In a two-page memorandum, the US Department of Justice (DOJ) announced a broad policy statement prohibiting the use of agency guidance documents as the basis for proving legal violations in civil enforcement actions, including actions brought under the False Claims Act (FCA). The extent to which these policy changes ultimately create relief for health care defendants in FCA actions is unclear at this time. That said, the memo provides defendants with a valuable tool in defending FCA actions, either brought by DOJ or relator’s counsel, that attempt to use alleged noncompliance with agency sub-regulatory guidance as support for an FCA theory.
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.
On March 2, 2017, the US District Court for the Southern District of New York applied the materiality standard announced by the Supreme Court of the United States in Universal Health Services, Inc. v. United States ex rel. Escobar to dismiss a relator’s complaint because the relator, a former managing director of Moody’s, failed to plead materiality as a matter of law.
In United States ex rel. Kolchinsky v. Moody’s Corp., the district court had previously dismissed with prejudice four of five categories of claims, and dismissed without prejudice the relator’s “Ratings Delivery Service” claim, i.e., that Moody’s provided inaccurate ratings directly to subscribers, including government agencies. In his Second Amended Complaint, the relator attempted to cure the pleading defects of Ratings Delivery Service claim in a “124-page tome,” but to no avail. Continue Reading SDNY Dismisses Sub-Prime Mortgage Crisis Complaint on Materiality Grounds Because Government Paid Claims Despite Notice of Alleged Fraud
On January 19, 2017, another district court ruled that a mere difference of opinion between physicians is not enough to establish falsity under the False Claims Act. In US ex rel. Polukoff v. St. Mark’s et al., No. 16-cv-00304 (Jan. 17, 2017 D. Utah), the district court dismissed relator’s non-intervened qui tam complaint with prejudice based on a combination of Rule 9(b) and 12(b)(6) deficiencies. In so doing, the Polukoff court joined US v. AseraCare, Inc., 176 F. Supp. 3d 1282, 1283 (N.D. Ala. 2016) and a variety of other courts in rejecting False Claims Act claims premised on lack of medical necessity or other matters of scientific judgment. This decision came just days before statements by Tom Price, President Trump’s pick for Secretary of Health and Human Services (HHS), before the Senate Finance Committee in which he suggested that CMS should focus less on reviewing questions medical necessity and more on ferreting out true fraud. Price’s statements, as well as decisions like Polukoff, are welcome developments for providers, who often confront both audits and FCA actions premised on alleged lack of medical necessity, even in situations where physicians vigorously disagree about the appropriate course of treatment.
In Polukoff, the relator alleged that the defendant physician, Dr. Sorensen, performed and billed the government for unnecessary medical procedures (patent formen ovale (PFO) closures). The relator also alleged that two defendant hospitals had billed the government for associated costs. Specifically, the relator alleged that PFO closures were reasonable and medically necessary only in highly limited circumstances, such as where there was a history of stroke. Medicare had not issued a National Coverage Determination (NCD) for PFO closures or otherwise indicated circumstances under which it would pay for such procedures. However, the relator held up medical guidelines issued by the American Heart Association/American Stroke Association (AHA), which, essentially, stated that PFO closures could be considered for patients with “recurring cryptogenic stroke despite taking optimal medical therapy” or other particularized conditions. Continue Reading The FCA and Medical Necessity: An Increasingly Tenuous Relationship
On January 26, 2017, the US District Court for the Western District of Virginia rejected a defendant’s attempt to invoke collateral estoppel principles to dismiss an indictment for fraud. In United States v. Whyte, the defendant, Whyte, argued that the indictment should be thrown out because a jury had previously found in his favor after trial of a relator’s civil qui tam claims under the False Claims Act (U.S. ex rel. Skinner v. Armet Armored Vehicles and William Whyte, W.D. Va. June 4, 2015), based on allegations of fraud that overlapped with those in the indictment. Whyte argued that the jury’s verdict established that no fraud was committed, and that the government, as real party in interest in the qui tam case, had the full opportunity to litigate the issues. Accordingly, Whyte contended that collateral estoppel mandated dismissal.
