From Possibility to Probability: Third Circuit Reaffirms That Understaffing Allegations and Abstract Capacity Models Do Not Satisfy Rule 9(b)’s “Reliable Indicia” Requirement in FCA Cases

Note: The opinion is designated “Not Precedential.” While not binding, it provides persuasive guidance on pleading standards for False Claims Act (FCA) cases within the Third Circuit.

Introduction

In Phillip Hunter v. Fillmore Capital Partners LLC, et al. (collectively “Golden Living”), the Third Circuit affirmed the dismissal of a qui tam action alleging a multi-year, multi-facility scheme to defraud Medicare and Medicaid through systemic understaffing and overbilling. The relator, a nurse who worked for approximately two months at a single Golden Living facility in Alabama, claimed the company intentionally admitted high-acuity residents while understaffing facilities, thereby billing for services it purportedly could not and did not adequately provide.

The central issues on appeal were:

Whether the relator’s allegations satisfied Federal Rule of Civil Procedure 9(b)’s particularity requirement for fraud, as applied to FCA claims in the Third Circuit; and
Whether the amended complaint stated a prima facie FCA claim under Rule 12(b)(6), including viable theories of factual or legal falsity and materiality.

The Third Circuit, reviewing de novo, agreed with the District Court that the complaint did not contain the “reliable indicia” required to support a strong inference that false claims were actually submitted, and that the relator failed to allege either factual or legal falsity or materiality with the necessary specificity. The court also approved the District Court’s refusal to exercise supplemental jurisdiction over the state-law claims after dismissing the federal FCA counts.

Summary of the Opinion

The court affirmed the dismissal of the FCA claims for failure to plead fraud with particularity under Rule 9(b) and for failure to state a claim under Rule 12(b)(6). Applying Foglia v. Renal Ventures Mgmt., LLC, the panel held that while the relator alleged a scheme, he did not supply “reliable indicia” leading to a strong inference that false claims were actually submitted. Three pillars of his pleading—(1) expert workload and simulation reports, (2) two affidavits from nurses at other facilities, and (3) his own brief tenure and resignation letter—were deemed too speculative, vague, or even inconsistent with fraud.

The court further held that the relator did not sufficiently allege factual falsity (either “inflated claims” or “worthless services”) or legal falsity (express or implied false certification), and he did not adequately plead materiality. Generalized allegations of understaffing and inadequate care, without specific ties to actual claim submissions, were insufficient. The existence of plausible lawful explanations (e.g., staffing to reduce overhead while billing only for services actually provided) undermined any strong inference of illegality under United States v. Omnicare, Inc.

Analysis

1) Precedents Cited and Their Influence

Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153 (3d Cir. 2014): The cornerstone. An FCA relator must plead “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” The court reiterated that identifying specific claim numbers is not always required, but the pleading must still robustly support that false claims were in fact presented. Hunter satisfied the “scheme” part but failed the “reliable indicia” part.
United States ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294 (3d Cir. 2016): Reinforces the “who, what, when, where, and how” of fraud. The panel relied on this to emphasize the need for concrete details linking allegations to actual claims.
United States v. Omnicare, Inc., 903 F.3d 78 (3d Cir. 2018): Critical for the “plausible lawful explanation” principle. If alleged facts can plausibly suggest both lawful and unlawful conduct, Rule 9(b) is not satisfied because a strong inference of illegality is lacking. Here, cost-cutting/low staffing coupled with employees working harder is a plausible lawful explanation.
United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235 (3d Cir. 2004), and United States ex rel. LaCorte v. SmithKline Beecham Clinical Lab’ys, Inc., 149 F.3d 227 (3d Cir. 1998): Confirm FCA claims must meet Rule 9(b)’s heightened pleading standard.
United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295 (3d Cir. 2011), overruled on other grounds by Universal Health Servs., Inc. v. United States, 579 U.S. 176 (2016): Provides the framework distinguishing factual falsity (misrepresenting goods/services provided) and legal falsity (noncompliance with conditions of payment). The court used this to organize its falsity analysis.
Universal Health Servs., Inc. v. United States (Escobar), 579 U.S. 176 (2016): Although cited as overruling Wilkins on other grounds, Escobar’s materiality concept informed the panel’s view that materiality cannot be satisfied with “boilerplate”; the relator must show that compliance was material to payment.
United States ex rel. Gohil v. Sanofi-Aventis U.S. Inc., 96 F. Supp. 3d 504 (E.D. Pa. 2015): Used for the “mere opportunity for fraud” idea—capacity or opportunity isn’t enough to infer actual false claim submission.
Howard Hess Dental Lab’ys Inc. v. Dentsply Int’l, Inc., 602 F.3d 237 (3d Cir. 2010): De novo review standard for dismissals.
Phillips v. County of Allegheny, 515 F.3d 224 (3d Cir. 2008): 12(b)(6) standard—accept factual allegations as true and draw reasonable inferences for the plaintiff.
Mayer v. Belichick, 605 F.3d 223 (3d Cir. 2010): Limits the materials considered at the pleading stage to the complaint, exhibits, public records, and undisputedly authentic documents upon which the claims are based.
Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176 (3d Cir. 2001): Supplies the FCA elements relied upon via Zimmer.
United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009): Quoted for the “strong inference that claims were actually submitted” formulation, reinforcing Foglia’s approach.

