FCA UPDATE
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
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The FCA and Medical Necessity: An Increasingly Tenuous Relationship

By and on Feb 7, 2017
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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. (more…)



Hospital Trade Associations Side with Agape in Fourth Circuit Appeal, Urging the Court to Reject Use of Statistical Sampling to Prove Liability in FCA Cases

By on Apr 13, 2016
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In late March, three major health care trade associations filed amicus briefs in support of the defendant-appellees in U.S. ex rel. Michaels v. Agape Senior Community, et al., Record No. 15-2145 (4th Cir.).  As we have previously reported, the relator in Agape is pursuing an interlocutory appeal to the U.S. Court of Appeals for the Fourth Circuit regarding the use of statistical sampling to prove False Claims Act (FCA) liability.  In their respective briefs, the American Hospital Association (AHA), Catholic Health Association (CHA) and American Health Care Association (AHCA), did not mince words – a reversal of the District Court’s ruling that sampling cannot be used to prove FCA liability would have catastrophic consequences for the thousands of hospitals and health care providers throughout the United States.

In their joint brief, AHA and CHA noted that their member hospitals “submit thousands of claims to Medicare and Medicaid every day based on physicians’ medical judgments about patient conditions and courses of treatment.”  On behalf of its members, AHA and CHA affirmed that “statistical analyses are no substitute for the on-the-ground medical context a treating physician knows, understands, and relies upon in making treatment decisions for a given patient.” The crux of the AHA/CHA argument is as follows: if the government and relators want to benefit from the treble damages and statutory penalty provisions of the FCA, then they must accept the “essential safeguard against its abuse: each claim must be separately proved.”  The alternative, suggested AHA/CHA, is a “Trial by Formula” approach that was firmly rejected by the Supreme Court of the United States in Wal-Mart Stores v. Dukes, 131 S. Ct. 2541 (2011), and further explained just last month in Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (Mar. 22, 2016).  With the majority of FCA qui tam cases being handled by relators directly—with limited oversight from a non-intervening United States—AHA/CHA argue that allowing statistical sampling to prove FCA liability would “shortcut” a physician’s clinical judgment.  Moreover, they observe that “[p]erversely, the bigger the relator’s allegations, the lower his burden of proof would become; the result would be more health care providers forced into costly defense of meritless FCA suits and more in terrorem settlements,” diverting resources from patient care and increasing health care costs for everyone.

(more…)



Court Dismisses FCA Case against AseraCare, Holding that Difference of Medical Opinion Insufficient to Establish Falsity

By on Apr 4, 2016
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After granting a new trial based on error in a jury instruction and sua sponte re-opening summary judgment, on March 31, 2016, the U.S. District Court for the Northern District of Alabama granted summary judgment to AseraCare on all remaining counts in U.S. ex rel. Paradies v. AseraCare, Inc.  The outcome is significant because it confirms that mere difference of clinical judgment—here, regarding conditions for a medical certification of hospice eligibility—is not enough to show that the claims are objectively false under the False Claims Act (FCA).

The turn of events is a significant win for AseraCare, as a jury had determined last October that 104 of 123 hospice claims submitted by AseraCare for Medicare payment were false.  (The trial was bifurcated into falsity and scienter phases.) However, after that jury verdict, on October 29, 2015, the court granted AseraCare’s motion for a new trial on the issue of falsity after expressing concern that it had “committed major reversible error in the jury instructions.”

As the court explained in a subsequent order, the FCA case was based on a false certification theory: specifically, that the underlying medical records did not support the physicians’ certifications of hospice eligibility, rendering the associated claims false. In reviewing its jury instructions, the court held that it should have advised the jury that the FCA requires proof of an “objective” falsehood. It also added that a proper instruction should have stated that a difference of opinion between doctors, without more, is insufficient to show that a Medicare hospice claim is false. The court sua sponte re-opened summary judgment and invited the government to point to evidence, other than its expert’s clinical opinion, that the certifications for the claims in question were false.

