Fraud – False Claims Act suit against hospital is dismissed

Where a nurse filed a qui tam action against a hospital, related entities and a former executive, alleging they submitted claims barred by law, but her complaint simply alleged conduct consistent with running a lawful healthcare business, it was dismissed.

Background

Liesa Kyer, a former nurse at Thomas Memorial Hospital, brought this qui tam action on behalf of the United States under the False Claims Act. She alleges that between 2013 and 2022, Thomas Memorial Hospital, three other entities in the corporate family and a former executive violated the False Claims Act by submitting claims barred by the Stark Law and the Anti-Kickback Statute.

After the government declined to intervene, Kyer filed an amended complaint. The district court dismissed it for failing to plead fraud with particularity. Kyer moved to vacate the judgment under Rules 59(e) and 60(b)(6) and for leave to amend under Rule 15(a), which the district court denied.

Analysis

A False Claims Act claim must show, among other elements, a false statement or fraudulent course of conduct. Kyer points to roughly 30 pages of tables attached to the complaint as appendices. However the tables do not reflect how — indeed, whether — any claim was fraudulent.

Stark Law

To plead a Stark Law violation, Kyer must plausibly allege that (1) a physician (2) with a prohibited financial relationship with the hospitals (3) made a referral (4) for a designated health service and (5) that a hospital then submitted a claim to Medicare for that service. The rub is the financial-relationship element, which reduces to whether the referring physicians’ compensation varied with — or took into account — the volume or value of their referrals to the hospitals. The complaint has not sufficiently alleged this element.

Anti-Kickback Statute

Kyer first alleges that the hospitals paid kickbacks to THS Physician Partners Inc., or THSPP, by covering THSPP’s annual operating deficit through cash transfers. But the complaint’s allegation that these payments induced referrals is conclusory. The subsidies are at least as consistent with lawful explanations.

The complaint itself supplies a lawful explanation: that the transfers reflect the accounting consequence of the health entities’ move to provider-based billing. Where a complaint pleads facts that are equally consistent with lawful and unlawful conduct, it has not crossed the plausibility threshold.
Kyer also alleges that a marketing stipend for THSPP physicians was remuneration meant to induce referrals to the hospitals. But THSPP physicians received the stipend to induce them to attract patients to their own practices, not to refer them elsewhere.

Remaining claims

Because the underlying conduct didn’t make the claims false, the alleged conspirators did not agree to do anything unlawful. And because she has not properly alleged any false claims, the reverse false claim necessarily fails as well.

Amend

Kyer filed her original complaint in 2020. In 2024, after defendants moved to dismiss, she filed an amended complaint. Throughout that period, she had access to more than 500,000 pages of documents produced by defendants in response to the government’s subpoena. Defendants moved to dismiss the amended complaint, giving her yet another roadmap for filling in the gaps. When the district court ruled seven months later, Kyer didn’t offer a proposed second amended complaint. The district court did not err in denying her motion to amend.

Affirmed.

United States of America ex rel. Kyer v. Thomas Health System, Inc., Case No. 25-1507, June 4, 2026. 4th Cir. (Richardson), from SDWVA at Charleston (Goodwin). Chandra Napora for Appellant. David B. Honig for Appellees. VLW 026-2-201. 30 pp.

Full-Text Opinion
VLW 026-2-201