United States Court of Appeals For the First Circuit
No. 23-1305
UNITED STATES EX REL. MARTIN FLANAGAN,
Plaintiff, Appellant,
v.
FRESENIUS MEDICAL CARE HOLDINGS, INC., d/b/a Fresenius Medical Care North America,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. F. Dennis Saylor, IV, U.S. District Judge]
Before
Montecalvo, Thompson, and Kayatta, Circuit Judges.
Jamie Michele Bennett, with whom Bennett Law, Christopher P. Sullivan, Pamela E. Berman, Robins Kaplan LLP, W. Scott Simmer, Noah M. Rich, and Baron & Budd, P.C., were on brief, for appellant.
James F. Bennett, with whom Maria R. Durant, Hogan Lovells LLP, Megan S. Heinsz, Hannah F. Preston, and Dowd Bennett LLP were on brief, for appellee.
Daniel Winik, Appellate Staff, Civil Division, U.S. Department of Justice, with whom Brian M. Boynton, Principal Deputy Assistant Attorney General, Joshua S. Levy, Acting U.S. Attorney, Michael S. Raab, Appellate Staff, Civil Division, U.S. Department of Justice, and Charles W. Scarborough, Appellate Staff, Civil Division, U.S. Department of Justice, were on brief, for the United States, amicus curiae. June 27, 2025 MONTECALVO, Circuit Judge. Martin Flanagan brought this
qui tam suit against Fresenius Medical Care Holdings, Inc.
("Fresenius"), under the False Claims Act ("FCA"), 31 U.S.C.
§ 3729, alleging a fraudulent kickback scheme related to referrals
to Fresenius-operated dialysis clinics. The district court
dismissed Flanagan's complaint for failing to meet the heightened
pleading standard under Rule 9(b) of the Federal Rules of Civil
Procedure, among other reasons. When Flanagan then sought leave
to amend his complaint, the district court also denied that motion.
Flanagan now appeals these decisions, arguing that the complaint
satisfied the heightened pleading standard necessary to assert
fraud claims and that the district court abused its discretion in
denying his motion for leave to amend. For the reasons that
follow, we affirm both decisions of the district court.
I. Background1
A. The Parties
Fresenius is the country's largest dialysis services
provider. Annually, it treats nearly 190,000 patients in
approximately 2,400 outpatient dialysis clinics across the United
States. Flanagan worked for Fresenius for twenty-nine years, most
recently as Director of Acute Market Development for the Fresenius
At this stage of the litigation, "[w]e draw the facts from 1
the complaint, taking the well-pleaded facts as true and construing all reasonable inferences in [Flanagan]'s favor." Zhou v. Desktop Metal, Inc., 120 F.4th 278, 283 (1st Cir. 2024).
- 3 - Western Business Unit. In that role, he was responsible for
negotiating contracts under which Fresenius provided dialysis
treatment to hospital inpatients. He also, as detailed below,
observed what he believed to be an elaborate kickback scheme
utilized to induce referrals to Fresenius clinics.
B. Relevant Underlying Facts
1. Medical Background
Chronic kidney disease is the progressive loss of a
person's kidney function, which is typically irreversible.
End-stage renal disease ("ESRD") is an advanced form of chronic
kidney disease -- also classified as stage 5 chronic kidney disease
-- that requires either dialysis treatments or a kidney transplant.
At the end of 2017, almost 750,000 patients in the United States
were suffering from ESRD. Many of those patients undergo a regular
regimen of dialysis treatments; about half of those patients begin
dialysis "emergently" after experiencing complications from kidney
failure. The dialysis treatments are intended to replace some
functions typically performed by the kidney; during treatment a
patient's blood is gradually pumped through a device called a
dialyzer that filters out excess water, solutes, and toxins before
being returned to the body. Often, patients also receive separate
injectable medications during their dialysis treatment. Most
dialysis patients undergo treatment at a clinic three times per
week.
- 4 - 2. Treatment Funding
The federal government helps cover costs for ESRD
treatment. It does so primarily through two subsidized health
insurance programs: Medicare and Medicaid.2
a. Medicare
All patients with ESRD are eligible for benefits from
Medicare, a federally funded health insurance program. The
Medicare program is administered through the Centers for Medicare
& Medicaid Services ("CMS"), an agency within the Department of
Health and Human Services.