The district court disagreed, and its opinion rested on the fact that the government did not intervene in the qui tam action. The court found that the government’s declination meant that the collateral estoppel doctrine’s requirement that the parties to the prior case and the case at bar be identical was absent. The court acknowledged that party identicality for estoppel purposes can exist where there where “there is such a degree of affinity of interests of the person who was not a formal party to the prior proceeding, as to render the doctrine of collateral estoppel applicable.” In re Goldschein, 241 B.R. 370, 374 (D. Md. 1999) (citing Va. Hosp. Assoc. v. Baliles, 830 F.2d 1308, 1312 (4th Cir. 1967)). But it held that in such cases, the non-party must have had the ability to control the prior proceedings. While the government is a “real party in interest” in a declined qui tam, the court determined that it lacks the ability to control the litigation. The court reasoned:
By statute, if the government elects not to intervene, it retains no right to control the litigation in any meaningful way. It may not issues subpoenas, conduct depositions, propound discovery, call witnesses, or cross-examine the defendant’s witnesses. It is entitled to receive pleadings and deposition transcripts, but no more. In instances in which the government elects not to intervene, it cannot reasonably be argued that the government had a ‘full and fair opportunity to litigate’ the issues.
The court further opined that any contrary holding would render meaningless the government’s statutory election decision. “If the government were bound by private actors prosecuting FCA cases in its name, there would be no purpose to Congress’s decision to permit the government to elect to intervene, or to decline to intervene. Under Whyte’s proposed interpretation, the government would be forced to be a party regardless of its intervention decision.”
The court’s characterization of the government’s lack of control over a declined qui tam case fails to address the statutory tools available to the government. Among other things, the government can seek a stay of discovery if the discovery being conducted by the relator is interfering with a parallel criminal investigation or prosecution; it frequently files statements of interest in declined qui tams espousing its views on the legal issues in play in the case; it can object to a settlement between the relator and the defendant and must consent to any dismissal of the action by the relator; the government can settle a case over the objection of the relator and has a broad right to dismiss any FCA case. Further, a declination decision is not final–the government can later seek to intervene for “good cause” as the case progresses. Whether these examples suffice to establish “control” for collateral estoppel principles is a question that the Whyte court would presumably answer in the negative, but the notion that the government lacks any control over an FCA case in which it has declined to intervene ignores the many avenues pursuant to which the government can (and does) exert control. And the irony here is that while the defendant escaped civil fraud liability notwithstanding the lower preponderance of the evidence standard of proof applicable to such claims, he now must face criminal fraud charges which the government must prove beyond a reasonable doubt.
The law is uncertain. One example of this uncertainty is how the “Yates memo” is to be applied in civil cases — in particular, what constitutes “cooperation” and how cooperation may benefit a company under investigation for False Claims Act violations. On September 29, 2016, DOJ attempted (for a second time) to address the lack of clarity surrounding cooperation in civil matters. While DOJ provided some more detail on what it viewed as “full cooperation,” and indicated that “new guidance” had been issued within DOJ on cooperation in civil enforcement matters, it still failed to give concrete guidance on how such cooperation may benefit a company in a FCA or other civil resolution. In essence, DOJ is saying “Trust Us” to companies considering the potential benefits of cooperation.
Read the full article here.
On September 30, the US Court of Appeals for the Sixth Circuit reversed dismissal of a relator’s False Claims Act (FCA) claims against providers of home health services in U.S. ex rel. Prather v. Brookdale Senior Living Communities, Inc. et al. The relator was a utilization review nurse who alleged that physician certifications of patient need for home health care were not signed until well after the care had been provided, in violation of 42 C.F.R. § 424.22(a)(2), which requires that such certifications be completed at the time a plan of care is established or “as soon thereafter as possible.” While the regulation does not define “as soon thereafter as possible,” the Sixth Circuit held that the relator’s allegations that the requisite certifications were not completed for several months were sufficient to allege violations of both the regulation and the FCA.
