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Paul M. Thompson focuses his practice on white-collar criminal defense, congressional investigations and appellate matters. He is a current member of the Firm-wide Management Committee and a former member of the Firm’s Executive Committee. From 2011 to 2015, Paul served as partner-in-charge of the Washington, DC office. Read Paul M. Thompson's full bio.

In a previous post, we discussed the petition for certiorari in Gonzalez v. Planned Parenthood of Los Angeles (S. Ct. No. 14-4080), a False Claims Act (FCA) case in which the relator alleged that Planned Parenthood knowingly overcharged the government for contraceptives it provided to low-income individuals in California.

In Gonzalez, the Ninth Circuit held that the district court properly dismissed the relator’s claims because documents attached to the complaint showed that the government knew about Planned Parenthood’s allegedly improper billing practices; thus, the relator could not demonstrate the requisite scienter under the FCA. The relator argued that the issue of government knowledge was worthy of Supreme Court consideration due to a split between the Ninth Circuit and other circuits on this issue.

We opined that Relator’s cert petition did not raise an issue worthy of consideration by the Supreme Court. Consistent with our expectation, the Supreme Court denied the cert petition on May 18, 2015.

The U.S. Supreme Court will decide within the next few weeks whether to hear a False Claims Act (FCA) case that has garnered media attention because it involves alleged wrongdoing by Planned Parenthood.  In Gonzalez v. Planned Parenthood of Los Angeles (No. CV 05-8818, C.D. Cal.), the relator alleged that Planned Parenthood knowingly overcharged the government for contraceptives it provided to low income individuals in California.

The issue in the case turns on the role of government knowledge as a defense to scienter, i.e., the notion that when the government knows about or approves of the billing practices at issue, the defendant does not knowingly or recklessly submit a false claim.  In Gonzalez, the Ninth Circuit held that the district court properly dismissed the relator’s claims because documents attached to the complaint showed that the government knew about Planned Parenthood’s allegedly improper billing practices.  These documents included correspondence between Planned Parenthood and the California Department of Health Services, in which Planned Parenthood candidly disclosed its billing practices (to which it received no response or contradiction), as well as a letter from the Department to Planned Parenthood explaining that it would not seek a refund from Planned Parenthood because the key term at issue was not defined, and because the Department was concerned that “conflicting, unclear, or ambiguous representations have been made to providers” with regard to the billing practices at issue.  Accordingly, Planned Parenthood lacked the requisite scienter to establish a “knowing” submission of a false claim.

In seeking certiorari, the relator argued that there is a split between the Ninth Circuit and other circuits on the issue of government knowledge. While the relator did not dispute that a number of circuits held that government knowledge can refute allegations of knowledge or recklessness, the relator argued that the Ninth Circuit deviated from the approach taken by all other circuits by dismissing a case based on government knowledge at the pleadings stage, rather than at summary judgment.

On this issue, Planned Parenthood has the better argument.  As Planned Parenthood noted in its opposition, numerous cases in numerous circuits have found that government knowledge is relevant to scienter under the FCA.  The Ninth Circuit’s decision merely follows a long line of cases standing for this principle.  While it is true that the Ninth Circuit dismissed the case at the pleadings stage, it did so because the complaint (including evidence contained in documents the relator attached to the complaint) permitted such a dismissal.  The Court found that this evidence “fatally undercut” the relator’s allegation that Planned Parenthood “knowingly” submitted false claims.  Accordingly, the relator did not state a “plausible” claim under Federal Rule of Civil Procedure 8(a).

Such compelling evidence is not often available at the pleading stage, so it is unsurprising that in many cases the government knowledge issue is not in play until later stages of the litigation.  Yet the availability of such evidence here—provided by relator himself in connection with his complaint—was sufficient to warrant dismissal.

In sum, while the government knowledge issue arose at a procedurally early point in Gonzalez, it is not an issue worthy of the Supreme Court’s attention.  It is well-established that government knowledge can undermine an FCA claim.  Whether it does so, turns on the specific facts of each case.  In Gonzalez, those facts were set forth in documents that the relator himself attached to his complaint.

We will continue to monitor this case and will provide a further update if the Supreme Court grants cert.

Health care general counsel should review and brief their internal clients on the new Practical Guidance for Health Care Governing Boards on Compliance Oversight (Guidance), released on April 20, 2015.  A joint effort by the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS), the Association of Healthcare Internal Auditors, the American Health Lawyers Association (AHLA) and the Health Care Compliance Association, the Guidance is a useful and timely resource for both the general counsel and the board.

Continue reading.

