State of California, ex rel. Joshua Leichtberg, M.D. vs CONCENTRA INC. et al

The FAC pleads four causes of action against defendants Concentra Inc., Concentra Health Services, Inc., Occupational Health Centers of California, Concentra Group Holdings Parent, Inc., Select Medical Corporation, and Kathy T. Le, M.D. (collectively, “Defendants”). The first is for CIFPA violations under Insurance Code section 1871.7(a) and (b), brought on behalf of the State. (FAC, ¶¶ 200–212.) The second is for CIFPA retaliation under section 1871.7(k). (Id. at ¶¶ 213–219.) The third is for retaliation under Labor Code section 1102.5. (Id. at ¶¶ 220–225.) The fourth is for wrongful termination in violation of public policy. (Id. at ¶¶ 226–230.) Defendants demur to each cause of action, generally denying any fraud and characterizing the FAC’s allegations as a clinical disagreement over treatment.

II. Requests for Judicial Notice Defendants seek judicial notice of the Delaware corporate records showing that Concentra merged into Concentra Health Services, Inc., effective November 12, 2024. (RJN, Ex. A.) The records are proper subjects of judicial notice as official government records that are not reasonably subject to dispute. (Evid. Code, § 452(c), (h).) The request for judicial notice is GRANTED. The Court takes notice of the existence of the records and the corporate status indicated.

The Court does not, on this record, resolve any dispute regarding the legal effect of the merger. Relator seeks judicial notice of Concentra Group Holdings Parent, Inc.’s Form 10-Q dated August 7, 2025, relied upon by both parties. (RJN, Ex. 1.) The request is GRANTED; the Court takes judicial notice of the existence and contents of the public filing, but not the truth of any disputed matter. (Evid. Code, § 452(h).) Relator also seeks judicial notice of a Los Angeles Superior Court receivership order. (RJN, Ex. 2.)

The request is GRANTED to the extent that the Court takes notice of the existence of the order. (Evid. Code, § 452(d).) The unpublished trial-court order is not binding authority.

III.

Legal Standard

A demurrer tests only the legal sufficiency of a pleading, and the court accepts wellpleaded material facts as true, giving the complaint a reasonable interpretation. (Code Civ. Proc., § 430.10, subd. (e); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A plaintiff must plead fraud with particularity. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) Leave to amend is liberally granted unless amendment would be futile. (City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 747.)

IV. First Cause of Action – Violation of CIFPA (Ins. Code, § 1871.7(a) & (b)) The first cause of action is for violation of CIFPA, California Insurance Code section 1871.7(a) and (b), and California Penal Code section 550(a) and (b). CIFPA imposes liability for conduct that violates Penal Code section 550, which prohibits knowingly presenting false or fraudulent insurance claims. Section 550 is not limited to express misstatements and reaches conduct that is in some manner deceitful. Relator sets forth various theories to establish falsity. The Court addresses these theories briefly before turning to the two elements that control in this case: materiality and particularity.

A. Relators’ Theories

1. Corporate Practice of Medicine Relator alleges that a lay enterprise controlled a physician-owned practice through a mandatory “Clinical Model,” and that the resulting claims are deceptive. (FAC ¶¶ 83–90, 117– 126; Opposition, pp. 12:11–19:13.) Defendants argue that a corporate-practice violation does not by itself make a claim false, and that CIFPA liability requires the structural fraud found in People ex rel. Monterey Mushrooms, Inc. v. Thompson (2006) 136 Cal.App.4th 24 (Monterey Mushrooms), and People ex rel. Allstate Ins. Co. v. Discovery Radiology Physicians, P.C. (2023) 94 Cal.App.5th 521 (Discovery Radiology). (Memorandum, pp. 7:16–13:18; Reply 2:2– 9:7.) The Court rejects Defendants’ premise that CIFPA liability requires a fabricated billing entity. Discovery Radiology frames the inquiry as whether a nonphysician exercised undue

control over a medical practice. (See Opposition, pp. 14:11–15:19, quoting Discovery Radiology, 94 Cal.App.5th at 538.) The theory is legally cognizable. But the inquiry turns on the contractual terms and the totality of the circumstances. (Reply, pp. 2:2–4:15, citing Epic Medical Management, LLC v. Paquette (2015) 244 Cal.App.4th 504.) The FAC pleads no contractual terms ceding clinical authority to a lay entity, and Relator argues control exists regardless of the contract terms. The FAC also alleges that physicians enforced the Clinical Model. (FAC, ¶¶ 117, 126.) The theory survives as a matter of law, but its sufficiency depends on the particularity and materiality analysis below.