One portion of Medicare covers dialysis services
provided in outpatient clinics. Because of this coverage, Medicare
is the primary payor for more than 80% of ESRD patients in this
country for the cost of their dialysis treatments. These Medicare
expenditures exceed $40 billion annually. Medicare reimburses
providers at a composite rate for outpatient maintenance dialysis
services (including nursing and clinical services, social
2 Other federal health programs also provide benefits to patients with ESRD, including the Civilian Health and Medical Program of the Uniformed Services (known as CHAMPUS/TRICARE), which is administered by the U.S. Department of Defense for individuals affiliated with the armed forces, and the Civilian Health and Medical Program of the Department of Veterans Affairs (known as CHAMPVA), which is administered by the U.S. Department of Veterans Affairs for the families of veterans. These programs are not part of the claims in this case.
- 5 - services, supplies, equipment, and certain laboratory tests and
drugs).
For Medicare reimbursement, ESRD treatment providers
submit one reimbursement claim bill per month for each patient,
which includes costs for dialysis treatment, laboratory costs, and
separately billable drugs. These reimbursement claims include a
variety of data, including information about the patient and the
claims sought to be reimbursed. Fiscal intermediaries contracting
with CMS process and pay out reimbursement claims. These payments
are made directly to the ESRD treatment facilities; other entities
providing services -- such as laboratories, suppliers, and
physicians billing for ESRD-related drugs -- must then seek payment
from those facilities.
Dialysis facilities must submit annual Medicare cost
reports. These cost reports include a certification of adherence
to applicable laws and regulations. The reports also include
information about the percentage of hours that medical directors
work at a dialysis facility.
b. Medicaid
Medicaid, a joint federal-state program administered by
states, also provides payment for some costs for ESRD patients who
do not qualify for Medicare or for treatment costs not covered by
Medicare. Although CMS administers Medicaid at the federal level,
each state sets its own guidelines regarding eligibility and
- 6 - services. Funding for Medicaid comes from both the states and the
federal government, and the states then utilize a combination of
state and federal funds to pay claims submitted to Medicaid.
Because of this relationship between the state and
federal governments, states must submit certain forms to CMS to
receive federal funding for Medicaid. These forms include claims
for reimbursement submitted to and paid through Medicaid. The
federal government then utilizes these forms to determine whether
any fraudulent claims were paid and may later recoup any
erroneously paid funds by reducing the amount provided to the state
in the future.
C. Alleged Wrongdoing
The amended complaint alleges that Fresenius created a
kickback scheme to wrongfully induce referrals. Because the
allegations regarding the kickback scheme are not directly at issue
here, we summarize the scheme below.
1. Fresenius Hospital Contracts
Around 2007, Fresenius began to seek exclusive contracts
with hospitals to provide inpatient dialysis care in the hospital
setting. Fresenius instructed mid-level managers, including
Flanagan, to obtain hospital contracts "at any cost," as this would
help the managers to later secure referrals for patients at that
hospital after they were discharged. To entice hospital contracts,
Fresenius severely limited the costs and fees that would be
- 7 - contractually passed on to the hospitals and did not enforce
certain provisions that would have increased costs. Fresenius
management specifically instructed Flanagan that entering into
these below-cost contracts was the company's standard business
practice.
Accordingly, Fresenius budgeted for -- and incurred --
losses in some of its contracts with larger hospitals. Fresenius's
underlying goal for entering into these hospital contracts below
cost was to secure more referrals for its outpatient facilities,
thereby more than making up for its losses on the hospital
contracts.
Efforts to sign hospital contracts intensified in late
2009 to early 2010, and several executives and upper-level managers
told marketing directors that "if you lose a hospital, we lose
referrals." In 2010, Flanagan spoke with both his supervisor and
another executive in the company regarding his concerns that
Fresenius appeared to be buying referrals from hospitals with
below-cost contracts. Flanagan was told that he should not
complain about or be concerned with this issue. Other employees
throughout the country had similar experiences regarding their
concerns about the below-cost hospital contracts.
