1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 KENLEY EMERGENCY MEDICINE, et Case No. 20-cv-03274-SI al., 8 Plaintiffs, ORDER RE: MOTION TO DISMISS 9 v. Re: Dkt. No. 74 10

THE SCHUMACHER GROUP OF

11 LOUISIANA INC., et al.,

12 Defendants.

13 14 The two defendants, a national medical management company and its California-based 15 affiliate, filed a motion to dismiss a qui tam relator’s third amended complaint, which alleges 16 fraudulent billing practices. Dkt. No. 74. The Court held a hearing on defendants’ motion on April 17 18, 2025. For the reasons stated below, the Court DISMISSES with prejudice non-California state 18 law claims against California-based defendant California Emergency Associates, but DENIES the 19 motion in all other respects. 20 21 BACKGROUND 22 I. Factual Background 23 Dr. Eric Kenley is the sole owner of qui tam plaintiff and relator, Kenley Emergency 24 Medicine Corporation. Dkt. No. 241 (Third Amended Complaint (“TAC”)) ¶ 16. Dr. Kenley is an 25 26 1 A redacted public version of the third amended complaint is at Docket Number 98. For 27 purposes of resolving this motion, the Court assumes that the plaintiff’s allegations are true and draws all reasonable inferences in the plaintiff’s favor. See Usher v. City of Los Angeles, 828 F.2d 1 attending emergency physician and was the medical director at Chinese Hospital in San Francisco, 2 California. Id. ¶ 17. Dr. Kenley’s corporation contracted with defendant California Emergency 3 Associates, an affiliate of defendant The Schumacher Group of Louisiana, Inc. (d/b/a SCP Health), 4 to provide emergency medical services at the hospital.2 Id. It is now common for hospitals to 5 outsource the management of emergency departments and defendant SCP Health staffs 400 hospital 6 facilities around the country. Id. ¶¶ 4-5, 20. Through Medicare, Medicaid, and other state programs, 7 the federal and state governments fund the majority of services at emergency departments. Id. ¶ 3. 8 The third amended complaint gives basic information about the provision of emergency 9 medical care and related billing practices. The amount that providers receive from the government 10 or private insurers depends on the codes used to describe the care provided. Id. ¶ 44. There are five 11 levels of non-critical care evaluation and management services, each with a separate code. Id. ¶¶ 47- 12 49. Level 5 reflects the highest intensity of services (and warrants the highest reimbursement) and 13 Level 1 the lowest. Id. There are also two critical care codes and, to bill for critical care, Medicare 14 guidance requires both that the patient be critically ill or injured and that the physician provide 15 critical care treatment, and also that the length of the service provision (in minutes) be documented. 16 Id. ¶¶ 50-52. Federal law prohibits government reimbursement for services that are not reasonable 17 or necessary. Id. ¶ 46 (citing 42 U.S.C. § 1395y(a)(1)(A)). Most of SCP Health’s contracted 18 physicians (although not relator) are paid based on productivity, with higher levels of care resulting 19 in higher payments. Id. ¶¶ 63-64. According to relator, physicians “reasonably rely” on 20 management groups like defendants to ensure care is billed at the appropriate level. Id. ¶¶ 65-67. 21 For their part, the federal government and private insurers deny claims when they are aware of 22 improper coding. Id. ¶ 204. 23 Relator alleges that defendants SCP Health and its affiliates instituted two systematic 24 fraudulent practices in their coding and billing of emergency medical services. Id. ¶ 72. 25 26 2 Relator alleges that SCP Health operates through a network of subsidiaries and affiliates 27 but these companies “function as a single unified entity with SCP setting the policies, providing the training for staff, and providing all of the administrative services, including all coding and billing 1 First, defendants improperly pressured providers into charting for critical care services when 2 the threshold for such services had not been met. SCP Health trained its coders, who work out of 3 SCP Health’s corporate headquarters, to look in patient charts for opportunities to bill services as 4 critical care, even if the providers had not initially coded their services as critical care. Id. ¶¶ 74- 5 75, 188. The coders then “routinely bombard physicians with leading queries and misleading 6 information” contained in “chart deficiency notices” that label their original charts as “deficient” or 7 “incomplete.” Id. ¶¶ 75-77, 90-94, 107-113. SCP Health “threatens punishment to pressure quick 8 responses.” Id. ¶¶ 75-77. When combined with “misleading guidance on what constitutes critical 9 care,” including “vague and overbroad descriptions of what constitutes critical illness and critical 10 care treatment,” these deficiency notices result in the submission