With a motion to dismiss pending in the United States District Court for the Southern District of New York, United States of America ex rel. Kane v. Continuum Health Partners, Inc., Case No. 11-2325, is the False Claims Act (FCA) case to watch in 2015.  It is the first “reverse false claims” case where the United States intervened, and its only allegation involves a failure to timely report and refund overpayments to the government.

In 2010, the Affordable Care Act (ACA) modified the FCA’s reverse false claims provision (31 U.S.C. § 3729(a)(1)(G)), making a party liable for failing to report and return an overpayment within 60 days of the date it is “identified.”  See 42 U.S.C. § 1320a−7k(d).  Five years after the passage of the ACA, however, it remains unclear what it means for an overpayment to be “identified,” thereby triggering the 60-day clock.  The Centers for Medicare and Medicaid Services (CMS) has not issued any guidance concerning refunding overpayments to Medicaid.  In February 2012, CMS issued proposed regulations on this topic for Medicare Parts A and B, which it has yet to finalize.  In fact, CMS just announced, on February 13, 2015, that it will delay its final guidance until at least February 2016—likely well after the district court issues its decision in Continuum Health.

According to the government’s complaint, filed on June 27, 2014, three hospitals in New York City operated by Continuum Health (which is now part of Mount Sinai Health System) submitted improper claims to Medicaid in 2009 and 2010, as a result of a glitch with its billing software. The New York State Comptroller first notified Continuum Health in September 2010 that it had erroneously billed Medicaid for a small number of claims.  Continuum Health then conducted an internal investigation.  On February 4, 2011, the relator e-mailed a spreadsheet to his superiors at Continuum Health with what he believed to be about 900 improperly-submitted claims resulting from the same software issue.  Four days later, Continuum Health terminated the relator.

Over the next two years, Continuum Health refunded the overpayments associated with the initial list of 900 claims.  The government alleges that Continuum Health made these refunds largely in response to continued inquiries from the NYS Comptroller about additional claims. And, it claims that Continuum Health refunded 300 of the overpayments only after it received a Civil Investigative Demand from the U.S. Department of Justice.  Nonetheless, the government did not intervene in the case until a year after Continuum Health refunded all overpayments to Medicaid.

In its motion to dismiss, Continuum Health makes three arguments:

First, it contends that it had no “obligation” to report and refund the overpayments.  The relator’s February 4, 2011, e-mail did not “identify” any overpayments, thereby triggering the 60-day clock.  Rather, the e-mail was a preliminary list of potential overpayments that, by the relator’s own admission, required “further analysis to corroborate his findings.”  According to Continuum Health, the government’s position that “mere notice of a potential but unconfirmed overpayment” will “identify” that overpayment is untenable.  Indeed, 60 days is not enough time to complete the sort of complex factual investigation and legal analysis that is typically required to determine whether there is an actual overpayment.

Second, Continuum Health argues that, even if an “obligation” existed after the relator sent his e-mail, it did not knowingly “conceal[]” or “avoid[]” that obligation.  Continuum Health argues that concealing and avoiding require affirmative action, not the failure to act.

Finally, Continuum Health claims that it does not have an obligation to repay the federal government, because Medicaid is operated at the state level.  Consequently, any alleged failure to report and refund overpayments does not create liability under the FCA.

The government responds to Continuum Health’s arguments in turn.

First, it argues that when construing the term “identified,” the court should look to CMS guidance concerning refunding overpayments to Medicare Advantage and Part D.  Under that guidance, a healthcare provider “has identified an overpayment” when it “has determined, or should have determined through the exercise of reasonable diligence, that [it] has received an overpayment.”  According to the government, Continuum Health failed to act with reasonable diligence after it received the relator’s e-mail.  The government rejects Continuum Health’s interpretation of “identified”—claiming that it allows the provider to choose when, or even if, to start the 60-day clock, despite how much information it possesses concerning the overpayment.

Second, the government argues that Continuum Health “knowingly avoid[ed]” its repayment obligation because, after it learned that it received overpayments, it “failed to take remotely reasonable steps to return those funds to Medicaid.”

Finally, the government contends that the FCA has always reached Medicaid claims.  Indeed, according to the government, the ACA defines “overpayment” to specifically include overpayments to Medicaid.

Although briefing closed with Continuum Health’s reply on December 8, 2014, for healthcare providers throughout the United States, many issues remain open.  With further CMS guidance on the meaning of “identified” delayed for another year, the decision in Continuum Health will likely provide the first guidance about what the law requires.  We will continue to monitor this case and keep you updated.