2. Fresenius Medical Directors
Separate from its hospital contracts, Fresenius also
contracted with hospital nephrologists to serve as medical
- 8 - directors at Fresenius outpatient facilities. Medicare
regulations require there to be a medical director overseeing the
operation and safety of each dialysis clinic. 42 C.F.R. § 494.150
(2025). According to Flanagan, the regulations further require
that medical directors "devote sufficient time" to this position
and offer guidance that this time should amount to approximately
one quarter of a typical forty-hour work week.
Fresenius targeted its recruiting of medical directors
at those nephrologists who were in positions to refer high numbers
of patients to Fresenius outpatient facilities. Although not made
explicit in contracts, medical directors' compensation often
correlated with the number of patients the doctor had and would
increase as the number of patients in a clinic grew.
Although there was significant variation among medical
directors' salaries, the medical directors were well-compensated.
These salaries were often more than double those paid by
Fresenius's primary competitor in the same localities. Reports
from Fresenius claim that its medical directors worked eight to
ten hours per week. However, Fresenius does not require its
medical directors document their time.
Flanagan personally recollected that the medical
directors spent little to no time at Fresenius outpatient
facilities. He believed that their involvement was often limited
to monthly reviews of documents that required a medical director's
- 9 - signature, which took less than an hour of time. Flanagan's
experience was that Fresenius did not track the services that the
medical directors were performing.
Medical directors could also have a difficult time
leaving their positions. All Fresenius medical directors sign
contracts that include non-compete, non-solicitation, and
non-disparagement provisions. To be released from the non-compete
provisions, the medical directors would have to negotiate buyouts.
3. Fresenius Free or Below-Cost Services
In addition to below-cost contracts, Fresenius offered
other benefits to hospitals, all allegedly tailored towards the
same overarching goal of securing as many patient referrals to its
facilities as possible. The amended complaint specifically
highlights four different benefits: (1) the Bridge Program;3
3 This program provided free services to hospitals, which included providing a Fresenius employee to perform certain tasks and "funnel[]" ESRD patients to its own outpatient facilities. These free services were valued at more than $10,000 annually per hospital.
- 10 - (2) the Treatment Options Program;4 (3) value added services;5 and
(4) practice management services.6
4. Lease Agreements
Fresenius entered extended, guaranteed lease agreements
for office space in physician-owned buildings. These leases were
at rates above fair market value and were often guaranteed for
fifteen years. The leases also included annual escalator
provisions. On the other side of transactions, Fresenius leased
office space in buildings that it owned. Fresenius leased these
spaces to its medical directors at rates below fair market value.
4 Fresenius made this educational service available to "interested hospitals, physicians, and community organizations," whether or not they participated in the Bridge Program. The program also promoted Fresenius's outpatient services. 5 These "value added services" or "services beyond the rate" included free nursing services, in-service training, transportation to and from dialysis treatments, and patient education. 6 These services provided physician practices with free or below-cost services, including specialty advice and technology solutions. Fresenius communicated to doctors utilizing this service that early referrals to Fresenius's outpatient clinics could be profitable to physician practices. Fresenius also provided physicians with a free recruiting service targeting nephrology fellows and practicing physicians to join the physicians' practices. Sometimes, the physicians involved in this service also entered into Confidentiality Agreements and Business Associate Agreements, through which they received additional free resources.
- 11 - 5. Joint Venture Agreements
In 2007, Fresenius began entering into joint venture
agreements with nephrologists and other physicians, which allowed
partners to share in the management, profits, and losses of the
outpatient dialysis facilities. Fresenius anticipated a
significant number of referrals to come from its joint venture
partners and put pressure on the partners to refer patients to
Fresenius clinics. The joint venture agreements also included
non-compete clauses, which made it difficult for physicians to
leave the joint venture.
D. Procedural History
In March 2014, Flanagan filed this qui tam suit against
Fresenius in the U.S. District Court for the District of Maryland,
alleging presentation of false claims in violation of the FCA,
31 U.S.C. § 3729(a)(1)(A), and making or using false records
material to a false or fraudulent claim in violation of the FCA,
id. § 3729(a)(1)(B).
The complaint was initially sealed to give the U.S.
Department of Justice time to investigate and determine whether
the United States would intervene, as occurs in all FCA qui tam
actions. See United States ex rel. Nargol v. DePuy Orthopaedics,
Inc., 865 F.3d 29, 31-32 (1st Cir. 2017); see also United States
ex rel. Lovell v. AthenaHealth, Inc., 56 F.4th 152, 155 (1st Cir.