of bills for critical care where such 11 care was not provided because “physicians naturally assume the SCP coder is correct.” Id. ¶¶ 76- 12 78, 94-102. Moreover, since the deficiency notices often come days or weeks after the treatment is 13 provided, the physician’s memory of the treatment is less solid and the physician is more likely to 14 alter the charts as directed. Id. ¶¶ 104-106. And once pushed to code certain forms of treatment as 15 critical care, physicians began to code future similar cases the same way, based on the improper 16 guidance and pressure they had previously received. Id. ¶¶ 172-173. Notably, relator alleges the 17 centralized coding team never asked physicians to downgrade the level of care coded, only to 18 upgrade it to higher, more profitable levels. Id. ¶¶ 114, 173. 19 Second, relator alleges that SCP Health deliberately and inappropriately “upcodes” non- 20 critical care to a higher, more profitable level of non-critical care. Id. ¶ 184. Since non-critical care 21 coding does not require a physician statement, SCP Health’s coders make these changes on their 22 own. Id. ¶ 185. 23 Relator’s own investigation of critical care “upcoding” practices at its hospital found in an 24 audit sample that 30% of charts upgraded to a critical care code after a deficiency notice did not 25 contain a necessary critical care statement from the physician, which SCP Health “knows, 26 deliberately ignores, or recklessly disregards.” Id. ¶¶ 116-117. Relator identifies four common 27 conditions improperly upgraded to critical care: “sepsis, troponin elevations or possible NSTEMI [a 1 examples of inappropriate billing for twenty-seven patients with these conditions. Id. ¶¶ 119-183. 2 Relator also audited twenty random charts from five days in November 2019 coded at the 3 highest level of non-critical care (Level 5) and determined “conservatively” that nine of the twenty 4 should have been billed at either Level 4 or Level 3. Id. ¶ 187. In the TAC, relator also provides 5 five representative examples of patients whose care was inappropriately billed at Level 5. Id. 6 ¶¶ 189-199. 7 While relator’s experience is limited to one California hospital, relator alleges the practices 8 at issue were employed by SCP Health nationwide. SCP Health operates through a “highly 9 centralized management structure.” Id. ¶¶ 59-62. The complaint alleges that SCP Health controls 10 the contracts between its subsidiaries and providers. Id. ¶¶ 57-58. SCP Health supervises its 11 contract physicians, sets compensation, and controls the coding and billing related to patient care. 12 Id. ¶ 56. SCP Health trains newly contracted physicians how to respond to “chart deficiency” 13 notices. Id. ¶¶ 68-69. Dr. Kenley was informed during his training that sending deficiency notices 14 was a standard practice at all of SCP Health’s sites, and “[m]ultiple SCP employees and executives” 15 have reiterated the company’s practices are standardized nationwide. Id. ¶¶ 79-82. SCP Health 16 wants each provider to be billing critical care at least 20% of the time and labels those not meeting 17 the target “outliers.” Id. ¶ 70. Since SCP Health’s coders follow a standardized process, relator 18 alleges its experience at its hospital “is likely representative of other SCP sites.” Id. ¶ 188. 19 The patient examples provided by relator refer to care provided in 2019 and 2020, when 20 relator began contracting with SCP Health. Id. ¶ 7. But relator alleges the upcoding has taken place 21 “[f]or at least several years before Relator began working at Chinese Hospital, and possibly since 22 2010,” when SCP Health began using its proprietary billing and coding platform. Id. ¶ 73. After 23 Dr. Kenley continued to raise concerns about the upcoding, SCP Health made changes in late 2020 24 “that obscured the more conspicuous aspects of the fraud,” but relator alleges upcoding remains 25 ongoing. Id. ¶ 88. 26 Relator’s complaint alleges twenty-two causes of action, under the federal False Claims Act 27 (Count I), the California false claims act (Count II), California and Illinois insurance fraud 1 IV-VII, IX-XXII): Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Louisiana, Michigan, 2 Nevada, New Mexico (two different counts), New York, North Carolina, Oklahoma, Tennessee, 3 Texas, Virginia, and Washington. Id. ¶¶ 208-377. Relator seeks injunctive relief that forces 4 defendants to cease and desist from the alleged fraudulent practices, maximum statutory damages, 5 and attorney’s fees. Id. at 83-85. 6 7 II. Procedural History 8 Relator initially filed its qui tam complaint under seal against defendants on May 14, 2020. 