In the March 31 summary judgment, the court made clear that it was not satisfied with the government’s proffer, observing that the government only pointed to its own conclusions about the underlying medical records and its expert’s disagreement with AseraCare’s certification. In granting summary judgment, the court again confirmed that mere differences in clinical judgment are not enough to establish FCA falsity: “If the court were to find that all the Government needed to prove falsity in a hospice provider case was one medical expert who reviewed the medical records and disagreed with the certifying physician, hospice providers would be subject to potential FCA liability any time the Government could find a medical expert who disagreed with the certifying physician’s clinical judgment.  The court refuses to go down that road.”



Opening Brief Filed Before Fifth Circuit in Appeal of Largest False Claims Act Judgment

By on Mar 30, 2016
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Trinity Industries filed its appeal brief before the U.S. Court of Appeals for the Fifth Circuit in U.S. ex rel. Harman v. Trinity Industries on March 21, 2016, appealing “the largest judgment in the 150-year history of the False Claims Act.” In its appeal brief, Trinity argues that the relator’s case failed every element of the False Claims Act (FCA), including materiality, falsity, scienter and false claim. According to Trinity, the applicable regulatory agency, the Federal Highway Administration (FHWA), expressly approved the expenditure of federal funds at issue after the submission of the claims in question. Thus, the Fifth Circuit’s decision in the case will be instructive on whether agency guidance issued after the presentment of an allegedly false claim prevents materiality or legal falsity of the claim. This question is particularly relevant to industries such as health care, where regulatory guidance often changes in light of updated evidence or changes in industry practice.

The relator in the case is a competitor of Trinity, a highway guardrails manufacturer. The federal government, through the FHWA, reimburses state transportation departments for certain highway construction expenses, including installation of safety guardrails. In order to be eligible for reimbursement, guardrails must be crash-tested and accepted by the FHWA. Defendant Trinity had obtained such acceptance for its ET Plus guardrail units in 1999. In 2005, Trinity then modified the design of the ET Plus units. The relator alleged that Trinity did not disclose these modifications to the approved guardrails. The relator thus argued that the underlying claims for reimbursement for installation of the modified guardrails were false claims because they were founded on misrepresentations that the modified guardrails complied with the underlying FHWA regulations. (more…)



Sixth Circuit Rejects FCA Claim Based on Health Data Breach

By on Mar 15, 2016
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On March 7, 2016, the U.S. Court of Appeals for the Sixth Circuit decided United States ex rel. Sheldon v. Kettering Health Network, affirming a district court’s dismissal of a lawsuit alleging violations of the False Claims Act (FCA) relating to an alleged data breach.  The relator alleged that violations of the HITECH Act caused the submission of false claims to the government.

Under the HITECH Act of 2009, the federal government will pay health care providers money for making “meaningful use” of electronic health records (EHR) technology.  Providers who receive payments under the HITECH Act must certify compliance with approximately two-dozen meaningful use objectives.  These objectives include compliance with various regulations promulgated under the Health Insurance Portability and Accountability Act (HIPAA), which require, inter alia, including conducting security risk analyses, addressing the encryption/security of data stored in certified EHR technology, and implementing policies and procedures to prevent, detect, contain and correct security violations.

The relator in this case, Vicki Sheldon, alleged that defendant Kettering Health Network (Kettering) falsely certified compliance with HITECH’s meaningful use objectives.  Sheldon based her allegations on two letters she received from Kettering informing her that Kettering employees impermissibly accessed her Protected Health Information (PHI).  In addition, Sheldon alleged that Kettering failed to run “CLARITY” reports at appropriate intervals.  These reports are a tool present in Kettering’s EHR software and allegedly help providers monitor improper access to PHI.

The district court concluded – and the Sixth Circuit agreed – that Sheldon’s allegations were insufficient to survive Kettering’s motion to dismiss.  The court concluded that Kettering’s individual breaches did not violate the HITECH Act.  The Act and its implementing regulations require providers to maintain appropriate security protocols, not to prevent every possible data breach.  In fact, the HITECH Act and the HIPAA regulations it incorporates by reference require providers to respond appropriately to breaches, and thus contemplate the occasional breach. Indeed, the only reason that Sheldon learned of the breaches was because Kettering informed her of them.  The court suggested that Kettering’s notification letters actually hurt Sheldon’s case, because it was clear that Kettering had a breach-response protocol in place and was responding appropriately to them by informing affected individuals.   Accordingly, the court concluded, Kettering’s “attestation of compliance [with the HITECH Act] is not rendered false by virtue of individual breaches.” And absent a false statement, Sheldon could not allege the existence of a false claim under the FCA.

