowed appellants to amend their complaint. The Government,

though declining to intervene in the District Court and

expressing no opinion on the merits of appellants‟ claims, has

filed an amicus curiae brief urging us to reverse the District

Court‟s order to the extent that the Court concluded that an FCA

claim cannot survive if the plaintiff does not identify a specific

false claim that a defendant submitted for payment and that

appellants‟ kickback allegations did not state a claim for relief

under the FCA.

11

III. JURISDICTION AND STANDARD OF REVIEW

The District Court had jurisdiction over appellants‟ FCA

claims under 31 U.S.C. § 3732(a) and 28 U.S.C. § 1331 and

supplemental jurisdiction over appellants‟ state law claims under

28 U.S.C. § 1367. We have jurisdiction to review the District

Court‟s final order under 28 U.S.C. § 1291.

We exercise plenary review of the District Court‟s order

granting appellees‟ motion to dismiss for failure to state a claim.

See Allen ex rel. Martin v. LaSalle Bank, N.A., 629 F.3d 364,

367 (3d Cir. 2011). As we have indicated, we accept all factual

allegations in the complaint as true, construe the complaint in

the light most favorable to appellants, and determine whether,

under any reasonable reading of the amended complaint,

appellants may be entitled to relief. Id. In this determination

“[t]he issue is not whether [appellants] will ultimately prevail

but whether [they are] entitled to offer evidence to support the

claims.” See Maio v. Aetna, Inc., 221 F.3d 472, 482 (3d Cir.

2000) (citations and internal quotation marks omitted). We

review the District Court‟s decisions to dismiss the complaint

with prejudice and deny appellants‟ request for leave to amend

their complaint for an abuse of discretion. See In re NAHC, Inc.

Sec. Litig., 306 F.3d 1314, 1332 (3d Cir. 2002); Lake v. Arnold,

232 F.3d 360, 373 (3d Cir. 2000).

IV. DISCUSSION

A. The Record on Appeal

12

Before we discuss the merits of appellants‟ claims we

address a dispute between the parties concerning whether we

should consider certain exhibits that appellants have included in

the appendix. Though ordinarily the parties on an appeal do not

have a dispute over what documents should be in the record, in

this case we address this question because appellants have

included two documents in the joint appendix, without our

leave, that neither party filed in the District Court and that the

Court therefore did not consider, i.e., the February 13, 2008

testimony of Kerry Weems, Acting Administrator for CMS,

before the Senate Finance Committee on “Selling to Seniors:

The Need for Accountability and Oversight of Marketing by

Medicare Private Plans, Part 2” and a December 2009 report the

United States Government Accountability Office authored on

Medicare marketing. See addendum to app. at 1-58. Appellants

contend that we should consider these materials as they are a

matter of “public record” which “are inextricably intertwined

and connected to items that are part of the record . . . .”

Appellant‟s br. at 12-13.

Though we do not doubt the authenticity of these

documents, nevertheless we will not consider them because the

parties did not present them to the District Court and we do not

find any indication in the record that the Court considered them

on its own initiative. See Fed. R. App. P. 10(a) (stating that

record on appeal is composed of original papers and exhibits

filed in district court, transcript of proceedings, if any, and a

certified copy of docket entries prepared by district court clerk);

Fed. R. App. P. 30 (limiting contents of a party‟s appendix to

record before district court). While we recognize that there

might be “exceptional circumstances” which could justify our

13

consideration of these materials even though they were not

presented to the District Court, we discern no such

circumstances on the appeal. See Acumed LLC v. Advanced

Surgical Servs., Inc., 561 F.3d 199, 226 (3d Cir. 2009).

We recognize that appellants argue that we should take

judicial notice of the two documents as they are part of the

“public record.” Appellant‟s reply br. at 2. Although a court of

appeals may take judicial notice of a matter of public record not

presented to the district court when reviewing the disposition of

a motion to dismiss under Rule 12(b)(6), see, e.g., Papasan v.

Allain, 478 U.S. 265, 268 n.1, 106 S.Ct. 2932, 2935 n.1 (1986),

we think that ordinarily a court of appeals should not take

judicial notice of documents on an appeal which were available

before the district court decided the case but nevertheless were

not tendered to that court, the precise situation here.10 See Zell

v. Jacoby-Bender, Inc., 542 F.2d 34, 38 (7th Cir. 1976) (refusing

to take judicial notice of documents filed in companion case to

undermine trial court‟s findings where to do so would violate

rule that appellate court must consider only record before trial

court). Therefore, we will make our analysis by considering

only the record that the parties made in the District Court for

that Court‟s consideration of appellees‟ motion to dismiss.11

10

Weems testified before appellants filed this action and the

Accountability Office submitted the December 2009 report after

appellants filed the action but before the District Court decided

the case.

11

We add, however, that even if we expanded the record to

14

B. The False Claims Act

1. FERA Amendments

At this early point in our discussion we consider a recent

amendment to the FCA. On May 20, 2009, Congress enacted

the Fraud Enforcement and Recovery Act of 2009 (FERA), Pub.

L. No. 111-21, 123 Stat. 1617 (2009), which amended the FCA

and re-designated 31 U.S.C. § 3729(a)(1) as 31 U.S.C. §

3729(a)(1)(A) and 31 U.S.C. § 3729(a)(2) as 31 U.S.C. §

3729(a)(1)(B). The pre-FERA version of the FCA, imposed

liability on:

[A]ny person who—

(1) knowingly presents, or causes to be presented,

to an officer or employee of the United States

Government or a member of the Armed Forces of

the United States a false or fraudulent claim for

payment or approval;

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

or used, a false record or statement to get a false

or fraudulent claim paid or approved by the

Government.