The Sixth Circuit reasoned that the phrase “as soon thereafter as possible” “suggests plainly that the analysis of whether a certification complies requires that the reason for any delay be examined.” The court went on to announce the following rule: “Certification of need may be completed after the plan of care is established, but only if an analysis of the length of delay, the reasons for it, and the home health agency’s efforts to overcome whatever obstacles arose suggests that the home health agency obtained the certification ‘as soon thereafter as possible.’” The Sixth Circuit held that the relator’s complaint satisfied this standard, because she alleged that the certifications were not completed for months due solely to a backlog of Medicare claims that arose because of the defendants’ allegedly aggressive solicitation of residents for treatment. Continue Reading Sixth Circuit Revives Home Health Qui Tam Based on Pre-Escobar Standards; Dissent Criticizes Majority for Engaging in Rulemaking
On September 1, 2016, the US Court of Appeals for the Seventh Circuit largely affirmed dismissal of a relator’s amended complaint pursuant to the particularity requirement of Fed. R. Civ. P. 9(b). In US ex rel. Presser v. Acacia Mental Health Clinic, LLC, the relator, a nurse, alleged that a number of practices at a clinic where she worked were not medically necessary. These were: requiring patients to see multiple practitioners before receiving medication; requiring patients to undergo mandatory drug screenings at each visit; and requiring patients to come to the clinic in-person in order to receive a prescription or speak to a doctor. (The relator also alleged that clinic misused a billing code. This was the only claim the Seventh Circuit permitted to go forward.) In dismissing the majority of the relator’s complaint, the Seventh Circuit began with a robust discussion of the importance of Rule 9(b) in screening out baseless False Claims Act (FCA) claims:
Rule 9 requires heightened pleading standards because of the stigmatic injury that potentially results from allegations of fraud. We have observed, moreover, that fraud is frequently charged irresponsibly by people who have suffered a loss and want to find someone to blame for it. The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable the defendant to riposte swiftly and effectively if the claim is groundless. It also forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims. (Citations and quotations omitted).
The Seventh Circuit held that the relator fell far short of Rule 9(b), because she provided “no medical, technical, or scientific context which would enable a reader of the complaint to understand why Acacia’s alleged actions amount to unnecessary care.” The court further observed that the relator did not offer any reasons why the practices were unnecessary other than her “personal view” — the complaint was devoid of any context, such as a comparison of relator’s clinic’s practices to others in the industry. And while the relator attempted to rely on her 20 years of “experience and training,” this was simply not enough. The court concluded by holding that a relator’s subjective evaluation, standing alone, is not a sufficient basis for a fraud claim.
The lesson of this case is clear: where an FCA complaint alleges that care was medically unnecessary (as many FCA complaints do), the relator must provide sufficient reasons, other than relying on his or her personal opinion, experience and training, as to why. A relator cannot simply assert that care was unnecessary and hope to fill in the blanks with discovery.
The US Court of Appeals for the Seventh Circuit recently reviewed a district court’s dismissal of an FCA claim against the City of Chicago, in which the relator alleged that the City’s certifications of compliance with civil rights laws were false because the City engaged in practices which increased racial segregation. The case is United States ex rel. Hanna v. City of Chicago, and can be found here.
On August 22, the Seventh Circuit affirmed dismissal of the relator’s complaint for failure to comply with Fed. R. Civ. 9(b). The most notable takeaway from this case is the court’s holding that where the complaint itself did not specify which statutes and regulations the City violated (and with which it thus falsely certified compliance), the relator could not rely on more specific statutory and regulatory references later identified in his briefs. The court observed: “If the particularity requirement is meant to ensure more thorough investigation before filing, it is not too much to ask that one aspect of that investigation include the specific provisions of law whose violation made the certification of compliance false. Moreover, if, as in this case, a defendant is presented with an undifferentiated raft of statutory and regulatory provisions, it will be nearly impossible for the defendant to prepare a defense.” In other words, Rule 9(b) requires an FCA relator to plead his or her theory of fraud with specificity, and to do so in the complaint. Where the alleged fraud is based on a regulatory or statutory violation, relators cannot punt articulating what that statute or regulation actually was.
The court found a number of other Rule 9(b) pleading deficiencies in addition to the foregoing, serving as a reminder that the rule is a powerful tool to weed out meritless FCA claims.
The US Court of Appeals for the Eighth Circuit today issued a decision affirming a district court’s grant of summary judgment against a False Claims Act (FCA) relator in United States ex rel. Donegan v. Anesthesia Associates of Kansas City, PC, on which we previously posted. The case involved a dispute over whether a regulation required an anesthesiologist to be present in the operating room when the patient “emerges” from anesthesia, and the district court had granted summary judgment on the grounds that the defendant had reasonably interpreted the regulation as not requiring presence in the operating room. The district court’s decision was important because it made clear that the defendant’s interpretation of an ambiguous regulation need not be the “most reasonable” interpretation.
