By Bill Wichert

Law360 (March 22, 2021, 8:00 PM EDT) -- A New Jersey federal judge on Monday tossed a False Claims Act suit from an ex-nursing home company employee alleging she was fired for refusing to take part in a fraudulent scheme to reel in greater Medicare dollars during the COVID-19 pandemic, saying she failed to show she engaged in so-called "protected conduct."

U.S. District Judge Robert B. Kugler found that Christine Petre has not alleged she indicated she might report the alleged fraud to the government or took other actions that would support her FCA claim against Atlas Healthcare and related defendants over a purported scheme to disenroll prospective patients from private insurance plans and enroll them in Medicare.

The former clinical liaison — who coordinated the placement of patients at Atlas facilities — has claimed she told management she believed the defendants' conduct to be "'fraudulent' and a form of 'fraud,'" but the judge said Petre "merely uses the word 'fraud,' which is not enough."

Like the plaintiffs in his 2014 decision in U.S., ex rel. LaPorte v. Premier Educ. Grp. L.P. , Judge Kugler said Petre "does not connect her reports of wrongful conduct with fraud on the government."

"Nowhere does plaintiff allege that she 'was investigating, initiating, testifying for, or assisting with an FCA action' when she alerted defendants of their allegedly fraudulent conduct," Judge Kugler said in his written opinion. "Nor does she even remotely suggest that she might initiate an FCA action or report defendants' wrongful conduct to the government."

The judge rejected Petre's assertion that the defendants knew she intended to report them for fraud on the government because they threatened to fire her.

That argument is based on Petre's allegation that a supervisor told her a company owner "was 'pissed' at her and that plaintiff better 'get on board' with disenrollment" and her claim that she was told "she needs to resign if she was not going to commit to making the company money and would not participate in the disenrollment and use of Medicare as a primary payer approach of defendants," according to the judge's opinion.

"Even under the most liberal pleading standards, we cannot infer from this quote that defendants knew plaintiff was going to report them for fraud," Judge Kugler said. "At most, it suggests defendants were frustrated with Ms. Petre's failure to perform her assigned responsibilities."

The judge dismissed Petre's FCA claim and remanded her remaining state-law claims to the New Jersey Superior Court, where she launched the suit in June before the defendants removed the action to federal court the following month.

Among other claims, the lawsuit alleged the defendants "elected to capitalize in a predatory manner on the growing prospective pool of patients [during the pandemic] by seeking those in which defendants could in turn generate the most profit."

"In doing so, defendants merely ratcheted up an unlawful practice they were already surreptitiously performing at the admissions level by now requiring individuals such as plaintiff to participate," the suit said.

Her theory is based on the assumption that prospective patients were disenrolled from private insurance plans that constitute "primary plans" under the Medicare Secondary Payer statute, according to the judge's opinion.

As a result, the government allegedly became "a primary payer thereby covering more medical expenses than it otherwise would have as a secondary payer," the opinion said.

In seeking to dismiss the action, the defendants took aim at Petre's allegation that prospective patients were disenrolled from Medicare Advantage plans — in which the government contracts with private insurers to provide Medicare benefits — saying such plans are not primary plans under the MSP statute.

"Of course, plaintiff has not even brought a qui tam FCA claim, her hypothetical theory of FCA liability against defendants is not viable, and her retaliation claim must therefore be dismissed," the defendants said in a motion brief.

The judge agreed Monday that "switching Medicare Advantage to Medicare is not a violation of the MSP provision" but said Petre "alleges more than just the disenrollment scheme." He indicated he was not certain Petre "would be precluded from showing there is a distinct possibility that a viable FCA action could be filed."

"Nevertheless, we need not and do not decide this issue because we agree with defendants' second point — plaintiff has failed to adequately allege that she engaged in 'protected conduct' and that defendants were on notice of her 'protected conduct,'" Judge Kugler said.

Counsel for the parties did not immediately respond to requests for comment Monday.

Petre is represented by Christine E. Burke and Ari R. Karpf of Karpf Karpf & Cerutti PC.

The defendants are represented by Richard I. Scharlat and Laura McLane of McDermott Will & Emery LLP.

The case is Christine Petre v. Alliance Healthcare Management LLC et al., case number 1:20-cv-09002, in the U.S. District Court for the District of New Jersey.

--Editing by Janice Carter Brown.

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