9 Dkt. No. 1. On July 16, 2020, Magistrate Judge Spero granted the government’s request for a six- 10 month extension of time to decide whether to intervene. Dkt. No. 10. Judge Spero subsequently 11 granted a series of additional six-month extensions for the following three years. Dkt. Nos. 17, 27, 12 30, 32, 34, 36. During this period, relator amended the complaint several times, and the now- 13 operative third amended complaint expanded to include claims under the false claims acts of myriad 14 states. Dkt. Nos. 13, 16, 24. On January 31, 2024, Judge Spero extended the intervention deadline 15 to April 5, 2024. Dkt. No. 38. 16 On April 5, 2024, the United States and the various plaintiff states declined intervention in 17 the litigation. Dkt. No. 39. The California Insurance Commissioner declined intervention on April 18 11, 2024. Dkt. No. 42. Judge Spero unsealed the case and set an initial case management conference 19 for April 19, 2024, then postponed the conference upon relator’s ex parte request since defendants 20 had yet to be served. Dkt. Nos. 40, 41, 43, 44. The case management conference was ordered 21 postponed a second time on July 11, 2024, then the case was transferred to the Court of the 22 undersigned judge on July 26, 2024. Dkt. Nos. 49, 56. The Court granted defendants multiple 23 extensions to respond to the operative complaint. Dkt. Nos. 61, 67, 73. Defendants then filed the 24 present motion to dismiss the third amended complaint on December 13, 2024 and set an unusually 25 elongated briefing schedule. Dkt. No. 74 (“Mot.”). Relator filed an opposition on February 11, 26 2025, and defendants filed their reply on March 13, 2025. Dkt. Nos. 92 (“Opp’n”), 97 (“Reply”). 27 1 LEGAL STANDARD 2 Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if 3 it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to 4 dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” 5 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This “facial plausibility” standard requires 6 the plaintiff to allege facts that add up to “more than a sheer possibility that a defendant has acted 7 unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While courts do not require “heightened 8 fact pleading of specifics,” a plaintiff must allege facts sufficient to “raise a right to relief above the 9 speculative level.” Twombly, 550 U.S. at 555, 570. 10 In deciding whether the plaintiff has stated a claim upon which relief can be granted, the 11 court must assume that the plaintiff’s allegations are true and must draw all reasonable inferences 12 in the plaintiff’s favor. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, 13 the court is not required to accept as true “allegations that are merely conclusory, unwarranted 14 deductions of fact, or unreasonable inferences.” In re Gilead Sciences Sec. Litig., 536 F.3d 1049, 15 1055 (9th Cir. 2008) (citation and internal quotation marks omitted). 16 Under Rule 9(b), fraud claims must be pled with particularity. Fed. R. Civ. P. 9(b). Rule 17 9(b)’s heightened pleading requirements demand that “[a]verments of fraud must be accompanied 18 by the ‘who, what, when, where, and how’ of the misconduct charged” and “must set forth what is 19 false or misleading about a statement, and why it is false.” Vess v. Ciba-Geigy Corp. U.S.A., 317 20 F.3d 1097, 1106 (9th Cir. 2003) (citations omitted). Specifically, fraud allegations must include the 21 “time, place, and specific content of the false representations as well as the identities of the parties 22 to the misrepresentations.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (quoting 23 Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir.2004)). However, “[m]alice, intent, 24 knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). 25 Rule 9(b) serves two purposes: to give adequate notice to defendants and to deter the filing 26 of “false or unsubstantiated charges” with the hope of proceeding to discovery. United States v. 27 United Healthcare Ins. Co., 848 F.3d 1161, 1180 (9th Cir. 2016). In the context of the False Claims mere conclusory allegations of fraud are insufficient. Broad 1 allegations that include no particularized supporting detail do not suffice but statements of the time, place and nature of the alleged 2 fraudulent activities are sufficient. Because this standard does not require absolute particularity or a recital of the evidence, a complaint 3 need not allege a precise time frame, describe in detail a single specific transaction or identify the precise method used to carry out 4 the fraud. The complaint also need not identify representative examples of false claims to support every allegation. It is sufficient 5 to allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were 6 actually submitted. 7 Id. (citations, internal quotation marks, brackets, and footnote omitted). 8 If the Court dismisses the complaint, it must then decide whether to grant leave to amend. 