2. Kickbacks and Statutory Safe Harbor Relator alleges that the “Quality Bonus” program paid physicians to refer patients to inhouse physical therapy. (FAC ¶¶ 103–106, 203–208; Opposition, pp. 19–20.) Defendants invoke a safe harbor for ancillary services provided within a physician’s office. (Memorandum, pp. 13:19–15:15.) The parties dispute whether the safe harbor in Business and Professions Code section 650.02(f) reaches the anti-kickback rule in section 650(a) or only the self-referral prohibition in section 650.01. (Opposition, p. 20:15–21; Reply, pp. 16:19–19:7.) The Court does not resolve that statutory question at the pleading stage. The safe harbor is not so plainly dispositive that it defeats the theory at this time. The separate “steerer” theory under section 1871.7(a) is unsupported by any cited California authority extending the statute to internal clinical referrals.

3. Medical Necessity, Upcoding, and Supervision Relator’s remaining theories do not independently state a claim on the current pleading. The medical necessity theory rests on departures from the advisory MTUS guidelines. (Opposition, pp. 18:25–19:9.) A departure from advisory guidelines is not, without more, a misrepresentation. (Memorandum, pp. 15:16–17:1.) The upcoding theory identifies no claim in which a CPT code misstated the services provided. Neither Patients A–E nor the fifty Exhibit B entries contain a CPT code. (Id. at pp. 17:2–18:17.) The supervision theory equates a missing countersignature with a lack of supervision. The Physician Assistant Practice Act does not

require a countersignature unless the practice agreement requires one, and the FAC alleges no such agreement. (Memorandum, pp. 18:18–20:6, citing Bus. & Prof. Code § 3502(c).) Crucially, each theory also fails to connect the alleged conduct to a specific false claim.

B. Materiality and Particularity Materiality is a required element and is not satisfied by the facts stated in the FAC. A statement is material only if it has a natural tendency to influence the payment decision. (Memorandum, p. 21:13–20; Pen. Code § 550(b).) The FAC pleads materiality on information and belief, alleging only that insurers would not have paid had they known. (FAC, ¶¶ 134, 208, 212.) The FAC identifies no insurer contract, coverage provision, or condition of payment. Therefore, the materiality allegation is conclusory and does not satisfy the particularity required for a fraud claim.

In addition, Defendants persuasively argue that the FAC’s use group pleading does not satisfy the particularity standard that fraud requires. (Memorandum, pp. 4:15–5:18, 20:7– 21:20.) The FAC names six legally distinct defendants but pleads nearly all conduct against a collective “Concentra.” (FAC ¶¶ 42–45.) The FAC does not identify which defendant submitted, caused, or directed any particular claim. Exhibit B identifies, in some entries, the insurer billed. It does not identify the submitting defendant.

It contains no CPT code. The FAC does not even consistently identify Relator’s own employer. (FAC, ¶¶ 15, 26, 33, 157.) Relator responds that an insider relator may plead representative examples plus reliable indicia, and that collective allegations are permitted where the details lie within Defendants’ knowledge. (Opposition, pp. 21–22.) Exhibit B supplies dates, injuries, payors, and billed amounts for fifty-five examples. (FAC, ¶¶ 178–201 & Ex. B.) While that is meaningful indicia that claims were submitted, it does not tie any claim to any particular defendant.

The FAC does not identify a false statement in any claim. The failure to differentiate among the defendants is itself a defect under California law. In sum, the Court finds that the first cause of action does not necessarily fail as a matter of law because the corporate-practice and kickback theories are legally cognizable. Nevertheless, the FAC does not plead the claim with the particularity that fraud requires, and it

pleads materiality only in conclusory terms. Because the defects identified in the Defendants’ demurrer are primarily pleading defects (concerning particularity, materiality, employer identity, and the content of protected disclosures) they are potentially capable of cure. Accordingly, the demurrer to the First Cause of Action is SUSTAINED with 20 days’ leave to amend. Any amended pleading shall identify which defendant submitted or cause each representative claim, identify the false statement or deceptive feature in each representative claim, and pleading materiality by reference to an identified condition of payment.

V. Remaining Causes of Action

A. Second Cause of Action – CIFPA Retaliation (Ins. Code § 1871.7(k)) The Second Cause of Action is for retaliation for lawful acts in furtherance of CIFPA investigation/action, in violation of California Insurance Code section 1871.7(k). (FAC, ¶¶ 214–218.) The FAC alleges: “[a]s a result of Relator’s reporting, investigating, complaining of, and refusing to comply with or participate in the fraudulent conduct of Defendants, Relator was removed from consideration for a promised promotion and was ultimately discharged by Defendants because of the lawful protected conduct and acts done in furtherance of an action under Cal.