31 U.S.C. § 3729(a)(1)-(2).

include the two documents our result on this appeal would not

be different.

15

The FCA as FERA has amended it, now imposes liability

on:

[A]ny person who—

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

a false or fraudulent claim for payment or

approval;

(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).

The FCA defines “material” as “having a natural

tendency to influence, or be capable of influencing, the payment

or receipt of money or property.” 31 U.S.C. § 3729(b)(4). For

purposes of this case both versions of the FCA define a claim in

pertinent part as a “request or demand . . . for money or property

that . . . is presented to an officer, employee, or agent of the

United States . . . .” 31 U.S.C. § 3729(c) (pre-FERA); 31 U.S.C.

§ 3729(b)(2)(A)(i) (post-FERA). FERA contains a retroactivity

provision which applies only to section 3729(a)(1)(B), and

provides that that clause “take[s] effect as if enacted on June 7,

2008, and appl[ies] to all claims under [the FCA] that are

pending on or after that date.”12 Pub. L. No. 111-21 § 4(f)(1),

12

Congress adopted the term “material to,” as well as the

retroactivity provision, in response to the Supreme Court‟s June

9, 2008 decision in Allison Engine Co. v. U.S. ex rel. Sanders,

16

123 Stat. at 1625.

Though appellants filed their complaint on July 10, 2008,

and their amended complaint on August 5, 2009, they cited to

the pre-FERA version of the FCA in both their original and

amended complaints. Nevertheless, appellants argued in the

District Court that the addition of “material to” in section

3729(a)(1)(B) made it easier to state a claim under the FCA

inasmuch as, under the amended version of the FCA, a relator

only need show that compliance with the applicable regulations

which the defendant allegedly violated would have a tendency to

influence the Government‟s payment decision. The Court,

though assuming that the amendment applied in this case, held

that Congress‟ addition of a materiality requirement did not

change the meaning of the FCA. Appellants do not contend that

the Court erred in this conclusion but they do argue that the

553 U.S. 662, 128 S.Ct. 2123 (2008), which Congress viewed

the Court as having decided incorrectly. See S. Rep. No. 111-

10, at 11 (2009), reprinted in 2009 U.S.C.C.A.N. 430, 437-39

(“To correct the Allison Engine decision . . . in section

3729(a)(2) the words „to get‟ were removed striking the

language the Supreme Court found created an intent requirement

for false claims liability under that section. In place of this

language, the Committee inserted the words „material to‟ a false

or fraudulent claim.”). In Allison Engine, the Supreme Court

held that a plaintiff “must prove that the defendant intended that

the false record or statement be material to the Government‟s

decision to pay or approve the false claim.” 553 U.S. at 665,

128 S.Ct. at 2126.

17

original complaint “clearly alleged a time period were [sic]

claims would be pending on June 7, 2008.” Appellants‟ br. at

16 n.17. Appellees argue that the majority of courts considering

the applicability of the retroactivity provision have determined

that the retroactivity provision does not apply to cases which

were pending on June 7, 2008.13 Appellees‟ br. at 9 n.6 (citing

Hopper v. Solvay Pharm., Inc, 588 F.3d 1318, 1327 n.3 (11th

Cir. 2009)).14

We need not decide whether the earlier or amended

version of the FCA is applicable because we conclude that

appellants‟ claims based on appellees‟ alleged violation of the

Medicare marketing regulations cannot survive appellees‟

motion to dismiss under either version of the statute. Moreover,

as we explain later, appellants‟ claims under the AKS fall only

under pre-FERA section 3729(a)(1), which was still in force at

the time that appellees submitted their claims for payment to the

Government and at the time that appellants filed this suit.

Therefore, we will decide this case under the pre-FERA version

of section 3729(a)(1).

13

This is a puzzling argument inasmuch as this case was not

pending on June 7, 2008.

14

At least one district court has held that FERA‟s retroactivity

provision violates the Ex Post Facto Clause of the United States

Constitution. See U.S. ex rel. Sanders v. Allison Engine Co.,

667 F. Supp. 2d 747, 756 (S.D. Ohio 2009). Clearly, we need

not consider that possibility.

18

2. Establishing a Claim Under the FCA

The primary purpose of the FCA “is to indemnify the

government-through its restitutionary penalty provisions-against

losses caused by a defendant‟s fraud.” Mikes v. Straus, 274

F.3d 687, 696 (2d Cir. 2001) (citing U.S. ex rel. Marcus v. Hess,

317 U.S. 537, 549, 551-52, 63 S.Ct. 379, 388 (1943)). A

plaintiff, in order to establish a prima facie FCA violation under

section 3729(a)(1), must prove that “(1) the defendant presented

or caused to be presented to an agent of the United States a

claim for payment; (2) the claim was false or fraudulent; and (3)

the defendant knew the claim was false or fraudulent.” U.S. ex

rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 242 (3d Cir. 2004)

(internal quotation marks omitted); Hutchins v. Wilentz,

Goldman & Spitzer, 253 F.3d 176, 182 (3d Cir. 2001). As we

have indicated, a private individual, otherwise known as a

relator, may bring a civil action in the name of the United States

to enforce this provision of the FCA and may share a percentage

of any recovery resulting from the suit. 31 U.S.C. § 3730(b) &

(d).

There are two categories of false claims under the FCA: a

factually false claim and a legally false claim. U.S. ex rel.

Conner v. Salina Reg‟l Health Ctr., Inc., 543 F.3d 1211, 1217

(10th Cir. 2008). A claim is factually false when the claimant

misrepresents what goods or services that it provided to the

Government and a claim is legally false when the claimant

knowingly falsely certifies that it has complied with a statute or

regulation the compliance with which is a condition for

Government payment. Id. A legally false FCA claim is based

on a “false certification” theory of liability. See Rodriguez v.