9 The Ninth Circuit has “repeatedly held that a district court should grant leave to amend . . . unless it 10 determines that the pleading could not possibly be cured by the allegation of other facts.” Lopez v. 11 Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (citations and internal quotation marks omitted). 12 13 DISCUSSION 14 I. Relator’s Ability to Pursue this Action 15 Defendants first argue that qui tam actions violate the appointments clause under Article II 16 of the U.S. Constitution.3 Mot. at 4-7. To the extent the argument is a facial attack on the qui tam 17 statute, the argument fails. Defendants acknowledge that the Ninth Circuit rejected this same 18 argument in U.S. ex rel. Kelly v. Boeing Co., 9 F.3d 743, 759 (9th Cir. 1993). Kelly remains good 19 law in this circuit and nothing in the Supreme Court’s majority holding in United States, ex rel. 20 Polansky v. Exec. Health Res., Inc., 599 U.S. 419, 423 (2023) suggests otherwise. The opinion of 21 the district court in United States ex rel. Zafirov v. Florida Medical Associates, LLC, No. 8:19-CV- 22 01236-KKM-SPF, 2024 WL 4349242 (M.D. Fla. Sept. 30, 2024) cited by defendants is not 23 persuasive. “The Court is bound by [] Circuit precedent, not a district-court opinion, or even a 24 dissent or concurrence by a Supreme Court justice.” See United States v. Chattanooga Hamilton 25 26 3 Defendants frame this argument as a challenge to the Court’s jurisdiction to consider this 27 action under Rule 12(b)(1) of the Federal Rules of Civil Procedure. However, the Ninth Circuit has held that “Article II problems” do not implicate Article III jurisdiction. Consumer Fin. Prot. Bureau 1 Cnty. Hosp. Auth., No. 1:21-CV-84, 2024 WL 4784372, at *2 (E.D. Tenn. Nov. 7, 2024) (rejecting 2 Zafirov).4 3 Defendants next challenge relator’s standing on two other grounds. First, defendants 4 contend that relators have no standing to seek injunctive relief. Mot. at 7; Reply at 2-4. At oral 5 argument, relator clarified that it was only pursuing injunctive relief to the extent such relief is 6 available under the False Claims Act. Neither relator nor defendants provide any legal authority 7 regarding whether relators may pursue injunctive relief under the False Claims Act in the case of 8 government non-intervention. In fact, both sides criticize the other on their inability to cite relevant 9 law in support of their positions on this issue. Opp’n at 10; Reply at 4. To be fair, the case law on 10 whether the False Claims Act allows for injunctive relief is meager. See United States ex rel. L. 11 Project for Psychiatric Rts. v. Matsutani, No. 3:09-CV-0080-TMB, 2010 WL 11526903, at *12 12 n.144 (D. Alaska Sept. 24, 2010) (stating that injunctive relief “may not even be available under the 13 FCA” and citing several cases offering indirect support for that proposition). The Court notes that 14 the statute allows for civil penalties, including treble damages, but makes no mention of injunctive 15 relief. See 31 U.S.C. § 3729(a)(1). While the Court is not convinced this is a question of standing 16 particular to a relator, the Court holds that injunctive relief is not the proper remedy under the False 17 Claims Act. Should relator ultimately prove violations under the Act, the Court believes treble 18 damages would be sufficient to deter future similar violations. 19 Second, defendants offer a “factual attack” to relator’s standing where, as defendants assert, 20 the defendants voluntarily refunded the government before learning about the filed qui tam action. 21 Mot. at 6-7; Reply at 1-4. Defendants provide a declaration from a senior vice president from an 22 affiliated company asserting that “Schumacher affiliates” ultimately provided $154,522.49 in 23 refunds to the government after an audit of “Medicare billing issues.” Dkt. No. 74-1. Since the 24 government accepted this refund and chose not to intervene in relator’s action, defendants conclude 25 26 4 Relator argues that defendants have forfeited any challenges to the constitutionality of the 27 qui tam statute because defendants did not provide a notice to the government in violation of federal and local rules. Opp’n at 8-9. Defendants subsequently provided this notice. See Dkt. No. 97-1. 1 that the government has no rights to “assign” to the relator under the qui tam statutory framework. 2 Reply at 2. However, the Court is not convinced that defendants’ proactive refund negates relator’s 3 standing. As a factual matter, the Court has no way to evaluate whether defendants’ refund relates 4 to relator’s claims, or whether it fully satisfies the extent of the alleged fraud against the government. 5 Defendants put forward no evidence that the government accepted the refund in exchange for 6 releasing defendants from any other liability. To the contrary, defendants highlight how most of the 7 refund was provided proactively. While the Court certainly does not want to discourage or 8 disincentivize proactive refunds to the government where appropriate, the Court cannot say as a 9 matter of law or fact that the proactive refund here negates relator’s standing. 