The Eighth Circuit agreed with the district court, holding that the relator could not establish scienter because the regulation was ambiguous, and the defendant’s interpretation was objectively reasonable. The court held:
Here, the question is whether AAKC’s reasonable interpretation of the ambiguous regulation precludes a finding that it knowingly submitted false or fraudulent claims, even if CMS or a reviewing court would interpret the regulation differently. Relator simply failed to submit evidence refuting AAKC’s strong showing that its interpretation was objectively reasonable. Relator’s experts expressed their opinions that emergence as referred to in Step Three should end before an AAKC patient is transferred to the PACU. But Relator’s contention that the Medicare regulations be interpreted in this fashion is a claim of regulatory noncompliance, not an FCA claim of knowing fraud. (internal citations and quotations omitted)
This result underscores the fact that an FCA case based on alleged noncompliance with a regulation that is subject to multiple, reasonable interpretations can be a risky endeavor for a relator.
On June 20, 2016, the United States District Court for the Northern District of Texas granted summary judgment in defendants’ favor on all but her retaliation claims in relator’s False Claims Act (FCA) suit against defendants Vista Hospice Care, Inc. and VistaCare, Inc. The court found that the relator, a former social worker at Defendants’ facility, failed to provide any evidence of a corporate scheme to admit Medicare beneficiaries before they were eligible. The decision echoed principles announced by the United States District Court for the Northern District of Alabama in US ex rel. Paradies v. AseraCare, Inc., which we have been following on this blog (and which is now on appeal to the Eleventh Circuit).
The relator relied on two types of evidence: (1) expert testimony that physicians incorrectly certified certain patients’ eligibility; and (2) Defendants’ implementation of corporate policies designed to incentivize improper admissions.
The relator’s expert identified a population of 12,000 patients who had been discharged in the relevant period and were on hospice for a total of at least 365 days. The expert then selected a stratified sample of 291 patients for evaluation by a second expert. The first expert then extrapolated the second expert’s analysis to form an opinion as to the total number of claims submitted for the 12,000 patients that were allegedly false.
The court rejected this approach. First, the court cast doubt on extrapolation evidence, refusing to find it reliable. The court stated that “[i]n this context, statistical sampling of the type done by [the expert] . . . cannot establish liability for fraud in submitting claims for ineligible patients, as the underlying determination of eligibility for hospice is inherently subjective, patient-specific, and dependent on the judgment of involved physicians.” The court concluded that “proof regarding one claim does not meet Relator’s burden of proof regarding other claims involving different patients, different medical conditions, different caregivers, different facilities, different time periods, and different physicians.”
Second, the court found that the manner in which the expert chose the stratified sample of 291 patients was “fundamentally flawed” because the sample the expert relied on was not randomly selected and did not control for variables the expert identified as important, such as geographical differentiation, different clinical staffs and doctors or disease type. Thus, the court prohibited the relator from presenting evidence beyond the 291 patients.
The court also rejected the evidence the relator presented as to these 291 patients. The court concluded that the relator’s expert’s mere disagreement with a certifying physician’s assessment of hospice eligibility was insufficient to prove a violation of the FCA. Rather, “[b]ecause a physician must use his or her clinical judgment to determine hospice eligibility, an FCA claim . . . must be predicated on the presence of an objectively verifiable fact at odds with the exercise of that judgment, not a matter of questioning subjective clinical analysis.” For example, a relator must show that a physician “never reviewed the patient’s medical condition nor saw the patient, or that the physician did not actually believe that if the patient’s disease ran its normal course, the patient had a prognosis of six months or less.” Here, the fact that the expert simply reached different conclusions than the certifying physicians as to the necessity of admitting certain patients was insufficient.
As to Defendants’ alleged improper implementation of certain corporate policies, the relator pointed to those policies (1) encouraging admission of patients earlier than competitors and before determining eligibility, (2) requiring multiple layers of review before discharging patients, and (3) instructing staff to document evidence supporting eligibility for eligible patients. According to the relator, these policies supported an inference that Defendants billed for ineligible patients. But the court found that making that inference would be improper, finding that “[w]hat Relator is missing here is a causal link between Defendants’ policies, a few instances where medical information was allegedly falsified, and actual false or fraudulent certifications and claims.”
As this case underscores, FCA claims dependent on issues of clinical judgment are met with skepticism by the courts, in recognition of the fact that the FCA is not a tool to arbitrate good faith clinical disputes. Attempts by FCA plaintiffs to extrapolate to prove broad liability are also being closely scrutinized, particularly where, as here, the unique clinical elements underlying each claim are not generalizable across a broad universe.