19

Our Lady of Lourdes Med. Ctr., 552 F.3d 297, 303 (3d Cir.

2008), overruled in part on other grounds by U.S. ex rel.

Eisenstein v. City of New York, 129 S.Ct. 2230 (2009). On this

appeal, we are concerned only with allegedly legally false claims

related to appellees‟ eligibility to receive payment, as appellants

do not contend that appellees did not deliver the services for

which they sought payment.

There is a further division of categories of claims as the

courts have recognized that there are two types of false

certifications, express and implied. See, e.g., Conner, 543 F.3d

at 1217. Under the “express false certification” theory, an entity

is liable under the FCA for falsely certifying that it is in

compliance with regulations which are prerequisites to

Government payment in connection with the claim for payment

of federal funds. Rodriguez, 552 F.3d at 303. There is a more

expansive version of the express false certification theory called

“implied false certification” liability which attaches when a

claimant seeks and makes a claim for payment from the

Government without disclosing that it violated regulations that

affected its eligibility for payment. Id. Thus, an implied false

certification theory of liability is premised “on the notion that

the act of submitting a claim for reimbursement itself implies

compliance with governing federal rules that are a precondition

to payment.” Mikes, 274 F.3d at 699; see also United States v.

Sci. Applications Int‟l Corp., 626 F.3d 1257, 1266 (D.C. Cir.

2010) (“Courts infer implied certifications from silence where

certification was a prerequisite to the government action

sought.” (internal quotation marks and citation omitted)).

The United States Court of Federal Claims seems to have

20

been the first court to recognize that there can be implied false

certification liability under the FCA. See Ab-Tech Constr., Inc.

v. United States, 31 Fed. Cl. 429 (Fed. Cl. 1994), aff‟d, 57 F.3d

1084 (Fed. Cir. 1995). In Ab-Tech the court held that Ab-

Tech‟s submission of payment vouchers to the Government

impliedly certified that Ab-Tech was continuing to adhere to the

eligibility requirements of a federal small business program in

which it was a participant. Id. at 433-34. Though the vouchers

did not contain any express misrepresentations, Ab-Tech‟s

failure to honor the requirements of the program rendered it

subject to false certification liability under the FCA. Id. at 434.

While we have held that there can be express false

certification liability under the FCA, see U.S. ex rel. Kosenske

v. Carlisle HMA, Inc., 554 F.3d 88, 94 (3d Cir. 2009), we have

not decided whether there can be implied false certification

liability under the FCA. See Rodriguez, 552 F.3d at 303-04.15

However, other courts of appeals have considered this

possibility and a majority of those courts, including those in the

Second, Sixth, Ninth, Tenth, Eleventh, and District of Columbia

Circuits have recognized that there can be implied false

certification liability under the FCA. See Mikes, 274 F.3d at

699-700; U.S. ex rel. Augustine v. Century Health Servs., Inc.,

289 F.3d 409, 415 (6th Cir. 2002); Ebeid ex rel. U.S. v.

15

In Rodriguez we stated that we have “yet to adopt in a

holding the false certification theory, either in its express or

implied version.” 552 F.3d at 303-04. But, as we have

indicated, we later recognized that there can be FCA liability

under an express false certification theory and therefore our

statement in Rodriguez is no longer true.

21

Lungwitz, 616 F.3d 993, 996-98 (9th Cir. 2010); Conner, 543

F.3d at 1217-18; McNutt ex rel. U.S. v. Haleyville Med.

Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir. 2005); Sci.

Applications Int‟l Corp., 626 F.3d at 1266, 1269; but see U.S. ex

rel. Hutcheson v. Blackstone Med. Inc., ____ F.3d ____, 2011

WL 2150191, at *7 (1st Cir. June 1, 2011) (declining to employ

judicially created categories of express and implied false

certification); Harrison v. Westinghouse Savannah River Co.,

176 F.3d 776, 786 n.8 (4th Cir. 1999) (stating without

addressing validity of implied false certification theory under

FCA, that its precedent makes the theory “questionable”). We

now join with these many courts of appeals in holding that a

plaintiff may bring an FCA suit under an implied false

certification theory of liability.

We adopt the implied false certification theory for

liability for several reasons. First, the implied false certification

theory gives effect to Congress‟ expressly stated purpose that

the FCA should “reach all fraudulent attempts to cause the

Government to pay [out] sums of money or to deliver property

or services.” S. Rep. No. 99-345, at 9 (1986), reprinted in 1986

U.S.C.C.A.N. 5266, 5274; see also United States v. Neifert-

White Co., 390 U.S. 228, 232, 88 S.Ct. 959, 961 (1968) (“[T]he

[FCA] was intended to reach all types of fraud, without

qualification, that might result in financial loss to the

government.”). Moreover, our ruling is consistent with

Congress‟ stated intent inasmuch as under the implied false

certification theory of liability, even in the absence of a false

certification of compliance, the Government or qui tam

plaintiffs successfully may bring an action that holds a claimant

liable for submitting legally false claims to the Government:

22

[A] false claim may take many forms, the most

common being a claim for goods or services not

provided, or provided in violation of contract

terms, specification, statute, or regulation . . . .

[Claims made to Medicare or Medicaid programs]

may be false even though the services are

provided as claimed if, for example, the claimant

is ineligible to participate in the program. . . .

S. Rep. No. 99-345, at 9, reprinted in 1986 U.S.C.C.A.N.

5266, 5274.