As to Sheldon’s claim that Kettering failed to run CLARITY reports at an appropriate frequency, the court concluded that “[n]either the Act nor the HIPAA regulations to which it refers require that providers adhere to a particular schedule for running reports.”

Ultimately, the court concluded that allegations of data breaches cannot by themselves show that a certifying entity under the HITECH Act made a false certification to the government.  This is undoubtedly an important ruling for defendants threatened with claims lying at the intersection between data breach legislation and the FCA.



Government’s Case Dismissed Due to Inability to Allege False Claims With Particularity

By on Jan 26, 2016
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The United States District Court for the Middle District of Florida recently dismissed the government’s False Claims Act case against Liberty Ambulance Service, Inc. for failure to plead its claims with sufficient particularity.  The court in United States ex rel. Pelletier, No. 3:11-cv-00587 (M.D. Fla. Jan. 7, 2016), held that while the government’s allegations plausibly gave rise to relief on its claim that the defendant defrauded the government by falsifying reports of ambulance services provided, the government nonetheless failed to meet the particularity requirement of Rule 9(b).

The crux of the court’s decision was that the government failed to sufficiently allege that Liberty had actually submitted a false claim to the government.  The court reiterated the often-invoked standard that liability under the FCA attached “not to the underlying fraudulent activity or to the government’s wrongful payment but to the “claim for payment.’”  Thus, the court stated, “a False Claims Act plaintiff may not describe an improper scheme in detail and assume that a claim for payment must have been or likely was submitted based on the scheme.”

The court observed that the government had alleged in detail the fraudulent scheme to falsify records:  “the government’s complaint and supporting materials go into great detail regarding a scheme whose purpose may well have been to secure payment from the government based on false claims.”  Yet the government’s allegations failed to allege with sufficient particularity that Liberty has actually submitted false claims. Despite presumably having access to the submitted claims, the government could not identify a single false claim submitted by the defendant.  Nor were any of the government’s witnesses “involved with the actual submission of claims to the government or the receipt of payment from the government.”  Unable to cite specific false claims and without “first-hand knowledge of Liberty’s internal billing practices,” the government could not meet Rule 9(b)’s particularity requirement.

The court distinguished the U.S. Court of Appeals for the Eleventh Circuit’s decision in United States ex rel. Walker v. R&F Prop. of Lake County, Inc., 433 F.3d 1349 (11th Cir. 2005), where that court had affirmed the denial of a motion to dismiss an FCA claim despite the plaintiff’s failure to specifically identify any false claim.  In Walker, the plaintiff had some knowledge of the defendants’ billing practices and had spoken to an office administrator who confirmed how the government was billed.  Here, by contrast, the court held, the statements of the defendant’s employees that the government offered did “not demonstrate the same degree of familiarity with the billing process as would provide the indicia of reliability necessary to meet the Rule 9(b) standard.”

The court’s decision confirms the importance of holding an FCA plaintiff—whether a relator or the government—to its burden of pleading its claims with particularity.  Even where the plaintiff can allege a plausible scheme to defraud the government, without a particularized accusation that false claims were submitted, the FCA case cannot proceed.



Opening Briefs Filed in Fourth Circuit Case on Use of Statistical Sampling to Prove FCA Liability – Could Have Far-Reaching Implications for FCA Defendants

By on Jan 20, 2016
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As we previously reported in October 2015, the U.S. Court of Appeals for the Fourth Circuit is considering an interlocutory appeal regarding the use of statistical sampling to prove liability under the False Claims Act (FCA).  The Fourth Circuit’s resolution of this case, U.S. ex rel. Michaels v. Agape Senior Community, et al., Record No. 15-2145 (4th Cir.), could have broad-sweeping implications for FCA defendants.  In short, while courts have regularly permitted the use of statistical sampling to determine damages in FCA cases, the use of sampling to prove FCA liability is a relative rarity and the question has never been considered by a circuit court.  The first question on appeal goes directly to this point.  The second question on appeal—which could also have a significant impact on the FCA landscape—is whether the United States has unreviewable “veto authority” under 31 U.S.C. § 3730(b)(1) to reject a settlement in FCA cases where it has elected not to intervene.