2022) ("A plaintiff's complaint may remain sealed for an extended
- 12 - period while the government investigates the allegations prior to
making its intervention decision."). In June 2020, the government
declined to intervene. Cf. United States ex rel. Ge v. Takeda
Pharm. Co., 737 F.3d 116, 119 (1st Cir. 2013) ("In a successful
qui tam action, the relator collects a portion of the award to the
government regardless of whether the government intervenes.").
The complaint was unsealed shortly thereafter.
Fresenius moved to dismiss in January 2021. In response,
Flanagan filed the amended complaint in February 2021. The amended
complaint reasserted the claims under the FCA but also added over
100 pages of new allegations which detailed new fraudulent schemes
not previously alleged in the original complaint.
In the amended complaint, Flanagan alleged that
Fresenius defrauded the government by
[k]nowingly offering remuneration to hospitals in the form of no-cost or below-cost items and services (including but not limited to free discharge planners) in connection with the provision of inpatient dialysis care to ESRD patients, at least one purpose of which was to secure referrals from those hospitals for patients who would enter outpatient care at Fresenius dialysis clinics, in violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b) ("AKS") and which did not meet safe harbor requirements; and [i]n violation of the AKS (and which did not meet safe harbor requirements), knowingly offering remuneration to physicians (at least one purpose of which was to reward or induce referrals from those physicians to Fresenius'[s] network of outpatient clinics), including: medical director agreements
- 13 - ("MDAs") that were well above fair market value ("FMV") or commercially unreasonable; free patient education services and/or free or below-cost practice management services (including free recruitment services for new nephrologists entering the workforce); lease agreements that were commercially unreasonable and not at FMV[]; and joint venture agreements . . . in outpatient dialysis clinics that were commercially unreasonable and not at FMV.
Fresenius subsequently filed a motion to transfer the
case from the District of Maryland. The court granted Fresenius's
motion to transfer, and the case was transferred to the U.S.
District Court for the District of Massachusetts in October 2021.
Once in the District of Massachusetts, Fresenius again
filed a motion to dismiss, seeking dismissal under Rules 9(b),
12(b)(1), and 12(b)(6) of the Federal Rules of Civil Procedure.
In support of dismissal, Fresenius raised five separate issues:
(1) the amended complaint did not comply with the FCA's statutory
requirements for filing new claims under 31 U.S.C. § 3730(b)(2);
(2) the FCA's public-disclosure bar, 31 U.S.C. § 3730(e)(4), bars
Flanagan's claims related to Fresenius's joint venture agreements
and medical director arrangements; (3) the FCA's first-to-file
rule, 31 U.S.C. § 3730(b)(5), bars Flanagan's joint venture
claims; (4) Flanagan did not allege sufficient facts to support
either a predicate violation of the AKS or a violation of the FCA
with the particularity required by Rule 9(b); and (5) Flanagan
failed to state a claim for FCA conspiracy. Specifically,
- 14 - Fresenius argued that Flanagan failed to adequately plead
causation under the FCA. Flanagan opposed the motion to dismiss.
On May 23, 2022, the district court held a hearing on
the motion to dismiss and ultimately took the matter under
advisement. On December 5, 2022, the district court granted
Fresenius's motion to dismiss. In doing so, the court considered
the mandatory pre-suit requirements under the FCA, the
applications of the public-disclosure bar and the first-to-file
bar, and the pleading standards under Rule 9(b).
First, the court explained that the amended complaint
added 125 pages of allegations and multiple new claims to the
original complaint. Specifically, the original complaint -- which
complied with the FCA's filing requirements -- did not contain any
allegations about the joint venture agreements or provisions
providing free services. The amended complaint, on the other hand,
did not comply with the FCA's mandatory filing requirements;
namely, it was not filed under seal, and the government was not
given the opportunity to determine if it would intervene.
Accordingly, the district court dismissed those new claims.
Next, the district court found that, even if the joint
venture claims in the amended complaint met the FCA's filing
requirements, they were further precluded by both the
public-disclosure and first-to-file bars. This was so because
another lawsuit filed and unsealed prior to the amended
- 15 - complaint -- Complaint, United States ex rel. CKD Project v.