10 11 II. Pleading with Particularity 12 Defendants next argue that relator has not pled its claims with the requisite particularity 13 required for fraud by Rule 9(b). Mot. at 7-14. Specifically, defendants argue that relator has not 14 pled the element of materiality nor the time period of the alleged fraud with particularity.5 15 16 A. Materiality 17 The False Claims Act imposes liability on any person who, among other prohibited acts, 18 “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; 19 [or] knowingly makes, uses, or causes to be made or used, a false record or statement material to a 20 false or fraudulent claim . . . .” 31 U.S.C. § 3729(a)(1)(A)-(B). The act defines “material” as 21 “having a natural tendency to influence, or be capable of influencing, the payment or receipt of 22 money or property.” Id. § 3729(b)(4). “Under any understanding of the concept, materiality looks 23 24 5 Defendants also present an argument that the Supreme Court’s decision in Loper Bright 25 Enterprises v. Raimondo, 603 U.S. 369 (2024) increases the burden on plaintiff to show particularity. See, e.g., Reply at 8. The Court finds the guidance in Loper Bright—which concerns 26 the weight given to an agency’s interpretation of an ambiguous statute—unhelpful where defendants have not identified an ambiguous statute. Defendants clarify that they “d[o] not seek to invalidate 27 or challenge any particular interpretation of CMS [Centers for Medicare and Medicaid Services] guidance” but the Court cannot discern what work defendants want Loper Bright to do in this case, 1 to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.” 2 Universal Health Servs., Inc. v. United States, 579 U.S. 176, 193 (2016) (internal quotation marks, 3 brackets, and citation omitted). 4 In this context, the focus of the materiality question should be whether defendants’ allegedly 5 fraudulent upcoding practices caused the government to pay claims at a rate it otherwise would not 6 have paid for the same services had they been coded correctly. The Court finds that the allegations 7 in relator’s complaint meet this burden at the pleading stage, even under the heightened requirements 8 for fraud. The complaint alleges that the billing codes determine what the government and private 9 insurers reimburse and that the government only pays for medically necessary and reasonable 10 services. TAC ¶¶ 44-46. The federal government considers upcoding to be fraud. Id. ¶ 203. The 11 government and private insurers will not pay claims when they are aware that miscoding has 12 occurred. Id. ¶¶ 204-205. Relator cites to persuasive case law in support of its position that 13 defendants ignore in their reply. See Ruckh v. Salus Rehab., LLC, 963 F.3d 1089, 1105 (11th Cir. 14 2020) (finding upcoding “a simple and direct theory of fraud” with “plain and obvious materiality”); 15 United States ex rel. Ormsby v. Sutter Health, 444 F. Supp. 3d 1010, 1085 (N.D. Cal. 2020) (finding 16 the submission of false diagnosis codes material). 17 Defendants attempt to elide the materiality inquiry in two ways. First, they highlight how 18 relator has not identified any physicians responsible for false documentation submitted to the 19 government. Mot. at 12. But relator’s fraud allegations do not directly concern physicians—they 20 concern defendants and their practices, their knowledge, and their representations to the government 21 in the forms of submitted claims. Moreover, the complaint also states that doctors “reasonably rely” 22 on the guidance from defendants to ensure appropriate billing and, in the case of pushback, 23 “naturally assume the SCP coder is correct.” Id. ¶¶ 65-67, 94, 101-02. Second, defendants calculate 24 the dollar amounts associated with the alleged overbilling in Dr. Kenley’s audits at Chinese 25 Hospital, presumably to communicate that not a lot of money is at issue. Mot. at 12; Reply at 9. 26 This argument is unavailing—the materiality inquiry looks at the effect of the misstatement on the 27 government’s choice to pay, not on whether the fraud surpasses a certain amount-in-controversy 1 threshold.6 2 Read another way, defendants’ materiality contentions appear to challenge not materiality 3 but a more fundamental aspect of the alleged fraud: how defendants—not physicians—are 4 responsible for the upcoding. Again, the Court finds that relator’s allegations have met the 5 heightened pleading requirements for fraud on this point. To upcode services to critical care, 6 defendants allegedly trained coders to look for opportunities to label service as critical care, 7 providing misleading guidance along the way to coders and providers. TAC ¶¶ 74-76. Defendants 8 then used leading language to pressure providers into changing charts since providers assume 9 defendants’ coders are the experts. Id. ¶¶ 76-78, 94-102. And for non-critical care, relator alleges 10 the coders upcode on their own initiative. Id. ¶ 185. Importantly, relator alleges that coders never 11 asked physicians to downgrade the reported level of care, only to upgrade it. Id. ¶¶ 114, 173; see 12 also United States v. United Healthcare Ins. Co., 848 F.3d at 1175 (holding that “one-sided” reviews 13 can violate the False Claims Act). 