On February 10, 2015, the United States Court of Appeals for the Seventh Circuit broadly interpreted the term “referral” in the Anti-Kickback Statute (AKS), in a decision that could have significant implications for health care professionals.  The court held that a physician makes a “referral” under the AKS when he or she makes a “certification and recertification” that care is necessary, even though the physician did not steer patients to the particular provider. United States v. Kamal Patel, No. 14-cv-2607 (7th Cir. Feb. 10, 2015)

When patients of Dr. Kamal Patel, an internist in Chicago, needed home health care, Dr. Patel did not discuss with the patients which providers to use.  Rather, a member of his staff provided them with 10-20 home health care company brochures, and the patients chose one of those providers on their own.  Dr. Patel then “certified” the patient for 60 days of home care – and “recertified” if longer care was needed – by signing a Form 485 (a Medicare form that certifies that care is medically necessary and outlines a patient’s treatment plans) for each patient.

Dr. Patel allegedly accepted $400 in cash per certification and $300 per recertification from Grand Home Health Care (Grand) – one of those 10-20 providers.  Based on these facts, the lower court held that Mr. Patel “referred” patients to Grand when “he certified or recertified that the patient needed care, that the care would be provided by Grand, and that Grand could be reimbursed by Medicare for services provided.”

On appeal, Dr. Patel argued that the district court erred in holding that the certification and recertification process constituted a “referral” under the AKS. Instead, he said that to “refer” means to personally recommend a patient use a particular provider.  But Dr. Patel did not do that.  Instead, his patients chose the provider on their own, without discussing it with Dr. Patel.  The government countered that “refer” should include a doctor’s authorization of care, which would include the certification and recertification process.  Indeed, on at least one occasion, Dr. Patel withheld certification forms from Grand, until payment was made.  And, without those forms, Grand could not bill Medicare for the services it provided to Dr. Patel’s patients.

The court disagreed with Dr. Patel.  In reaching its decision, the Seventh Circuit found support in the definition of “referral” under certain state laws, the Stark law, and in the way that Dr. Patel even used the term on one occasion.  “Patel is correct that it does not matter who first identifies the care provider; what matters is whether the doctor facilitates or authorizes that choice,” the court stated.  “Patel acted as a gatekeeper to federally-reimbursed care. Without his permission, his patients’ independent choices were meaningless.”  What mattered to the court was not whether Dr. Patel steered patients to Grand but that Grand could not get paid by Medicare unless Dr. Patel certified the care – something that he did regularly in exchange for cash.

Several courts that have analyzed the issue, including the Seventh Circuit itself in an earlier case, have found that a “referral” depends on whether the doctor actually sent patients to the provider, as Dr. Patel’s appellate brief noted.  See United States v. Polin, 194 F.3d 863, 865-67 (7th Cir. 1999) (referring patients to a specific provider violated AKS); United States v. Miles, 360 F.3d 472, 479-80 (5th Cir. 2004) (defendants did not compensate individuals who “select[ed] the particular home health care provider”); United States ex rel. Perales v. St. Margaret’s Hosp., 243 F. Supp. 2d 843, 854 (C.D. Ill. 2003) (situation where physician “played no role in determining which facility a patient would go to” would not contravene AKS).

The Seventh Circuit’s decision is a marked departure from those cases.  According to the Patel court, whether a physician steers or directs patients to a particular provider does not matter – the act of authorizing and reauthorizing care is enough.  Given that this decision is at odds with these prior interpretations of “referral,” health care professionals should monitor closely whether other circuits adopt the Patel approach and whether any court applies it outside the home health context.

Welcome to FCA Update!  As the volume of False Claims Act (FCA) investigations and qui tam (or “whistleblower”) litigation continues to rise at a rapid pace, McDermott’s FCA defense practice has launched FCA Update to share our observations and insights regarding the most recent developments in this evolving area of law.  Our contributors will include former federal prosecutors and numerous other McDermott lawyers who are experienced in defending clients in FCA investigations and qui tam litigation in courts across the United States, as well as negotiating with regulators such as Office of the Inspector General. We will discuss legal developments under the FCA and related statutes, and what such developments mean for the defense – and avoidance – of investigations and litigation.

We hope you find the blog to be both interesting and helpful, and we welcome your feedback. Our goal is for this blog to serve as a forum through which we can communicate and interact with our readers and we encourage you to comment on our posts.  If you have questions or topic suggestions, please let us know via the “Contact” form or feel free to reach out to one of the editors directly.

Laura McLane, Paul M. Thompson and Tony Maida
FCA Update Editors and Partners, McDermott Will & Emery