Fresenius Med. Care Holdings, 551 F. Supp. 3d 27 (E.D.N.Y. 2021)
(No. 14-cv-6646) -- contained allegations substantially similar to
those that Flanagan newly asserted regarding the joint venture
claims. As to the public-disclosure bar, the district court
concluded that Flanagan's allegations did not "materially add" to
the public allegations in that lawsuit. And as to the
first-to-file bar, the court determined that Flanagan alleged the
same scheme that was alleged in the prior lawsuit and no exceptions
to the first-to-file bar applied. Thus, the district court
concluded that these were alternative bases for dismissing the
amended complaint's new claims regarding joint ventures.
Lastly, the district court determined that the amended
complaint, although lengthy and detailed regarding how claims are
submitted generally and how Fresenius's alleged kickback scheme
functioned, still failed to state a claim under the FCA because
there were not "particularized allegations of claims for payment
arising from that scheme." The district court also determined
that, under Rule 9(b), the amended complaint did not describe the
false claims with the requisite level of specificity. As to
Medicare claims specifically, which Fresenius submitted directly
to the federal government, the district court found that Flanagan
had not identified a single specific false claim or provided any
representative or sample claims, as required. The district court
- 16 - also expressed doubt that the amended complaint adequately pled
causation as required by the relevant statutes. Although the court
also suggested that but-for causation was the proper standard, it
ultimately decided the motion on other grounds. Accordingly, the
district court also found dismissal appropriate under Rule 9(b).
In January 2023, Flanagan filed a motion for
reconsideration and a motion to amend the amended complaint. The
district court denied both motions. As to the motion to amend,
the district court recognized that the case was, at that time,
nearly nine years old and that Fresenius had filed three different
motions to dismiss, all of which targeted Flanagan's failure to
plead any false claims with particularity. For these reasons, the
district court found that the "extensive delays" and "obvious
prejudice to defendant" were sufficient reasons to deny the motion
to amend.
Flanagan then filed a timely notice of appeal as to the
order dismissing the complaint, the order denying his motion for
reconsideration, and the order denying his motion for leave to
file a second amended complaint.
II. Discussion
On appeal, Flanagan asserts that the district court made
two central errors: first, that it should not have dismissed claims
for failing to satisfy Rule 9(b); and second, that it abused its
discretion in denying his motion to amend. The first issue
- 17 - requires us to examine only the claims and allegations that the
district court dismissed under Rule 9(b); thus, we do not address
the alternative grounds for dismissal (in other words, we leave
undisturbed the district court's rulings on the failure to meet
statutory requirements, the public-disclosure bar, and the
first-to-file bar). We address the granting of the motion to
dismiss and the denial of the motion to amend in turn.
A. Motion to Dismiss
1. Standard of Review
A district court's decision granting a motion to dismiss
is subject to de novo review. See Zhou v. Desktop Metal, Inc.,
120 F.4th 278, 287 (1st Cir. 2024). Our review "requires that we
separate factual allegations from conclusory ones and then
evaluate whether the factual allegations support a 'reasonable
inference that the defendant is liable for the misconduct
alleged.'" United States ex rel. Zotos v. Town of Hingham, 98
F.4th 339, 343 (1st Cir. 2024) (quoting Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009)). Because Flanagan alleges fraud claims, the
complaint must also satisfy the heightened pleading standard under
Rule 9(b), which requires the circumstances of fraud to be alleged
with particularity. See Zhou, 120 F.4th at 287; United States ex
rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 228 (1st
Cir. 2004) (holding that "Rule 9(b) applies to claims under the
- 18 - FCA"), abrogated on other grounds by, Allison Engine Co. v. United
States ex rel. Sanders, 553 U.S. 662 (2008).
Before examining the sufficiency of the complaint here,
we first provide a brief overview of the relevant statutes.
2. Statutory Background
Flanagan's allegations center on two interlinked
statutes: the FCA and the AKS. We briefly describe the relevant
portions of each statute.
a. The False Claims Act
The FCA "is an 'expansive' statute, intended 'to reach
all types of fraud, without qualification, that might result in
financial loss to the [g]overnment.'" United States ex rel.