14 Defendants’ arguments at the hearing that the deficiency notices were only about a lack of 15 documented minutes in patient charts ignore that those notices also asked physicians to answer the 16 question, “Did you provide critical care?” Compl. ¶ 109. While defendants may be able to prove 17 at a later stage in this litigation that the notices were not intended to induce upcoding, at this stage 18 the Court assumes relator’s allegations are true. See Usher, 828 F.2d at 561. Assuming as such, the 19 Court finds the claims pled with adequate particularity. 20 In short, defendants’ attack on the basis of materiality fails. 21 22 B. Time Period 23 In addition, defendants assert that relator has not pled the requisite time period of the fraud 24

25 6 This line of argument also ignores the limited nature of Dr. Kenley’s audit. Considering just the audit of non-critical care billing, where Dr. Kenley determined that some claims labeled 26 Level 5 should have been labeled Level 3 or 4, defendants contend that the overbilling totaled “less than $600” for five claims. Dr. Kenley’s audit lasted five days at only one of defendants’ four 27 hundred hospitals. If this level of overbilling was consistent through the year and across sites, the annual total could be close to $15,000,000 in overbilling for non-critical care ($500 * 5 days * 365/5 1 with sufficient particularity. Mot. at 8-9, 13-14; Reply at 8-9. The operative complaint, filed June 2 4, 2021, contains several allegations concerning the time period. Relator began contracting with 3 defendants in 2019 and provides examples of allegedly fraudulent billing from July 2019 through 4 March 2020. TAC ¶¶ 7, 118-199. Relator alleges the critical care upcoding practices had been in 5 place “[f]or at least several years before Relator began working at Chinese Hospital, and possibly 6 since 2010,” the year SCP Health started using its proprietary billing and coding software program. 7 Id. ¶ 73. Relator alleges SCP Health removed “some of the more egregious leading query aspects” 8 like the “chart deficiency” label in late 2020. Id. ¶ 113. However, the complaint alleges that SCP 9 Health continues to use misleading definitions for critical care and that physicians still face pressure 10 due to the 20% critical care quota expectation. Id. 11 The Court concludes that relator has pled sufficient allegations regarding critical care billing 12 to meet the two purposes of Rule 9(b): to prevent frivolous filings and to put the defendants on 13 notice of the conduct at issue. United States v. United Healthcare Ins. Co., 848 F.3d at 1180. The 14 Court recognizes that relator’s alleged start date is imprecise, but relators “need not allege a precise 15 time frame” for the fraud. Id. (internal quotation marks and citation omitted). Relator has provided 16 an outer limit (2010, when the defendants started using their billing and coding software) and has 17 sufficiently alleged that certain practices continued through the filing of the complaint. TAC ¶¶ 73, 18 113. Relator notes in detail the practices Dr. Kenley encountered upon entering into contract with 19 defendants in 2019, and defendants should be able to identify when it instituted those practices. 20 In United States ex rel. Everest Principals, LLC v. Abbott Laboratories, the court affirmed 21 a discovery order that prescribed a wider timeframe for the alleged fraud than the relator’s term of 22 employment. No. 3:20-CV-00286-W-MSB, 2024 WL 304082, at *5 (S.D. Cal. Jan. 26, 2024). 23 Since the relator had been trained to follow the allegedly fraud-creating policy when he was hired, 24 the court found it reasonable to assume the policy had been in place for some time prior to the 25 relator’s hiring. Id. Here, Dr. Kenley encountered the issues he is raising regarding critical care 26 billing upon his initial orientation in 2019. TAC ¶¶ 80-81. Given his experience and interactions 27 in defendants’ system, it is not unreasonable for him to assert that these issues existed “[f]or at least 1 several years before Relator began working” with defendants. Id. ¶ 73.7 2 Defendants do not distinguish between the critical care upcoding allegations and the non- 3 critical care upcoding allegations in their time period arguments, but the Court finds a distinction 4 between the two useful. For the non-critical care upcoding allegations, relator only discusses