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.
The government’s focus on the US opioid crisis has been consistently expanding over the past year beyond manufacturers to reach prescribers and health care providers who submit claims to federal health care programs for opioid prescriptions. These efforts increasingly include investigations under the False Claims Act and administrative actions, in addition to the more traditional criminal approach to these issues.
With the Trump administration’s public health emergency orders, it is expected for the government’s enforcement activities, including those instigated by relators and their counsel, to grow in this area.
On February 27, 2017, the US District Court for the Southern District of Mississippi granted a defense motion to dismiss False Claims Act (FCA) claims in United States ex rel. Dale v. Lincare Holdings, Inc., on the grounds that the claims were precluded by the FCA’s first-to-file bar.
The defendant, Lincare Holdings, Inc., is a national respiratory care provider that serves Medicare Part B patients via the sale and rental of medical oxygen supplies. The relator, a former salesperson for a Lincare subsidiary, filed his complaint on February 23, 2015, under seal, alleging that Lincare implemented a scheme to falsify and manipulate medical necessity testing in order to generate false reports that would allow it to sell oxygen and other Medicare-covered services to patients who were not medically qualified for coverage. The relator alleged that an office manager and nurse instructed employees to direct patients to take a variety of steps, such as raising their arms while attached to an oxygen sensor, in order to generate falsely low arterial oxygen saturation levels. The relator further claimed retaliatory discharge under the FCA. The United States declined to intervene on August 17, 2015, and the complaint was unsealed on August 24, 2015.
Granting a nearly year-old motion to dismiss, the court held that the relator’s FCA claims were precluded by the FCA’s first-to-file bar, finding that the “fraudulent scheme depicted in Relator’s complaint is largely based on the same underlying facts as the [United States ex rel. Robins v. Lincare, Inc.] scheme.” The first-to-file bar prohibits plaintiffs from being a “related action based on the facts underlying [a] pending action.” 31 U.S.C. § 3730(b)(5). The Robins suit was filed first in the US District Court for the District of Massachusetts and the court found that there was a “substantial overlap in material facts” underlying the schemes alleged in each case such that the complaints are sufficiently related for purposes of the first-to-file bar. Continue Reading Medicare Part B Provider Secures Dismissal of FCA Claims Under First-to-File Bar
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 December 16, 2016, the US Court of Appeals for the First Circuit issued an opinion in United States ex rel. Hagerty v. Cyberonics, Inc. (Case No. 16-1304) affirming the US District Court for the District of Massachusetts’ dismissal of a relator’s False Claims Act (FCA) claims for failure to plead the alleged fraudulent scheme with the level of particularity required by Federal Rule of Civil Procedure 9(b).
The relator, a former sales representative of medical device manufacturer Cyberonics, Inc., alleged that his former employer had engaged in a scheme to overbill the government by encouraging unnecessary, untimely surgical procedures to prematurely replace batteries in patients’ Vagus Nerve Stimulator (VNS) devices. The relator alleged that while VNS devices, implanted to treat patients with refractory epilepsy, have battery lives of eight to nine years, Cyberonics adopted a sales strategy designed to result in battery replacements after four to five years.
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 Ninth Circuit issued an opinion overturning a district court’s grant of summary judgment against a False Claims Act (FCA) relator in United States ex rel. Driscoll v. Todd Spencer M.D. Medical Group, Inc. on August 9, 2016. The case involved allegations by Scott Driscoll, M.D., a radiologist who had worked for the defendant medical group, that the medical group and its principal, Dr. Todd Spencer, performed unnecessary procedures and unbundled certain procedures in order to bill for multiple procedures rather than just one at a higher reimbursement rate.
The district court had granted the defendants’ motion for summary judgment on the grounds that the amended complaint failed to satisfy the particularity standard of Fed. R. Civ. P. 9(b). Specifically, the district court held that although the relator alleged the performance of certain unnecessary procedures and improper unbundling of procedures, the claims failed to sufficiently describe the details of the alleged scheme by failing to allege the “who, what, when, where, and how of the scheme.” For example, the district court found that the complaint lacked particularity in identifying the persons who performed the unnecessary services and submitted inflated bills. Moreover, the district court found that the relator failed to flesh out how the scheme worked and to provide facts regarding a protocol that was allegedly developed by Spencer and appeared to be the basis for the relator’s claims related to the performance of unnecessary procedures. The district court held that any subsequent amendment to the compliant would be futile and dismissed it with prejudice, noting that in a prior order related to the initial complaint, it had given the relator “one and only one” opportunity to amend the complaint and specific instructions on how to cure the complaint’s factual deficiencies.