2) The Court’s Legal Reasoning

a) Rule 9(b) and “Reliable Indicia” of Actual Claim Submission

The court accepted that Hunter alleged a broad scheme but held he did not bridge the critical gap from “scheme” to “actual claim submission.” Under Foglia, a relator can avoid identifying specific claim numbers if the complaint still furnishes “reliable indicia” that false claims were submitted. Hunter’s three categories of support failed to do so:

Expert workload/capacity reports: Even if accepted at face value, they showed at most that there was insufficient staffing to perform all tasks—a “mere opportunity for fraud,” not a probability. Crucially, Hunter did not allege that these experts analyzed actual claims billed by each facility; absent a claim-level connection, the models did not generate a strong inference that false claims were actually submitted.
Affidavits from other facilities’ nurses: The affidavits described understaffing and inadequate care but did not provide specific examples of false claims, identify forms, dates, facilities, or the mechanics of billing fraud. The allegation that documentation was “guesswork” was too vague without details about which claims, how they were falsified, and where/when.
Relator’s own experience and resignation letter: The court viewed these allegations as undermining, rather than supporting, fraud: if the relator stayed late to ensure care was provided, that tends to suggest services were delivered, not that claims were false. Moreover, generalized concerns to unspecified administrators at unspecified times are inadequate under Rule 9(b).

The court also applied Omnicare: when conduct plausibly has lawful explanations (e.g., cost minimization by low staffing while billing only for services actually provided), an inference of illegality is weakened and Rule 9(b) is not met. Put differently, under Foglia’s second prong, the “strong inference” is defeated if the plausible lawful narrative fits the same facts.

b) Failure to State an FCA Claim (Rule 12(b)(6))

The court reaffirmed the elements for an FCA presentment claim: (1) a claim to the government, (2) falsity (factually or legally false), and (3) knowledge. It then addressed each falsity theory:

Factual falsity—“inflated claims” and “worthless services”: Because Rule 9(b) was not satisfied, the complaint necessarily lacked well-pleaded factual falsity. The court emphasized that “inadequate care” alone is not enough to state a “worthless services” claim; that theory is reserved for services so deficient as to be equivalent to no service at all. The complaint’s allegations were characterized as conclusory and “on information and belief” without the needed specifics tying understaffing to false claims.
Legal falsity—express and implied false certification:
- Express certification failed for lack of factual detail: no allegations of who submitted the certifications, what the certifications said, when and where they were made, or which patients/claims were implicated.
- Implied certification likewise failed; the complaint offered generalized assertions of violating staffing regulations without specifying how the violations rendered particular claims false or how those violations were material to payment. The court held, in the alternative, that even if false certifications were made, materiality was not plausibly alleged—“boilerplate language” is insufficient.