a 5 sample of patient charts from a five-day period in November 2019. No other timing considerations 6 are mentioned. While relator’s time period allegations are slimmer in this regard, the Court finds 7 them sufficient to allow limited discovery regarding alleged non-critical care upcoding for a time 8 period equivalent to the course of relator’s contracted employment with defendants. If such 9 discovery provides a sufficient basis for broadening the non-critical care inquiry into a wider 10 timeframe, relator may return to the Court to seek permission to do so. 11 In summary, the Court concludes that relator has sufficiently alleged a time period to give 12 defendants notice of the federal False Claims Act count levied against them. 13 14 III. State Law Claims Outside of California 15 Lastly, defendants argue that relator has not sufficiently pled violations of state law fraud 16 statutes outside of California because relator’s examples all occur at one California hospital. Mot. 17 at 14-19; Reply at 10-12. Relator succinctly counters that providing details regarding a nationwide 18 scheme is sufficient to allege violations of state-level false claims statutes. Opp’n at 21. 19 In its complaint, relator alleges details establishing that the contested practices are 20 nationwide in scope, although only makes specific reference to three states other than California. 21 The complaint describes how SCP Health operates at 400 hospitals in 30 states and works through 22 subsidiaries and affiliates in each of the qui tam states. TAC ¶¶ 20-21. As described more fully 23 above, relator details SCP’s centralized structure and standardized, nationwide practices. Id. ¶¶ 57- 24 62, 79-82, 188. However, the complaint only directly references three other states where Dr. Kenley 25 spoke with SCP executives responsible for facilities in Ohio, Illinois, and Florida, and those 26 27 7 To the extent that defendants want to limit subsequent discovery, they can produce 1 executives confirmed that “chart deficiency” notices were commonly received by physicians in their 2 facilities as well. Id. ¶¶ 81, 87. 3 The case law provides conflicting opinions as to whether the inference of a nationwide 4 scheme supports state law causes of action. In U.S. ex rel. Brown v. Celgene Corp., a pharmaceutical 5 sales representative accused her former company of encouraging fraudulent claims through a 6 nationwide practice of marketing drugs for off-label uses. No. CV 10-3165-GHK SSX, 2014 WL 7 3605896, at *1 (C.D. Cal. July 10, 2014). Since the complaint alleged “nationwide, systemic 8 practices,” the court did not dismiss the state law claims en masse. Id. at *10. However, the court 9 did grant the defendant’s motion to dismiss certain state law claims based on arguments specific to 10 requirements contained those laws. Id. at *10-12. In United States v. Supervalu, Inc., two 11 pharmacists brought a qui tam action against a pharmacy chain in twenty-five states alleging the 12 pharmacy submitted false claims when it charged the government its listed prices, not the lower 13 prices it gave to consumers as a part of a competitive price-matching system. 218 F. Supp. 3d 767, 14 770 (C.D. Ill. 2016). The court found the allegations detailed a “uniform, nationwide and fraudulent 15 scheme facilitated through a shared centralized . . . system.” Id. at 772. As a result, the court 16 determined that the complaint contained sufficient particularity to support claims under the False 17 Claims Act and “related state laws,” although the court provided no discussion specific to the state 18 law claims. Id. at 776. 19 On the other hand, in United States ex rel. Chin v. CVS Pharmacy, Inc., the court allowed a 20 federal False Claims Act count to proceed but not counts under related state laws. No. CV 09-1293 21 PSG PJWX, 2017 WL 4174416, at *9 (C.D. Cal. Aug. 15, 2017). There, the relator had alleged 22 four instances across three states of a pharmacy offering illegal inducements to transfer 23 prescriptions. Id. at *7. The court found this sufficient to allege a nationwide scheme under the 24 False Claims Act. Id. at *7-8. At the same time, the court granted defendant’s motion to dismiss 25 related state law claims because the relator could not “merely imply state FCA claims based on 26 alleged federal FCA claims” and the relator had not pled specific facts about how false claims had 27 been submitted to the states. Id. at *8-9. Separately, in United States ex rel. Buth v. Walmart Inc., 1 were not sufficient to show that “management was aware of the . . . problem and failed to remedy 2 it” in other states. No. 18-CV-840, 2019 WL 3802651, at *6-7 (E.D. Wis. Aug. 13, 2019). As such, 3 the court allowed the False Claims Act to proceed but not related state laws from other states. Id. 4 at *6-8; see also United States v. Emergency Staffing Sols., Inc., No. 3:19-CV-1238-E, 2023 WL 5 2754347, at *7 (N.D. Tex. Mar. 31, 2023) (“While [the relator] may have alleged a nationwide 6 scheme of FCA violations . . . he has provided no reliable indicia leading to a strong inference that 7 Defendants submitted false claims in any state other than Oklahoma.”) 