In addition, the language and the structure of the FCA

support the conclusion that a claim based on an implied false

certification “may constitute [an actionable] false or fraudulent

claim.” Shaw v. AAA Eng‟g & Drafting, Inc., 213 F.3d 519,

531 (10th Cir. 2000) (internal quotation marks omitted). “Under

§ 3729(a)(2), liability is premised on the presentation of a „false

record or statement to get a false or fraudulent claim paid or

approved.‟” Id. On the other hand, section 3729(a)(1) requires

only that a claimant present “a „false or fraudulent claim for

payment or approval‟ without the additional element of a „false

record or statement.‟” Id. Therefore, section 3729(a)(1), when

compared with section 3729(a)(2), indicates that a plaintiff can

bring a claim under the FCA even without evidence that a

claimant for Government funds made an express false statement

in order to obtain those funds. Id.

As several courts of appeals have held, however, the

implied certification theory of liability should not be applied

expansively, particularly when advanced on the basis of FCA

23

allegations arising from the Government‟s payment of claims

under federally funded health care programs. In particular, the

Court of Appeals for the Second Circuit in Mikes recognized

that the rationale behind Ab-Tech “does not fit comfortably into

the health care context because the [FCA] was not designed for

use as a blunt instrument to enforce compliance with all medical

regulations - but rather only those regulations that are a

precondition to payment . . . .” Mikes, 274 F.3d at 699.

Moreover, in Rodriguez, although we did not expressly adopt

the implied false certification theory, we stated that “[t]o state a

claim under [the implied false certification] theory it is

necessary to allege not only a receipt of federal funds and a

failure to comply with applicable regulations, but also that

payment of the federal funds was in some way conditioned on

compliance with those regulations.” 552 F.3d at 304. Thus,

under this theory a plaintiff must show that if the Government

had been aware of the defendant‟s violations of the Medicare

laws and regulations that are the bases of a plaintiff‟s FCA

claims, it would not have paid the defendant‟s claims. See

Conner, 543 F.3d at 1219-20 (“If the government would have

paid the claims despite knowing that the contractor has failed to

comply with certain regulations, then there is no false claim for

purposes of the FCA.”). Absent this requirement, the FCA

could turn “into „a blunt instrument to enforce compliance with

all . . . regulations‟ rather than „only those regulations that are a

precondition to payment.‟” Rodriguez, 552 F.3d at 304 (quoting

Mikes, 274 F.3d at 699). With these principles in mind, we now

will consider appellants‟ FCA allegations.

3. Violations of Medicare Marketing Regulations

24

As we already have indicated, appellants contend that

United Health personnel engaged in marketing practices which

violated several Medicare marketing regulations, including: (1)

using marketing flyers and forms that CMS did not approve; (2)

engaging in marketing activities in the waiting rooms of clinics

and doctors‟ offices; (3) allowing non-licensed individuals to

engage in marketing activities; (4) using an excessive number of

sales representatives at presentations in an attempt to

“overwhelm the public;” (5) asking persons to raise their hands

at Medicare presentations if they were dual eligible for Medicare

and Medicaid; (6) chasing people in supermarkets to ask

whether they were dual eligible; (7) using agents to engage in

door-to-door solicitation; and (8) giving out prizes at Medicare

presentations in excess of $15 in value.

The District Court held that appellants‟ allegations that

United Health engaged in illegal marketing did not state a claim

for relief under either an express or implied false certification

theory. According to the Court, these allegations did not state a

claim under an express false certification theory inasmuch as

appellants failed to plead a single instance of United Health

submitting a false claim for payment to the Government:

“Without an allegation of a claim, Relators‟ False Claims Act

claim is like a battery without a touching, or a defamation

without a statement.” Wilkins, 2010 U.S. Dist. LEXIS 47080, at

*14. In support of its holding, the Court cited to our opinion in

Rodriguez, but appellants and amicus curiae contend that the

District Court mischaracterized the holding of Rodriguez, and

25

we agree.16

In Rodriguez, we based our holding affirming the district

court‟s Rule 12(b)(6) dismissal of the relators‟ FCA action on

their failure adequately to plead, under an implied false

certification theory, that the defendant violated a law or

regulation connected to the Government‟s decision to pay the

defendant‟s claims rather than on the relators‟ failure to identify

a specific claim for payment that the defendant submitted to the

Government. 552 F.3d at 304. It is true that to recover under

the FCA, we have recognized that ultimately a plaintiff must

come forward with at least a “single false [or fraudulent] claim”

that the defendants submitted to the Government for payment.

U.S. ex rel. Quinn v. Omnicare Inc., 382 F.3d 432, 440 (3d Cir.

2004). Thus, in Quinn we held that the district court correctly

granted the defendant‟s Federal Rule of Civil Procedure 56(f)

motion for summary judgment based on the plaintiff‟s failure to

identify a single claim for payment to the Government arising

from defendant‟s alleged Medicare fraud. Id. But to our

knowledge we never have held that a plaintiff must identify a

specific claim for payment at the pleading stage of the case to

state a claim for relief. See Fowler v. UPMC Shadyside, 578

F.3d 203, 213 (3d Cir. 2009) (“It is axiomatic that the standards

for dismissing claims under Fed. R. Civ. P. 12(b)(6) and

granting judgment under . . . Fed. R. Civ. P. 56 are vastly

different.”).

16

The District Court also cited one of our not precedential

opinions but we will not discuss that case. See 3d Cir. Internal

Operating P. 5.7 (“The court by tradition does not cite to its not

precedential opinions as authority.”).

26

In any event, as appellants correctly point out, the

question of whether a plaintiff, at the pleading stage, must

identify representative examples of specific false claims that a

defendant made to the Government in order to plead an FCA

claim properly is a requirement under the more particular

pleading standards of Rule 9(b). See Ebeid, 616 F.3d at 998-99

(listing cases and noting disagreement among courts of appeals).

But here, as we stated above, the District Court explicitly

declined to analyze appellants‟ claims under the pleading

requirements of Rule 9(b).