Escobar v. Universal Health Servs., Inc., 780 F.3d 504, 512 (1st
Cir. 2015) (cleaned up) (quoting Cook County v. United States ex
rel. Chandler, 538 U.S. 119, 129 (2003)), vacated on other grounds,
Universal Health Servs., Inc. v. United States, 579 U.S. 176
(2016). The FCA holds liable anyone who "knowingly presents, or
causes to be presented, a false or fraudulent claim for payment or
approval" or who "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)(A), (B). "For purposes of the
statute, 'a claim includes direct requests to the government for
payment as well as reimbursement requests made to the recipients
of federal funds under federal benefit programs.'" Guilfoile v.
- 19 - Shields, 913 F.3d 178, 187 (1st Cir. 2019) (cleaned up) (quoting
Universal Health Servs., Inc., 579 U.S. at 181).
b. The Anti-Kickback Statute
Flanagan's FCA claims are rooted in alleged violations
of the AKS, which prohibits, among other things, "knowingly and
willfully offer[ing] or pay[ing] 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"
either "to refer an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which
payment may be made in whole or in part under a Federal health
care program" or "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." 42 U.S.C. § 1320a-7b(b)(2).
"The AKS was designed to prevent medical providers from
making decisions based on improper financial incentives rather
than medical necessity and to ensure that federal health care
programs do not bear the costs of such decisions." United States
ex rel. Banigan v. PharMerica, Inc., 950 F.3d 134, 137 (1st Cir.
2020). "Essentially, the AKS targets any remunerative scheme
through which a person is 'paid in return for referrals' to a
program under which payments may be made from federal funds."
Guilfoile, 913 F.3d at 189 (quoting United States v. Patel, 778
- 20 - F.3d 607, 618 (7th Cir. 2015)). There is no question that
liability under the FCA can be predicated on a violation of the
AKS. See id.; Banigan, 950 F.3d at 137. There are two pathways
to FCA liability for an AKS violation: (1) "when someone falsely
represents compliance with a material requirement that there be no
AKS violation in connection with the claim," United States v.
Regeneron Pharms., Inc. ("Regeneron"), 128 F.4th 324, 333 (1st
Cir. 2025), and (2) when claims for payment are made "resulting
from" AKS violations, 42 U.S.C. § 1320a-7b(g). Flanagan asserts
that the amended complaint presents claims under both pathways.
We have recently interpreted the meaning of "resulting
from" under the AKS. See Regeneron, 128 F.4th at 328-36. In so
doing, this court concluded that "to demonstrate falsity" under a
theory that the claim resulted from an AKS violation, the plaintiff
"must show that an illicit kickback was the but-for cause of a
submitted claim." Id. at 336. Put another way, the phrase
"resulting from" requires actual causality, which "demands proof
'that the harm would not have occurred but for the defendant's
conduct.'" Id. at 329 (cleaned up) (quoting Univ. of Tex. Sw.
Med. Ctr. v. Nassar, 570 U.S. 338, 346-47 (2013)).
3. False Claims
We now take on Flanagan's core allegations of FCA
violations, concluding that the amended complaint fails to
adequately plead that the alleged AKS violations were the but-for
- 21 - cause of the submitted claims or that Fresenius falsely certified
that it complied with the AKS.
a. "Resulting From" Claims
The issue of causation has loomed as a potential threat
to Flanagan's claims since the outset of this lawsuit. In its
motion to dismiss, Fresenius argued that the complaint failed to
establish causation, citing the but-for standard applied by the
district court in United States v. Regeneron Pharms., Inc.,
No. 20-11217, 2020 WL 7130004, at *14 (D. Mass. Dec. 4, 2020). In
resolving the motion to dismiss, the district court suggested that
but-for causation may be required but decided that motion on other
grounds. Our circuit had not yet decided the issue, so on appeal,
Flanagan initially argued that but-for causation was not required,
but, even if it was, the complaint was adequate. Subsequently,
Regeneron resolved the issue, and Flanagan now acknowledges that
the law in this circuit requires such a standard.7 We now focus
on Flanagan's alternative argument -- that the amended complaint
adequately pleads but-for causation by articulating "specific
compensation relationships with specific physicians which were
intended to and did result in referrals." Flanagan's briefing
7 On March 7, 2025, Flanagan filed a letter with the Clerk's Office under Rule 28(j) of the Federal Rules of Appellate Procedure. In that letter, Flanagan conceded that our decision in Regeneron resolved the issue of what standard of causation should be applied.