In opening briefs filed last week, the relators expound upon a cross-section of cases where statistical sampling has been permitted to prove damages.  Then, citing to the Supreme Court’s touchstone Daubert opinion, the relators seek to stretch the use of sampling beyond damages and directly to the issue of FCA liability, asserting that the question is not “whether statistical sampling and extrapolation, in and of itself, is appropriate, but whether the statistical sampling is conducted in a scientifically proven and accepted manner . . . .”  The relators’ position throughout the case has been that the sheer volume of claims at issue—approximately 50,000–60,000 claims across 10,000–19,000-plus patients—could not be individually reviewed by an expert to determine medical necessity without incurring exorbitant costs that exceed the estimated damages in the case.  The relators pinned that cost at upwards of $35 million based on each of their experts spending “four to nine hours reviewing each patient’s chart.”

With top-end estimated damages of $25 million, the relators argued that they should be permitted to review a sample of claims, extrapolate across the universe, and draw inferences about FCA liability from the results.  Agape firmly rejected the relators’ position, contending that “determining eligibility for hospice care requires an exercise of subjective clinical judgment that takes into account a myriad of facts and circumstances unique to each patient.”  The district court agreed, leading the relators to proceed forward based on the ruling that sampling could not be used to prove liability, including preparations for an “informational bellwether” trial (over Agape’s objections) to present evidence regarding a small sample of claims.  At the same time, the parties engaged in a series of mediation sessions.  In the first two sessions, the United States participated and a resolution was not reached.  At the mediator’s request, the third session excluded the United States and resulted in Agape obtaining a settlement agreement to resolve all of the relators’ claims for $2.5 million.

With the district court set to approve Agape’s settlement, the United States objected on the basis of [...]

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Re-Trial Order in AseraCare Confirms that Differences in Clinical Judgment Alone Insufficient to Establish Falsity

By on Nov 6, 2015
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As we previously reported, in the FCA case against hospice-provider AseraCare, U.S. ex rel. Paradies v. AseraCare, Inc., the U.S. District Court for the Northern District of Alabama granted AseraCare’s motion for a new trial based on error in instructing the jury during the falsity phase of the trial (The trial was bifurcated into falsity and scienter phases.)  The court released its written order on the motion this week.

This order is an instructive read for any defense of a false certification case. As the court explains, a false certification case does not rest on allegations that, for example, a defendant forged doctor signatures, billed for unperformed services, or submitted claims for fictitious patients. Rather, such a claim, as in this case, rests on a theory that the underlying medical records do not support the physician’s certifications (here, of hospice eligibility), rendering those certifications false. But, as the court ultimately recognized in reviewing its jury instructions, a mere difference of clinical judgment is not enough to show falsity.  The court stated that it should have advised the jury that the FCA requires proof of an “objective” falsehood. It also added that a proper instruction should have stated that a difference of opinion between doctors, without more, is insufficient to show that a Medicare hospice claim is false.

But that was not all, in a case that has proved itself a procedural primer. The court also reopened summary judgment.  The court noted at the outset of its order that the law on many key issues under the FCA is still developing, particularly in the hospice realm. Based on its findings regarding the correct legal standard of falsity and the government’s evidence on falsity, the court notified the parties that it will consider summary judgment under Federal Rule of Civil Procedure 56(f)(3), which provides that a court may “consider summary judgment on its own after identifying for the parties the material facts that may not be genuinely in dispute.”  Thus, before setting a new trial date, the court will reconsider summary judgment, giving the government an opportunity to point to objective evidence of falsity offered during the trial.