Nevertheless, we see no need to decide whether

appellants‟ marketing claims satisfied the pleading requirements

of Rule 9(b), because, despite our rejection of the District

Court‟s reasoning with respect to appellants‟ claim under an

express false certification theory, we will affirm its holding

dismissing appellants‟ claims predicated on the Medicare

marketing regulations on the same ground that the Court

provided for denying appellants‟ claims under an implied false

certification theory. Thus, we will affirm the District Court‟s

order rejecting appellants‟ claims predicated on the violation of

Medicare marketing regulations because appellants‟ allegations

that appellees violated the regulations do not state a plausible

claim for relief under the FCA inasmuch as the Government‟s

payments of appellees‟ Medicare claims were not conditioned

on their compliance with the marketing regulations.

As we stated above, to plead a claim upon which relief

could be granted under a false certification theory, either express

or implied, a plaintiff must show that compliance with the

regulation which the defendant allegedly violated was a

27

condition of payment from the Government. Rodriguez, 552

F.3d at 304; Mikes, 274 F.3d at 698. In determining whether

compliance with a regulation was a condition of payment from

the Government, courts have distinguished between regulations

which are conditions of participation in the Medicare programs

and conditions of Government payment of Medicare funds.

Conner, 543 F.3d at 1220; Mikes, 274 F.3d at 697 (“Since the

Act is restitutionary and aimed at retrieving ill-begotten funds, it

would be anomalous to find liability when the alleged

noncompliance would not have influenced the government‟s

decision to pay.”). The Court of Appeals for the Tenth Circuit

explained the difference between conditions of participation and

conditions of payment: “Conditions of participation . . . are

enforced through administrative mechanisms, and the ultimate

sanction for violation of such conditions is removal from the

government program,” while “[c]onditions of payment are those

which, if the government knew they were not being followed,

might cause it to actually refuse payment.” Conner, 543 F.3d at

1220.

Appellants assert that 42 C.F.R. § 423.509, pursuant to

which CMS may terminate a contract with a Medicare sponsor

that fails to comply with the applicable marketing guidelines,

demonstrates “[t]he relevancy and materiality of compliance”

with the marketing guidelines. Appellants‟ br. at 23. Indeed,

section 423.509 states that “CMS may at any time terminate a

contract if CMS determines that the Part D plan sponsor . . .

[s]ubstantially fails to comply with . . . [m]arketing requirements

in subpart V of this part.” 42 C.F.R. § 423.509(a)(8)(i); 42

C.F.R. § 422.510(a)(11) (same for MA organization). The same

regulation, however, provides that before CMS may issue a

28

notice of intent to terminate a Medicare contract it will provide a

plan sponsor “a reasonable opportunity of at least 30 calendar

days to develop and implement a corrective action plan to

correct the deficiencies.” 42 C.F.R. § 423.509(c)(1)(i); 42

C.F.R. § 422.510(c)(1)(i). The regulation further provides, in

section (c)(2)(iii), an exception for the 30-day correction period

if the termination is based on “credible evidence, [that the Plan

Sponsor] has committed or participated in false, fraudulent, or

abusive activities affecting the Medicare, Medicaid, or other

State or Federal health care programs, including submission of

false or fraudulent data.” 42 C.F.R. § 423.509(a)(4); 42 C.F.R. §

422.510(c)(2)(iii) (referring to 42 C.F.R. § 422.510(a)(4)). The

regulation also contains an exception to the requirement that a

sponsor be allowed a 30-day correction period where CMS‟s

delay in termination, or the financial difficulties of the Plan

Sponsor, pose an imminent and serious risk to the health of the

individuals enrolled in the sponsor‟s plan. 42 C.F.R. §

423.509(c)(2)(i)-(ii); 42 C.F.R. § 422.510(c)(2)(i)-(ii). Thus,

sections 423.509 and 422.510 clearly demonstrate that

compliance with the marketing regulations is a condition of

participation and not a condition of payment as the regulations

draw a line between the type of violations which are correctible

and, if corrected, will allow the sponsor to continue as a

Medicare program participant and the type of violations which

lead to immediate termination of a CMS contract.

Accordingly, the fundamental flaw in appellants‟

allegations is that the amended complaint does not cite to any

regulation demonstrating that a participant‟s compliance with

Medicare marketing regulations is a condition for its receipt of

payment from the Government. Nor do appellants cite

29

examples, in case law or otherwise, of the Government seeking

recovery of Medicare payments for services that a provider

actually performed on the basis that its lack of compliance with

marketing regulations rendered those services fraudulent.

Appellants offer no evidence beyond a CMS published

statement that the guidelines “were developed after careful

consideration by CMS of current industry practices, recent

advancements in communication technology, and how best to

protect the interests of Medicare beneficiaries.” Appellant‟s br.

at 21; app. at 210. This statement, however, does not indicate

that a participant‟s compliance with marketing regulations is a

condition for Government payment under the federal health care

programs. Moreover, we think that it is appropriate for us to

presume that the CMS surely develops all of its regulations after

careful consideration of these and other relevant factors no

matter what it determines should be the consequences of a

participant‟s non-compliance with the regulations.17

17

Similarly, appellants contend that Weems‟ statement, which

we have determined is not part of the record on which we will

decide this appeal, that “protecting people with Medicare from

deceptive or harmful practices is among our highest priorities at

CMS,” demonstrates the relevancy of the marketing guidelines

to the Government‟s decision to pay Medicare claims.

