Petrick v. Stars Bay Area, Inc

Background

Kristen Petrick, identified as the plaintiff-relator, sued Stars Bay Area, Inc. and Doe defendants on behalf of the United States and California. The United States and California declined to intervene. Petrick alleged that Stars, which provides therapy and counseling services to children, submitted improper billing claims involving government-funded insurance programs, including Medicaid and Medi-Cal, and private insurance companies.

Petrick worked at Stars as a Board Certified Behavioral Analyst and later as Director of Operations. She alleged that employees called “leads,” who were not Board Certified Behavioral Analysts, billed for services that only Board Certified Behavioral Analysts could perform. She said she raised concerns with Stars management, was told the billing practices were allowed or acceptable, and was terminated on October 28, 2018.

She asserted three claims: (1) violation of the federal False Claims Act, under a theory that Stars falsely certified compliance with requirements for payment; (2) violation of the California False Claims Act; and (3) violation of California Insurance Code section 1871.4.

Legal standards

The court evaluated Stars’s motion under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim, and Rule 9(b), which requires fraud allegations to describe the misconduct with particularity, including who was involved, what happened, when and where it happened, and how it was fraudulent.

For the federal False Claims Act claim, the court explained that Petrick had to plead a false statement or fraudulent conduct, knowledge or reckless disregard of the truth, materiality, and a resulting government payment or loss. A claim based on false certification requires allegations showing what law, regulation, or contract requirement was falsely certified and why that requirement mattered to the government’s payment decision.

Federal False Claims Act claim

The court dismissed the federal claim because the amended complaint did not adequately allege that Stars actually submitted a false claim or statement to the federal government. Petrick relied on allegations made “upon information and belief,” but did not provide enough factual support for that belief.

The court also found that the complaint did not clearly identify a representative false claim. It contained inconsistent descriptions of billing codes, did not provide the professional qualifications of the identified leads beyond stating that they were not Board Certified Behavioral Analysts, and did not identify which plans or insurers received the particular bills or what billing requirements applied. The court further found that Petrick did not provide reliable indications that entries in Stars’s billing system necessarily resulted in claims to the federal government.

The court found the materiality allegations deficient because Petrick did not identify the statutes, regulations, contracts, or contract provisions with which Stars allegedly certified compliance. She also did not allege facts showing that the billing codes or professional qualifications mattered to the federal or California governments’ decisions to pay Medicaid or Medi-Cal benefits.

The court found that Petrick adequately alleged that Stars management knew about her concerns, but that these allegations alone did not show that Stars knowingly made a false certification. The court therefore dismissed the federal False Claims Act claim with leave to amend.

California False Claims Act claim

The court explained that the California False Claims Act has the same basic elements as the federal law, except that the allegedly false claim must be made to the California government. Because Petrick based this claim on the same allegations as the federal claim and did not allege an actual submission of a false claim or certification to California, the court dismissed the California False Claims Act claim with leave to amend.

California Insurance Code section 1871.4 claim

Petrick alleged that Stars knowingly presented false claims to private insurance companies. The court held that section 1871.4 concerns workers’ compensation benefits. It explained that the statute’s references to compensation, injured employees, and injured workers limited the provision to workers’ compensation matters. The court rejected Petrick’s argument that a subsection addressing assistance, conspiracy, or solicitation extended the statute beyond that subject.

Petrick alternatively argued that she had stated a claim under California Insurance Code section 1871.7, but the court found that the amended complaint did not plead a violation of that provision. The court also stated that such a fraud claim would still have to satisfy Rule 9(b), which the court found Petrick had not met. Because the allegations appeared unrelated to workers’ compensation, the court dismissed the section 1871.4 claim with prejudice and did not allow amendment of that claim.

Disposition

The court granted Stars’s motion to dismiss. Petrick could file a second amended complaint attempting to state claims under the federal False Claims Act and the California False Claims Act by March 19, 2021. Judge Virginia K. Demarchi did not allow amendment of the California Insurance Code section 1871.4 claim.