- 22 - goes on to focus on claims relating to only one physician -- thus,
we do the same.8
In particular, Flanagan focuses on the allegations that
Dr. Stephen Tilles held two medical director positions with
Fresenius, that his compensation in those roles was meant to induce
referrals, and that Tilles and his practice referred sixty patients
to Fresenius clinics in 2012. The amended complaint also alleges
that a Fresenius report stated that "Dr. Tilles['s] contract
renewal is critical. Currently, he is [the] only physician
referring to San Jose and has [the] majority of Los Gatos. He
must be secured for at least one more year at San Jose and
indefinitely in Los Gatos." The amended complaint further alleges
that Fresenius tracked the number of patients that Tilles referred
to non-Fresenius clinics.
These allegations, though, do nothing to tell us whether
Tilles's referrals resulted from the alleged kickback scheme.
There are no allegations that Tilles would not have made these
referrals had he not been given the medical director position. At
a minimum, Flanagan was required to plead some information that
would have allowed us to reasonably infer in his favor that
causation exists. Accordingly, the amended complaint lacks the
Flanagan's Rule 28(j) letter similarly only cited to the 8
portions of the amended complaint that refer to a single physician in support of the proposition that the amended complaint satisfied the but-for causation standard.
- 23 - detail needed to plausibly allege but-for causation. See United
States ex rel. Martin v. Hathaway, 63 F.4th 1043, 1053 (6th Cir.
2023) (finding that but-for causation was not plausibly alleged
when "[t]here's not one claim for reimbursement identified with
particularity in this case that would not have occurred anyway");
see also Stop Ill. Health Care Fraud, LLC v. Sayeed, 100 F.4th
899, 909 (7th Cir. 2024) (noting that but-for causation would be
established if plaintiff could show that "the defendants would not
have provided service to [the relevant] patients" in the absence
of the fraudulent referral scheme). Without any further details,
no reasonable inference can be made in Flanagan's favor as to
causation. See Comcast Corp. v. Nat'l Ass'n of Afr. Am.-Owned
Media, 589 U.S. 327, 331-32, 336 (2020) (holding that but-for
causation must be adequately pled and that such a rule cannot "be
overlooked or modified in the early stages of a case").
Thus, Flanagan's claims arising under the theory that
the reimbursement claims resulted from AKS violations were
properly dismissed because the amended complaint failed to allege
but-for causation.
b. False Representation Claims
Flanagan next argues that he has separate claims under
31 U.S.C. § 3729(a)(1)(B) that the district court did not address.
- 24 - As a reminder, under subsection (a)(1)(B),9 a defendant can be held
liable when they "knowingly make[], use[], or cause[] to be made
or used, a false record or statement material to a false or
fraudulent claim." Further, "[t]he defendant must have 'intended
the [g]overnment to rely on that false statement as a condition of
payment.'" United States ex rel. Gagne v. City of Worcester, 565
F.3d 40, 46 (1st Cir. 2009) (cleaned up) (quoting Allison Engine
Co., 553 U.S. at 672). Unlike the "resulting from" claims
addressed above, these types of claims do not require proof of
causation. See Regeneron, 128 F.4th at 333-34.
Flanagan argues that the amended complaint alleges that
Fresenius made false records by falsely certifying its compliance
with the AKS annually and by falsely certifying cost reports that
listed the number of hours that its medical directors work. He
recites the details the complaint alleges regarding the kickback
scheme and the allegedly tainted referrals and argues that
"Fresenius fully intended to bill all payors, including federal
health care programs, for treatments resulting from each
referral."
However, the complaint is not as specific as Flanagan
asserts. First, the complaint alleges that submitting certain
Subsection (a)(1)(B) was formerly subsection (a)(2) under 9
the FCA. See United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 46 (1st Cir. 2009).
- 25 - certifications and information in forms is required under the
Medicare program and then broadly alleges that every Fresenius
clinic submits these forms every year. But Flanagan has not
pointed us to any allegations in the complaint that address what
Fresenius actually submitted in those reports, either as to
certifications or as to hours worked by medical directors.