Appellant‟s br. at 21. However, even if we included that

statement in the materials that we consider in deciding this

appeal, we would regard the statement as demonstrating only

that CMS considers the marketing regulations to be very

important, but we would not regard the statement as indicating

what the consequence of non-compliance should be. After all,

30

Further, considering that the Government has established

an administrative mechanism for managing and correcting

Medicare marketing violations which includes remedies for

violations other than the withholding of payment otherwise due,

it is clear that, although the Government considers substantial

compliance with the marketing regulations “a condition of

ongoing Medicare participation, it does not require perfect

compliance as an absolute condition for receiving Medicare

payments for services rendered.” Conner, 543 F.3d at 1221.

Furthermore, we think that anyone examining Medicare

regulations would conclude that they are so complicated that the

best intentioned plan participant could make errors in attempting

to comply with them. Moreover, it is ironical that if we allowed

appellants, though they are ostensibly acting on behalf of the

Government, to bring suit based on United Health‟s non-

compliance with marketing regulations, we would short-circuit

the very remedial process the Government has established to

address non-compliance with those regulations. “It would . . .

be curious to read the FCA, a statute intended to protect the

government‟s fiscal interests, to undermine the government‟s

own regulatory procedures.” Id. at 1222.

Finally, like the District Court in this case and the courts

of appeals in Conner and Mikes, we question the wisdom of

regarding every violation of a Medicare regulation as a basis for

a qui tam suit. Conner, 543 F.3d at 1221; Mikes, 274 F.3d at

as appellees aptly point out, “[p]resumably all regulations and

agency guidelines have some importance to the government

agency, or there would be no purpose for the agency to

promulgate them.” Appellees‟ br. at 24.

31

699-700. Federal agencies are unquestionably better suited than

federal courts to ensure compliance with Medicare marketing

regulations. In the circumstances, we believe that by permitting

qui tam plaintiffs to file suit based on the violation of

regulations which may be corrected through an administrative

process and which are not related directly to the Government‟s

payment of a claim, courts unwisely would shift the burden of

enforcing the Medicare regulations to themselves even though

the administration of the vast and complicated Medicare

program is best left to the administrators.18 In this regard, we

point out that if we adopted appellants‟ broad theory of FCA

liability, every time a plan participant‟s agent gave out a prize

worth over $15.00, or asked Medicare participants eligible for

Medicaid to raise their hands at a meeting, assuming that these

are improper marketing techniques, the agent‟s conduct could be

the basis for a federal court action. We do not think that this is

the purpose of 42 C.F.R. § 423.509, 42 C.F.R. § 422.510, the

marketing regulations, or the FCA.

In sum, inasmuch as compliance with the Medicare

marketing regulations is not a condition for Government

payment under the federal health insurance programs, the

District Court properly dismissed appellants‟ FCA claims based

on appellees‟ violations of those regulations for failure to state a

claim upon which relief could be granted.

4. The Anti-Kickback Statute

18

In reaching this conclusion we point out that administrators

sometimes address and resolve problems informally using

procedures that courts would not employ.

32

The AKS, in relevant part, provides that

(2) whoever knowingly and willfully offers or

pays any remuneration (including any kickback,

bribe or rebate) directly or indirectly, overtly or

covertly, in cash or in kind to any person to

induce such person—

(A) to refer an individual to a person for

the furnishing or arranging for the

furnishing of any time or service for which

payment may be made in whole or in part

under a Federal health care program, or

(B) to purchase, lease, order, or arrange

for or recommend purchasing, leasing, or

ordering any good, facility, service, or item

for which payment may be made in whole

or in part under a Federal health care

program,

shall be guilty of a felony upon conviction

thereof, shall be fined not more than $25,000 or

imprisoned for not more than five years, or both.

42 U.S.C. § 1320a-7b(b)(2).19

19

As part of the comprehensive health care legislation Congress

enacted in 2010, it amended the AKS to clarify that “a claim that

includes items or services resulting from a violation of this

section constitutes a false or fraudulent claim for purposes of

33

As we stated above, a prima facie claim under the FCA

requires that the plaintiff show that “(1) the defendant presented

or caused to be presented to an agent of the United States a

claim for payment; (2) the claim was false or fraudulent; and (3)

the defendant knew the claim was false or fraudulent.” Schmidt,

386 F.3d at 242. We have held that “[f]alsely certifying

compliance with the . . . Anti-Kickback Act[] in connection with

a claim submitted to a federally funded insurance program is

actionable under the FCA.” Kosenske, 554 F.3d at 94. Further,

in Schmidt we stated that “[a] certificate of compliance with

federal health care law is a prerequisite to eligibility under the

Medicare program.” 386 F.3d at 243 (citing 42 C.F.R. §

413.24(f)(4)(iv)).

[the FCA].” Patient Protection and Affordable Care Act of 2010

(“PPACA”), Pub. L. No. 111-148 § 6402(f), 124 Stat. 119, 759

(to be codified at 42 U.S.C. § 1320a-7b(g)). But the PPACA

was not in effect at the time of the alleged violations at issue in

this case or at the time that appellants filed this action, and there

is no indication that Congress intended for the PPACA to apply

retroactively. See Graham County Soil & Water Conservation

Dist. v. U.S. ex rel. Wilson, 130 S.Ct. 1396, 1400 n.1 (2010)

(“The [PPACA] makes no mention of retroactivity, which would

be necessary for its application to pending cases given that it

eliminates petitioners‟ claimed defense to a qui tam suit.”).

Therefore we will not consider this amendment in our analysis

of appellants‟ AKS claims. In the circumstances, though we are

aware that there is an ongoing nationwide dispute with respect

to the constitutionality of the PPACA, we are not joining in that

controversy, at least not at this time.

34

In dismissing appellants‟ AKS allegations, the District

Court stated that “[r]elators never once alleged that United

Health certified compliance with the [AKS], nor did they allege

that such compliance was relevant to the Government‟s funding

decisions (if indeed any were made, which Relators failed to

allege).” Wilkins, 2010 U.S. Dist. LEXIS 47080, at *18.

