WASHINGTON (LN) — The D.C. Circuit affirmed the dismissal of a former outpatient clinic manager’s False Claims Act complaint, ruling that her allegations of medically unnecessary urine tests and unlicensed counselors failed to meet the statute’s strict particularity and materiality requirements.
Prechelle Shannon, who managed two behavioral health centers for BHG Holdings, LLC, sued her former employer in November 2021, alleging the company submitted thousands of false claims to Medicare and Medicaid. The district court dismissed the complaint with prejudice, and the D.C. Circuit upheld the decision on May 11, 2026.
Shannon’s first theory of fraud concerned BHG’s administration of urine drug tests. She alleged the company designated certain patients as “Code 1” and issued standing orders for duplicative tests up to five times per week, regardless of medical necessity. An internal email from BHG’s Medical Director expressed concern that weekly testing for all patient groups was not medically justifiable.
However, the appeals court found Shannon failed to allege specific facts showing that claims for these unnecessary tests were actually submitted to the government. She pointed to an allegation that 80% of BHG’s patients were Medicare or Medicaid beneficiaries to argue that at least some unnecessary tests were performed on government patients.
The D.C. Circuit rejected this reliance on mathematical probability, citing precedent that statistics alone do not meet Rule 9(b) particularity unless accompanied by specific details of the fraudulent scheme. The court noted it was possible the patients designated as Code 1 fell within the 20% of patients untethered from government funding.
Shannon’s second theory alleged BHG used unlicensed addiction counselors to perform drug treatment services at eight Virginia clinics, violating state licensure laws. The court affirmed the dismissal on two grounds: first, Shannon failed to address statutory exceptions allowing unlicensed counselors to work under supervision or if licensed in another state; second, she failed to plead facts sufficient to meet the demanding materiality standard.
Under the Supreme Court’s decision in Universal Health Services, Inc. v. United States ex rel. Escobar, materiality requires showing that the misrepresentation had a natural tendency to influence the government’s payment decision. Shannon’s complaint merely stated a conclusion that the government would not have paid had it known the services were performed by unlicensed counselors.
The court rejected Shannon’s argument that materiality was a matter of common sense, noting that under Escobar, “common sense” is not enough. The court distinguished the case from United States ex rel. Cimino v. IBM, where materiality was supported by specific facts showing a false audit influenced the IRS’s decision to renew a software agreement.
The court also affirmed the district court’s decision to dismiss the complaint with prejudice, ruling that Shannon’s bare request to amend in an opposition brief, without indicating specific grounds for amendment, did not constitute a motion to amend.
Shannon’s complaint originally contained ten counts, but she voluntarily withdrew one and did not appeal the dismissal of others. The disposition was issued without a published opinion under D.C. Circuit Rule 36.
The panel included Circuit Judges Pan and Garcia, and Senior Circuit Judge Edwards.