“Worthless Services” Claims Continue to Receive Serious Scrutiny

By on October 16, 2015
Posted In Uncategorized

On October 5, 2015, the U.S. District Court for the Northern District of Illinois dismissed with prejudice a complaint alleging False Claims Act (FCA) and Illinois False Claims Act violations based on Medicaid billing in United States ex rel. Bellevue v. Universal Health Services of Hartgrove, Inc.  In doing so, the district court reaffirmed the high hurdle that must be surmounted by relators who attempt to plead so-called “worthless services” claims under the FCA.

The relator asserted a variety of theories of FCA liability.  Among them was a “worthless services” claim, predicated on the theory that the defendant’s submission of claims for acute mental health patients assigned to “dayrooms” versus individual rooms violated the FCA.  The relator alleged that an individual room was essential for the treatment of such patients.  The court rejected this theory on the pleadings, holding that the relator had “failed to explain or describe how a patient’s treatment is adversely affected by temporarily sleeping in a dayroom, let alone how such circumstances equate to delivery of ‘worthless services’ as the Seventh Circuit requires.”

This was the relator’s second attempt to plead his “worthless services” claims.  In a prior, April 24, 2015 decision in the same case, the relator advanced similar allegations, which the court held were similarly inadequate:

Bellevue has not alleged that patients who slept on cots in the dayroom did not receive any treatment.  Rather, he alleges that they did not receive the one particular service of an individual room. . . . [A]bsent an allegation that the failure to provide a room destroyed the effectiveness of the rest of the treatment provided, Bellevue’s allegation that certain patients were deprived of this particular aspect of the services to which they were entitled cannot serve as the basis for an FCA claim.

The court elaborated:

It is not plausible to believe that the room Hartgrove is supposed to provide to such patients is more “essential” than the therapy they also receive. … There are no allegations explaining why the deprivation of a room is so detrimental to a patient’s treatment that a claim for services provided to a patient should be considered false.

The court granted leave to amend the first complaint, resulting in an amended complaint and the October 5 dismissal with prejudice of the worthless services claims, as well as all of the other claims advanced by the relator.

The court’s reasoning in Bellevue is consistent with the resistance of many courts to “worthless services” claims under the FCA, and flows directly from the Seventh Circuit’s 2014 decision in United States ex rel. Absher v. Momence Meadows Nursing Ctd., Inc., in which it held that “[i]t is not enough to offer evidence that the defendant provided services that are worth some amount less than the services paid for. That is, a “diminished value” of services theory does not satisfy this standard. Services that are ‘worth less’ are not ‘worthless.’”  Indeed, because a so-called “worthless services” theory of FCA liability is (to the extent recognized at all) a theory that services were of such a quality that they were equivalent to no services, it comes as no surprise that these types of claims continue to be examined very closely.

Laura McLane
Laura McLane serves as head of McDermott's Boston Litigation Practice Group. Laura represents national and international clients in health care, securities and other government enforcement matters, both civil and criminal. She also represents clients in professional and products liability cases and in complex commercial disputes. A significant part of Laura's practice is devoted to representing health care and other companies, as well as individuals, in government investigations and qui tam litigation based on the False Claims Act (FCA) and related statutes, including the Anti-Kickback Statute and the Stark Law. Read Laura McLane's full bio.