Appellants argue that “[a] certificate of compliance with federal

health care law is a prerequisite to eligibility under the Medicare

Program,” see appellant‟s br. at 41 (citing 42 C.F.R. §

413.24(f)(4)(iv)), and argue that they specifically referenced that

certificate of compliance in the amended complaint by referring

to the Medicare Managed Care Manual which states that a plan

sponsor ensures compliance with applicable federal laws,

including, specifically, the FCA and the AKS.

The Government, as amicus curiae, supports appellants‟

position by pointing out that Medicare regulations require MA

and Prescription Drug Plan (“PDP”) organizations to operate

under agreements with CMS which include a provision

requiring that the organization comply with the AKS. See 42

C.F.R. §§ 422.504(h) (“The MA organization agrees to comply

with—(1) Federal laws and regulations designed to prevent or

ameliorate fraud, waste, and abuse, including… [the AKS]”).

United Health responds that the District Court‟s holding was

correct inasmuch as “[n]owhere within the four corners of

Relators‟ Amended Complaint did the Relators allege the nexus

between compliance with the AKS and payment to a Medicare

Advantage plan contractor. . . .” Appellees‟ br. at 34.

The issue of whether appellants properly pleaded an FCA

claim based on United Health‟s express false certification of

35

compliance with the AKS presents a close question. Yet we

cannot ignore appellants‟ pleading in their amended complaint

that “[e]ach month . . . United Defendants certify to CMS its

continued compliance with all of the CMS MA Guidelines and

based on such certification, United Defendants continues [sic] to

receive the monthly capitation payments.” App. at 31.

Moreover, in the next section of the amended complaint,

appellants summarized the applicable Medicare regulations and

pleaded that an MA Organization may not provide “[a]ny

incentive that might have the effect of inducing enrollees to use

a particular provider, practitioner or supplier cannot [sic] violate

1128A(a)5 [sic] of the Social Security Act and the

corresponding regulations related to the federal anti-kickback

statute.” Id. at 32. Further, appellants alleged that

AmeriChoice paid $27,000 to the Reliance Medical Group to

induce the owners of the clinic to change dual eligible

beneficiaries from Horizon Blue and move them to

AmeriChoice, and that AmeriChoice agents enticed doctors into

receiving additional income if they provided agents with names

of the physicians‟ patients. Arguably, these allegations state a

claim for relief under an express false certification theory

inasmuch as appellants allege that appellees falsely certified

compliance with the AKS in order to receive monthly payments

from the Government.

But we need not decide whether the amended complaint

states a claim under an express false certification theory because

appellants‟ allegations in the amended complaint clearly state a

claim for relief under an implied false certification theory of

liability. Under an implied false certification theory, instead of

looking at the defendant‟s representations to the Government,

36

“the analysis focuses on the underlying contracts, statutes, or

regulations themselves to ascertain whether they make

compliance a prerequisite to the government‟s payment.”

Conner, 543 F.3d at 1218. Accordingly, we conclude that the

District Court‟s holding that because appellants failed to allege

in their complaint that United Health certified its compliance

with the AKS their AKS claim must fail is incorrect when we

analyze the amended complaint under an implied false

certification theory of liability. To plead a claim for relief under

an implied certification theory, appellants were required to

allege, as they did, that appellees submitted claims for payment

to the Government at a time that they knowingly violated a law,

rule, or regulation which was a condition for receiving payment

from the Government.

We reach our conclusion because appellants‟ amended

complaint meets the implied false certification standards for

liability as they alleged that appellees received payment from the

federal health insurance programs despite their knowing

violation of the AKS. Moreover, unlike the plaintiffs in

Rodriguez, 552 F.3d at 304, appellants alleged that compliance

with the AKS was an express condition of payment to which

appellees agreed when they entered into an agreement with

CMS. See app. at 31-32; 37-38 (stating that “Compliance with

CMS MA Guidelines . . . are express conditions of payment”

and stating that the AKS is part of the MA Guidelines). We

conclude that appellants, in stating a plausible claim for relief at

this stage of the proceedings for their complaint to survive a

Rule 12(b)(6) motion, need not allege a relationship between the

alleged AKS violations and the claims appellees submitted to

37

the Government.20 Rather, the complaint is sufficient to survive

a Rule 12(b)(6) motion to dismiss because appellants have

pleaded that appellees knowingly violated the AKS while

submitting claims for payment to the Government under the

federal health insurance program. See Ebeid, 616 F.3d at 998

(“Implied false certification occurs when an entity has

previously undertaken to expressly comply with a law, rule, or

regulation, and that obligation is implicated by submitting a

claim for payment even though a certification of compliance is

not required in the process of submitting the claim.”).

We disagree with the District Court to the extent that it

held that compliance with the AKS was not a condition for

payment from the Government under the federal health

insurance program. Compliance with the AKS is clearly a

condition of payment under Parts C and D of Medicare and

appellees do not refer us to any judicial precedent holding

otherwise. In fact, the precedents hold the opposite. See, e.g.,

Kosenske, 554 F.3d at 94 (“Falsely certifying compliance with

the Stark or Anti-Kickback Acts in connection with a claim

submitted to a federally funded insurance program is actionable

under the FCA.”); McNutt, 423 F.3d at 1259-60; Conner, 543

F.3d at 1223 n.8 (listing cases). Indeed, as both amicus curiae

and appellants point out, Medicare regulations specifically name

the AKS as a statute that is “designed to prevent or ameliorate

fraud, waste, and abuse.” 42 C.F.R. §§ 422.504(h), 423.505(h).