Further, with respect to the overarching kickback scheme, he still
must plead with particularity the connection between false records
and/or statements and the intent to have a false claim paid for by
the government programs. See Gagne, 565 F.3d at 46. Broadly
stating that Fresenius intended to have all claims paid, whether
or not tainted by the kickback scheme, is not sufficient to satisfy
our heightened standard under Rule 9(b).
For these reasons, Flanagan's claim under
subsection (a)(1)(B) was also properly dismissed.
B. Motion to Amend
This court reviews the denial of a motion to amend for
abuse of discretion. Ge, 737 F.3d at 127.
Flanagan argues that, in denying his motion to amend,
the district court failed to identify any actual prejudice to
Fresenius or explain why his motion constituted an "undue delay."
Flanagan asserts that because there has yet to be discovery in
this case and there is no trial date, Fresenius would not be
prejudiced by an amendment simply because the case had been pending
- 26 - for nearly a decade at the time of the proposed amendment.
Further, because Flanagan, in his opening brief, primarily focuses
on whether he sufficiently pled a false claim, he emphasizes that
he did not have the necessary claims data needed to amend his
complaint until after the motion to dismiss was decided, and,
therefore, he could not have amended his complaint until that time.
"Amendments may be permitted pre-judgment, even after a
dismissal for failure to state a claim, and leave to amend is
freely given when justice so requires." Id. (quoting Palmer v.
Champion Mortg., 465 F.3d 24, 30 (1st Cir. 2006)). "Nonetheless,
grounds for denying leave include 'undue delay, bad faith or
dilatory motive[,] repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the opposing
party[,] and futility of amendment.'" Kader v. Sarepta
Therapeutics, Inc., 887 F.3d 48, 60 (1st Cir. 2018) (cleaned up)
(quoting ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 55-56
(1st Cir. 2008)). Although our amendment rules are "liberal," the
district court has "significant latitude" in determining whether
to allow leave to amend. Id. at 60-61 (quoting Advest, Inc., 512
F.3d at 55). "[N]otably, 'undue delay in moving to amend, even
standing alone,' can provide a court with adequate grounds to deny
leave." Id. at 61 (quoting Zullo v. Lombardo, 755 F.3d 1, 3 (1st
Cir. 2014)). "[W]e have explicitly condemned a 'wait and see'
approach to pleading, whereby plaintiffs 'having the needed
- 27 - information, deliberately wait in the wings with another amendment
to a complaint should the court hold the first amended complaint
was insufficient.'" Id. (cleaned up) (quoting Advest, Inc., 512
F.3d at 57).
As discussed above, the original complaint was filed in
March 2014 and there was some delay in the case while the
government decided whether to intervene. However, Fresenius filed
its first motion to dismiss in January 2021, raising substantially
the same arguments that are now before us. Although Flanagan
attempted to cure these deficiencies by filing the amended
complaint in February 2021, the government filed another motion to
dismiss in March 2021, again asserting substantially the same
arguments raised in its previous motion and now raised before us.
Once the case was transferred to the District of Massachusetts,
Fresenius (now for the third time) filed its motion to dismiss in
January 2022. Only after the district court issued its order,
almost a year after the most recent motion to dismiss was filed,
did Flanagan then file his motion to amend the complaint.
Although Flanagan argued, both to the district court and
before us, that this delay should be excused because he did not
receive the claims information until after the motion to dismiss
was granted, he has not provided the court with any information as
to when he sought this claims information or why this claims
information was needed to plead causation. Without more from
- 28 - Flanagan, the district court could reasonably conclude that --
although Flanagan was aware of Fresenius's arguments and the
potential need for an amendment for two years -- he waited until
after the district court granted the motion to dismiss to seek the
claims information he allegedly needed to amend his complaint.
This two-year period is significantly longer than periods of time
we have previously relied upon in upholding denials of leave to
amend on undue delay grounds. See id.
Accordingly, the district court did not abuse its
discretion in denying Flanagan's motion for leave to amend, and we
affirm.
III. Conclusion
For the foregoing reasons, we affirm the decisions of
the district court granting the motion to dismiss in favor of
Fresenius and denying Flanagan's motion to amend.
- 29 -