The Ninth Circuit disagreed with the district court, holding that certain of the allegations in the complaint were sufficiently specific that the defendants could answer the complaint and defend against the charges. Citing its holding in Ebeid ex rel. United States v. Lungwitz (616 F. 3d 993 (2010)) the Ninth Circuit noted that, under Rule 9(b), it is sufficient to allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted. Moreover, a plaintiff need only provide enough detail to give the defendant notice of the particular misconduct which is alleged to constitute the fraud charged so that he or she can defend against the charge and not just deny that he or she has done anything wrong. The Ninth Circuit contrasted the facts in Driscoll with those in Ebeid (in which the court ultimately found that the claims failed to satisfy the heightened pleading standards of Rule 9(b)) in that in Driscoll, the relator had personal knowledge of the defendants’ practices whereas, in Ebeid, the relator was not an insider, “so his claim depended on speculation.” However, the opinion does not elaborate on how such a difference contributed to the court’s determination that the Rule 9(b) pleading standard had been met in Driscoll.
Finding that only a portion of the compliant was sufficiently specific, the Ninth Circuit remanded the case to the district court with instructions to allow the relator to amend the complaint to address the deficiencies and narrow the scope of the complaint so that the litigation would be manageable.
Although Ninth Circuit’s opinion in Driscoll was not published and does not have precedential value, it illustrates that some courts may give certain relators with personal knowledge of an alleged fraudulent scheme more leeway in meeting their Rule 9(b) burdens. However, Rule 9(b) continues to set a demanding standard that should be enforced by courts to guard against frivolous claims.
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.
In many industries, but especially health care, the amount of regulation and guidance issued by the responsible agencies is tremendous and continues to grow. The Centers for Medicare and Medicaid Services (CMS) is no exception. In a recent appeal by a home health agency, the Tenth Circuit examined the “pace [of CMS’] frenetic lawmaking,” finding that CMS applied a homebound status definition and documentation requirement that did not exist at the time the claims were submitted.
In Caring Hearts Personal Home Services., Inc. v. Burwell, No. 14-3243, 2016 BL 171256, (May 31, 2016), CMS litigated an alleged overpayment of about $800,000 for medically unnecessary home health services through the entire administrative process. The services were provided in 2008, but, according to the Tenth Circuit, CMS applied the more restrictive 2010 version instead. CMS took the position in this litigation that the 2010 changes simply clarified the prior rule and made it more consistent with the governing statute. The Administrative Law Judge, the Department Appeals Board and even the United States District Court took the same view. On appeal the Tenth Circuit disagreed.
The Tenth Circuit found that the 2008 version of the regulation applied to the claims, that Caring Hearts home health services and documentation content complied with that regulation, and that the statute did not clearly support CMS’ litigation position. In 2008, CMS’s homebound definition stated that, “[g]enerally speaking, a patient will be considered homebound if they [sic] have a condition due to an illness or injury that restricts their ability to leave the place of residence except with the aid of: supportive devices such as crutches, canes, wheelchairs, and walkers … .” In 2010, CMS added a second, more restrictive requirement – the patient must also “normal[ly]” be unable “to leave home” even with a wheelchair and any attempt to leave home must also “require a considerable and taxing effort.” As for documentation requirements, no requirements existed in 2008. The specific requirements CMS said the agency did not comply with were not created until 2010.
While Caring Hearts was dealt the lemon of defending this case, the opinion yields some potentially valuable lemonade in useful lessons and precedents for the rest of the health care community. First, due to the way the case was argued below, the Tenth Circuit was not presented with a direct Chevron challenge to CMS’ homebound definition or documentation requirements. While the court took some pains to say that it was not opining on whether the current homebound definition or documentation requirements were consistent with the statute, 42 U.S.C. § 1395f(a)(8), the opinion lays out a roadmap to this challenge.
Second, the court had the unusual opportunity to opine on section of the Social Security Act, 42 U.S.C. § 1395pp. This section creates, according to the Tenth Circuit, “a sort of good faith affirmative defense” that permits payment for claims that are not payable for specific reasons, including for patients who do not qualify as homebound, if the provider did not know, and could not reasonably have been expected to know, that payment would not be made for such items or services. In this case, the agency argued that it could not have been expected to know CMS’ interpretation of the 2008 rules, and therefore, CMS should deem the claims payable under 42 U.S.C. § 1395pp. The Tenth Circuit agreed with the agency’s argument in vacating the district court decision.
The 42 U.S.C. § 1395pp defense could be a relevant point to make in many cases involving medical necessity or clinical judgment issues that the government has shown interest in pursuing under the False Claims Act other than homebound status, such as hospice eligibility and the appropriateness of inpatient status for a patient under the current “two midnight” rule. For example, in U.S. ex rel. Paradies v. AseraCare, Inc., the court ruled, in considering hospice eligibility, that the difference of opinion in clinical judgment between medical experts alone cannot support a falsity claim under the False Claims Act (FCA). Similarly, a provider’s good faith reliance on a contemporaneous medical opinion of a physician that the patient was homebound or hospice eligible could support finding the claim payable under 42 U.S.C. § 1395pp. The standard “could not reasonably have been expected to know” appears to be less demanding that the FCA’s “reckless disregard or deliberate ignorance” standard.
However, this case does not lessen the burden the health care industry faces in achieving full compliance with voluminous federal regulatory requirements. The Tenth Circuit noted that “currently about 37,000 separate guidance documents can be found on CMS’s website — and even that doesn’t purport to be a complete inventory.” And this is only one federal program.