20

We emphasize again that we are not reviewing these claims

under the particularized pleading standards of Rule 9(b).

38

We have not overlooked appellees‟ argument that our

holding will transform the FCA into a strict liability statute in

which “every participant in the Medicare program impliedly

certifies each time it submits a claim for payment to the program

that the claim does not arise from some payment arrangement

that—however attenuated, immaterial, and unknowing—could

be characterized as a violation of the AKS.” Appellees‟ br. at

36. Rather, we consider but reject this argument. First, the

AKS does not prohibit all payment arrangements related to

federal health care programs as the statute contains several safe

harbor provisions allowing such arrangements. See 42 U.S.C. §

1320a-7b(b)(3)(A)-(F). Further, contrary to appellees‟

argument, a defendant could not be held accountable for an

“unknowing” illegal payment arrangement inasmuch as the AKS

explicitly requires that for any payment to induce a person to

refer an individual for the furnishing of healthcare services to be

unlawful it must be made knowingly and willfully.

In order to avoid FCA liability under an implied

certification theory, participants making claims to the

Government under the federal health care programs have to

ensure that they are not violating the federal health care laws

which they agreed to follow when they entered into contracts

with CMS. As we made clear above, for purposes of the FCA,

this compliance does not require perfect adherence to

regulations which are not prerequisites to payment from the

Government. Compliance, however, does require a participant

in a federal health care program to refrain from offering or

entering into payment arrangements which violate the AKS,

while making claims for payment to the Government under that

program. We do not think this is an unreasonable requirement

39

to impose on federal health care contractors, for as Justice

Holmes once wrote: “Men must turn square corners when they

deal with the Government.” Rock Island, A. & L. R. Co. v.

United States, 254 U.S. 141, 143, 41 S.Ct. 55, 56 (1920). And

as the United States as amicus curiae points out, “[t]he

Government does not get what it bargained for when a

defendant is paid by CMS for services tainted by a kickback.”

Amicus curiae br. at 31. Therefore, we hold that appellants, by

alleging that appellees violated the AKS while submitting

claims for payment to a federal health insurance program, have

stated a plausible claim for relief under the FCA.

C. Amendment of the Complaint

Appellants argue that the District Court erred by

dismissing the case with prejudice. In this regard, they contend

that if the Court found the amended complaint to be deficient, it

should have dismissed the case without prejudice. Of course,

this argument now is partially moot as we are reversing the

District Court‟s order with respect to appellants‟ AKS claim.

But we nevertheless address the contention because the

argument remains germane with respect to the marketing claims.

On the merits, we are satisfied that appellants do not provide a

convincing argument that the District Court, to the extent that

we hold that it correctly dismissed the complaint, abused its

discretion by dismissing it with prejudice instead of without

prejudice, nor do they explain how if permitted to amend they

could cure the deficiencies that we have identified in their

complaint. In making this point we observe that when a district

court allows plaintiffs the opportunity to amend a complaint so

that they can survive a Rule 12(b)(6) motion, it is implicit in the

40

court‟s ruling that if the plaintiffs seek to amend the complaint

they will do so only in good faith and allege facts that they

believe they can prove.21 Accordingly, appellants‟ failure to

explain how they could have amended the complaint to cure its

deficiencies is a critical omission.

Appellants also argue that the District Court

misconstrued their statement in their reply to appellees‟ motion

to dismiss that “[i]n the event that the Court concludes that the

Complaint does not meet the standards of Rule 9(b), Relator

requests that he be provided the opportunity to amend the

Complaint . . . . ” Appellants‟ br. at 43. Appellants argue that

the amended complaint adequately pleaded the causes of action

and that “[t]he request was made only if, and subject to, the

Court concluding, after a review of United‟s [Motion to

Dismiss] and the Relator‟s [sic] opposition, that deficiencies

existed.” Id. at 44.

Whatever appellants‟ intentions were in asking the

District Court to permit them to amend their complaint, we

agree with that Court that the request, without an attached

amended complaint, was not the proper method for appellants to

seek to amend their complaint. See Fletcher-Harlee Corp. v.

Pote Concrete Contractors, Inc., 482 F.3d 247, 252 (3d Cir.

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We are not suggesting that appellants have acted or would act

in bad faith and have made or would make allegations that they

did not believe. In fact, we do not doubt that appellants believe

that they can prove the allegations they already have made, and,

if permitted to amend their complaint again, would be able to

prove their new allegations.

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2007) (stating “that a failure to submit a draft amended

complaint is fatal to a request for leave to amend”). Therefore,

to the extent that appellants requested leave to amend their

complaint, the Court did not abuse its discretion by denying their

deficient request to amend nor did it abuse its discretion by not

granting them leave to amend sua sponte. Id. To the extent, if

any, that the Court misunderstood appellants‟ request to amend

their complaint, that circumstance has no bearing on this appeal.

Should appellants on the remand submit another request to

amend their complaint in any respect, it will be up to the District

Court to decide whether to grant them leave to amend their

complaint, and in making that determination to consider the

procedural appropriateness and substantive merits of the request.

See Fed. R. Civ. P. 15(a).

V. CONCLUSION

For the foregoing reasons, we will affirm the portion of

the District Court‟s May 13, 2010 order which dismissed

appellants‟ FCA allegations based on appellees‟ violation of

Medicare marketing regulations and will reverse the order

insofar as it grants appellees‟ motion to dismiss appellants‟

amended complaint based on its allegations that appellees

submitted false claims to the Government by violating the AKS.

We will remand the case to the District Court for further

proceedings consistent with this opinion. On remand, the

District Court should rule on appellees‟ Rule 9(b) contention

raised in their motion to dismiss with respect to the portion of

appellants‟ reinstated amended complaint. The parties shall bear

their own costs on this appeal.

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