8 Here, relator has plausibly alleged that the fraudulent scheme at issue here extends beyond 9 Dr. Kenley’s experience at his hospital in California due to SCP Health’s nationwide practices. Like 10 in Supervalu, relator alleges “uniform, nationwide and fraudulent scheme facilitated through a 11 shared centralized . . . system.” See 218 F. Supp. 3d at 772. Taken altogether, relator’s allegations 12 create “reliable indicia that lead to a strong inference that claims were actually submitted” in 13 violation of the federal False Claims Act nationwide. See United States v. United Healthcare Ins. 14 Co., 848 F.3d at 1180. Further, the complaint details that individual states administer the Medicaid 15 program and that Medicaid or other state-based funding accounts for approximately 40% of funding 16 for emergency department services. TAC ¶¶ 3, 43. Unlike in Chin, the Court finds that these 17 assertions are sufficient to form the basis of parallel state law claims. 18 Defendants make two further arguments against allowing the state law claims to move 19 forward, but the Court finds neither persuasive at this stage of the proceedings. See Mot. at 18-19. 20 First, defendants argue that state laws often have procedural requirements and relator has failed to 21 allege satisfaction with those. Defendants cite just one example from New Mexico.8 Without more 22 specifics, the Court declines to dismiss the state law claims on this basis. Second, defendants argue 23 that this Court lacks supplemental jurisdiction over claims based on patient care in other states 24 because they are not based on the same transaction or occurrence as those claims arising under 25

26 8 Defendants’ cited case regarding the New Mexico Medicaid False Claims Act is distinguishable. There, the Court had on record a report from the state agency that concluded the 27 relator “failed to provide substantial evidence to support a violation” of the state statute. United States v. United Behav. Health, Inc., No. 1:15-CV-01164-KWR-JHR, 2023 WL 1817380, at *12 1 federal law. See 31 U.S.C. § 3732(b). Defendants miss the crux of relator’s allegations, which is 2 that the fraudulent claims come from a centralized, standardized billing structure under SCP Health. 3 Since relator challenges defendants’ consistent practice and not payment issues isolated to one or 4 two sites, the Court properly exercises supplemental jurisdiction. 5 In conclusion, the Court denies defendant SCP Health’s motion to dismiss the state law 6 claims against it. However, the non-California state law claims are dismissed as to defendant 7 California Emergency Associates, an SCP Health subsidiary or affiliate alleged to be “a California 8 medical corporation doing business in California and controlled by SCP.” TAC ¶ 23. 9 10 IV. Discovery Dispute 11 Given the age of this case, the Court allowed some discovery to proceed pending the motion 12 to dismiss. Dkt. No. 90 (Transcript of January 17, 2025 Case Management Conference). On April 13 2, 2025, the parties presented a dispute about the scope of that discovery. The Court considers this 14 scope dispute moot now that it has ruled on the motion to dismiss. The parties also dispute whether 15 their stipulated protective order, approved by the Court, is a “qualified protective order” that allows 16 sharing of personal health information under the Health Insurance Portability and Accountability 17 Act (HIPAA). HIPAA regulations allow discovery of protected health information when there is a 18 protective order in place that prohibits use or disclosure outside of the litigation and requires the 19 return or destruction of the information at the end of the litigation. 45 C.F.R. § 164.512(e)(1)(ii), 20 (iv)-(v). In this case, the stipulated protective order meets both conditions. Dkt. No. 96 ¶¶ 7.1, 13. 21 Defendants cannot withhold discovery on this basis. 22 23 CONCLUSION 24 For the foregoing reasons and for good cause shown, the Court hereby DISMISSES non- 25 California state law causes of action against defendant California Emergency Associates without 26 leave to amend. Defendants’ motion is DENIED in all other respects. 27 The Court orders the parties to appear for a further case management conference to discuss 1 submit a joint statement to the Court in accordance with the standing order for all judges of the 2 || Northern District of California. 3 4 IT IS SO ORDERED. 5 || Dated: May 9, 2025 Site WU tee 6

SUSAN ILLSTON

7 United States District Judge 8 9 10 11 a 12

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