3) Impact and Practical Takeaways

This opinion reinforces several critical pleading lessons for FCA relators and healthcare providers:

Understaffing alone is not fraud. Allegations that staffing levels were inadequate, or that employees were overworked, do not by themselves create a strong inference of false claim submission. Plaintiffs must tie staffing issues to actual false billing.
Abstract models are insufficient without claim-level linkage. Expert workload, simulation, or capacity analyses may suggest that fraud could occur, but absent linkage to actual billed claims (e.g., claim forms, dates, CPT/RUG/MDS data, patient records), such models show only the “opportunity for fraud.”
Affidavits must be specific. Declarations should detail the who/what/when/where/how: identify claim types, dates, facilities, the mechanics of falsification, and the path to government submission.
Worthless services is a high bar. “Inadequate care” or substandard care does not equal “worthless” care. FCA liability on this theory requires allegations that services were so deficient as to be the equivalent of no service.
Materiality must be pled with facts, not boilerplate. Especially for implied certification theories post-Escobar, complaints must show that the alleged violations were material to the government’s payment decision. Generic assertions of regulatory noncompliance are not enough.
Plausible lawful explanations can defeat an inference of fraud at the pleading stage. If the facts are equally consistent with lawful conduct (e.g., aggressive cost-control plus hard-working staff), the complaint likely fails Rule 9(b).
Multi-facility, multi-state allegations require facility- and claim-specific grounding. Sweeping schemes spanning dozens or hundreds of facilities must still be anchored by reliable indicia of claim submission from at least some facilities to support the broader inference.
State-law claims may fall with the federal claims. If federal FCA claims are dismissed early, courts may decline supplemental jurisdiction over state-law counts, effectively ending the entire case at the pleading stage.

Complex Concepts Simplified

Qui tam / Relator: A private whistleblower (the “relator”) sues on behalf of the government under the FCA and may share in any recovery.
False Claims Act (FCA): Prohibits knowingly submitting, or causing submission of, false or fraudulent claims for payment to the United States. Requires falsity and knowledge (actual knowledge, deliberate ignorance, or reckless disregard).
Rule 9(b) particularity: Fraud allegations must be pled with detail—typically the who, what, when, where, and how—plus reliable indicia that false claims were actually submitted to the government.
“Reliable indicia” / “Strong inference”: Under Foglia, while claim numbers are not always necessary, the complaint must still plausibly show that false claims were submitted. Mere possibility is not enough.
Factual vs. Legal Falsity: Factual falsity misstates what was provided (e.g., billing for services not rendered). Legal falsity involves false certifications of compliance with conditions of payment, either expressly or by implication.
Implied false certification: Liability may arise when a claim for payment implies compliance with material regulations; if compliance is false and material to payment, the claim can be false even without an express certification.
Materiality (Escobar): The violation must be significant to the government’s payment decision—not minor or insubstantial—and this must be alleged with concrete facts, not boilerplate.
Worthless services: A narrow FCA theory where services are so deficient that they are essentially no services at all; mere substandard or inadequate care usually does not qualify.
“Plausible lawful explanation” (Omnicare): If the alleged facts support an equally plausible non-fraud narrative, the strong inference of fraud required by Rule 9(b) is not met.

Conclusion

The Third Circuit’s decision underscores a demanding but consistent message: an FCA relator must do more than outline a broad scheme or infer fraud from understaffing and heavy workloads. Under Foglia, the complaint must present reliable indicia creating a strong inference that false claims were actually submitted. Where facts are equally consistent with lawful conduct—as Omnicare teaches—the inference of illegality fails at the threshold. On the merits, the relator must plausibly allege factual or legal falsity with specificity and show materiality, especially when relying on implied certification.

Practically, this opinion (though not precedential) is a roadmap: relators should anchor sweeping allegations to concrete, claim-level facts—who submitted what, where, when, and how—and connect any capacity or staffing analyses directly to billed claims. Providers, for their part, can take cautious comfort that cost-control strategies, including lean staffing, do not themselves constitute fraud, though they remain vulnerable where claim-level falsity, false documentation, or material noncompliance can be pled with particularity.

Bottom line: In the Third Circuit, moving from the possibility of fraud to the probability required at the pleading stage demands details. Absent those details, FCA complaints anchored in generalized understaffing and abstract modeling will not survive Rule 9(b) and Rule 12(b)(6).