The government faces a challenging case on summary judgment under the clarified legal standard.  In replying to contention interrogatories, the government represented that it would use only its expert’s testimony and the underlying medical records to try to prove falsity. Because the government’s evidence showed a difference in only clinical judgment about patients’ terminal prognoses, “the court now questions whether the Government, under the correct legal standard, has sufficient admissible evidence of more than just a difference of opinion to show that the claims at issue are objectively false as a matter of law.”  Government witness testimony at trial further undermines the government’s case. As the court noted, the government expert acknowledged that he had changed his opinion regarding the eligibility of patients between his review in 2010 and 2013: “I was not the same physician in 2013 as I was in 2010.” Likewise, [...]

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Court Orders Re-Trial of AseraCare Falsity Phase Based on Jury Instruction Errors

By on Oct 29, 2015
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We said we would provide updates based on any developments in U.S. ex rel. Paradies v. AseraCare, Inc., and we are reporting earlier than anticipated. Instead of moving the case along to the second phase of the bifurcated trial to address scienter, the court granted AseraCare’s motion for a new trial on the issue of falsity after expressing concern that it had “committed major reversible error in the jury instructions.” Thus, the parties are now faced with re-trying the question of whether 121 hospice claims were false–an issue that took almost two months to try the first time.

At issue are the judge’s instructions relating to the issue of falsity. In earlier stages of the case, the parties disputed the proper standard of falsity, with AseraCare arguing that to establish falsity, the government must show that that a certifying physician did not or could not have believed, based on his clinical judgment, that a patient was eligible for hospice. AseraCare argued that the government’s medical expert was second-guessing the certifying physician’s judgment, evidence not sufficient to prove that the claims were objectively false. The government, in contrast, argued that the falsity inquiry turned on medical record information, and not the physician’s certification: it suggested that a hospice claim is false when clinical information and other documentation in the medical record does not support a terminal prognosis.

After trial, the judge cited a concern that the jury instructions had two errors. First, the judge expressed concern that she hadn’t instructed the jury about objective falsity or objective evidence of falsity; second, the judge said the “bigger error I think I made was in overruling the defendant’s request for an instruction that said… opinion is not enough or difference of opinion is not enough.”  AseraCare moved orally for a new trial, and the judge granted the motion.

While a trial of False Claims Act (FCA) claims is unusual, even more unusual is for a judge to order a new trial after a jury verdict. However, the judge was correct to recognize the errors in the jury instructions, as differences in medical judgment or opinions certainly should not be sufficient to establish fraud under the FCA.

The court also denied the government’s request to stay the trial proceedings. We will watch to see whether the re-trial based on revised instructions addressing objective falsity and physician differences of opinion alter the outcome of the first phase on the falsity of the claims.



AseraCare Trial Set To Move To Phase Two

By on Oct 19, 2015
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The first round is over in U.S. ex rel. Paradies v. AseraCare, Inc., the False Claims Act (FCA) case pending in the U.S. District Court for the Northern District of Alabama that, as we previously reported, was the first in which a court bifurcated an FCA trial between the elements of falsity and scienter. The jury considered the element of falsity as to 121 hospice claims, and on October 15, 2015, concluded that 104 of those claims were not eligible for reimbursement by Medicare under applicable regulations for end-of-life care. The case will now continue to the second phase, concerning scienter, in which the jury will be asked to determine whether AseraCare knowingly submitted false claims.

The now-concluded falsity phase was notable because, as we previously discussed, the court denied the defendant’s motion for summary judgment on the element of falsity where the government solely relied upon a sampling of claims reviewed by an expert.

According to the jury instructions in the falsity phase, one requirement of the claims AseraCare submitted to Medicare was that the patients were properly certified as terminally ill (which is when the patient’s medical prognosis is a life expectancy of six months or less if the illness runs its normal course.) The certification for the initial benefit period required that both the patient’s attending physician, if the patient had one, and the hospice program’s medical director state that they considered the patient to be terminally ill based on the doctor’s clinical judgment. This certification required clinical information and documentation to support the prognosis. For each of the claims in the sample, the parties did not dispute the existence of the certifications, but instead whether they were proper.

On October 16, 2015, AseraCare renewed its motion for judgment as a matter of law as to the jury’s findings in phase one. We will watch and report on the outcome and the scienter phase of the case.



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