Ins. Code. § 1871.7.” (FAC, ¶ 216.) Section 1871.7(k) protects an employee from adverse action because of lawful acts done in furtherance of an action under section 1871.7. The statute defines that activity as investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under the section. (Memorandum, p. 25:17–24; Reply, p. 16:21 –25.) California Insurance Code section 1871.7(k) provides, in relevant part: Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by their employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in, an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole.

Because no California decision interprets subdivision (k), the Court applies the plain text.

Here, the FAC alleges that Relator expressed concerns that the Clinical Model conflicted with his medical judgment. (FAC, ¶¶ 147, 162, 165.) Those allegations describe clinical disagreement; they do not allege that Relator investigated, initiated, or assisted a CIFPA action, or disclosed an intent to do so. (Memorandum, pp. 25:16–27:23; Reply, pp. 16:19–17:16.) Relator’s authorities are general retaliation cases and do not construe section 1871.7(k). The pleaded activity does not satisfy the “in furtherance of an action under this section” element. Accordingly, the demurrer to the second cause of action is SUSTAINED with 20 days’ leave to amend.

B. Third Cause of Action – Retaliation (Labor Code § 1102.5) The third cause of action is for wrongful termination in violation of Labor Code section 1102.5. (FAC, ¶¶ 219–225.) Relator alleges Defendants “retaliated against him by removing him from consideration for a promotion and ultimately terminating him for internally reporting that information and for Relator’s refusal to engage in the unlawful acts about which he reported.” (FAC, ¶ 223.) Section 1102.5(b) protects disclosure of information the employee reasonably believes shows a violation of law.

Section 1102.5(c) protects refusal to participate in unlawful activity. (Opposition, pp. 28:16–30:4; Memorandum, pp. 27–30.) A protected disclosure does not require the employee to cite a specific statute. (Opposition, pp. 28–29, citing Ross v. County of Riverside (2019) 36 Cal.App.5th 580, 592–593.) A disclosure is protected even if the recipient already knows of the conduct. (Opposition, p. 29, citing People ex rel. Garcia-Brower v. Kolla’s, Inc. (2023) 14 Cal.5th 719, 734 (Kolla’s) [“a protected disclosure under section 1102.5(b) encompasses reports or complaints of a violation made to an employer or agency even if the recipient already knows of the violation”].)

In this case, however, the FAC alleges that Relator questioned the Clinical Model when it conflicted with his medical judgment. (FAC, ¶ 125; Reply, pp. 17:8–19:7.) That allegation discloses a clinical disagreement. It does not disclose a reasonably believed violation of law. Section 1102.5 does not protect disagreements over discretionary decisions or policy choices.

(Reply, pp. 17:22–18:3, quoting Kolla’s, supra, 14 Cal.5th at 734 [section 1102.5(b) “excludes from whistleblower protection disclosures that involve only disagreements over discretionary decisions, policy choices, interpersonal dynamic, or other nonactionable issues”].) The Opposition characterizes Relator’s statements as reports of conduct he believed to be insurance fraud. (Opposition, pp. 27:8–28:11.) Those characterizations do not appear in the cited paragraphs of the FAC. (Reply, pp. 18:14–19:2.) A brief cannot supply allegations that the pleading omits. Accordingly, the demurrer to the third cause of action is SUSTAINED with 20 days’ leave to amend.

C. Fourth Cause of Action – Wrongful Termination in Violation of Public Policy The fourth cause is wrongful termination in violation of public policy. (FAC, ¶¶ 226 – 232.) The parties agree that this cause of action is derivative of the statutory retaliation claims and that it rises and falls with them. (Memorandum, p. 30; Opposition, p. 30; Reply, p. 18.) Because the Court has sustained the demurrer to the second and third cause of action, the fourth cause of action fails as well and for the same reasons. Accordingly, the demurrer to the fourth cause of action is SUSTAINED with 20 days’ leave to amend.

VI.

Conclusion

The demurrer to the First Amended Complaint is SUSTAINED with 20 days’ leave to amend. Relator shall file and serve any Second Amended Complaint within 20 days of service of the formal order. The Commissioner of the Department of Insurance declined to intervene but reserved the right to be heard before any dismissal, settlement, or discontinuance. This ruling sustains the demurrer with leave to amend and does not dismiss the action. If the matter proceeds to dismissal, the Commissioner shall receive notice and an opportunity to be heard.

Defendants shall prepare the order in accordance with California Rules of Court, rule 3.1312.

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