While medical practices are generally aware that relators and the government pursue allegations of false or duplicative claims to federal health care programs, a recent settlement reflects a growing trend of False Claims Act (FCA) allegations concerning the failure to report and return identified overpayments. On October 13, 2017, the US Department of Justice (DOJ) announced that it had reached a $450,000 settlement with First Coast Cardiovascular Institute, P.A. (FCCI) of Jacksonville, Florida in a qui tam lawsuit alleging that FCCI failed to promptly return identified overpayments from federal health care programs after the overpayments came to the attention of the practice’s leadership. Continue Reading DOJ Settlement with Florida Medical Practice Serves as a Reminder: Delayed Repayment to Federal Programs Can Have Significant Consequences

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

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.

On the heels of the recent Omnicare summary judgment ruling (covered in this blog) comes another scienter-based summary judgment victory for a False Claims Act (FCA) defendant in United States ex rel. Kirk v. Schindler Elevator Corp. On September 10, 2015, the U.S. District Court for the Southern District of New York granted summary judgment in favor of Schindler Elevator following over a decade of litigation, including a 2011 Supreme Court ruling regarding the FCA’s public disclosure bar (http://www.supremecourt.gov/opinions/10pdf/10-188.pdf).

The relator’s FCA case was based on the alleged failure of Schindler, his former employer, to comply with the Vietnam Era Veterans Readjustment Assistance Act (VEVRAA), 38 U.S.C. § 4212, and associated regulations. VEVRAA requires certain government contractors to submit annual reports, called “VETS-100” reports, providing information about the number of veterans employed by the contractor, based on data known to the contractor. The relator alleged that Schindler’s VETS-100 reports were false and that the company was reckless because it had no mechanism for counting veterans. While much of the court’s opinion discusses issues that are specific to contractors subject to VEVRAA, in rejecting the relator’s attempt to raise a genuine issue of material fact on scienter, the court made a number of determinations that are important for any FCA defendant:

First, the court rejected the relator’s argument that the alleged lack of a written procedure for tracking veteran status raised an issue of fact on recklessness. The court observed that the lack of a written process, particularly where none was required by the statute, was not proof of recklessness where the evidence demonstrated Schindler’s attempts to comply with VEVRAA in numerous ways. Thus, the lack of a written procedure for statutory or regulatory compliance cannot, on its own, establish scienter.

Second, in response to an expert opinion proffered by the relator concerning the inaccuracy of Schindler’s VETS-100 reports due to alleged underreporting of veterans, Schindler argued that certain veterans did not need to be included on the reports, relying upon a regulation providing guidance on which types of employees’ veteran status needed to be reported. While the relator disagreed with Schindler’s interpretation of the regulation, the court held that where there is legitimate disagreement over a regulation and the contractor acts in good faith, the contractor does not knowingly present a false claim. The court noted that the relator offered “not a single piece of evidence that Schindler knew its interpretation of the regulation was wrong and then knowingly submitted false VETS-100 reports.”

Third, the court held that e-mails in which employees remarked about inaccuracies in data and the need to correct it did not establish scienter. “[I]dentifying errors in data collection or recognizing the need for better quality control does not constitute ‘reckless disregard’ within the meaning of the FCA.”

Fourth, the relator’s use of two Schindler employees’ declarations (one of which was relator’s own declaration) testifying that they had never been asked by Schindler to identify their veteran status was insufficient to survive summary judgment, given the countervailing evidence and Schindler’s thousands of employees. “[T]estimony from two of Schindler’s thousands of employees is ultimately immaterial and cannot support a finding by a rational factfinder that Schindler knowingly or recklessly submitted false VETS-100 reports.”

The court concluded by noting that there was no evidence that Schindler was out to “cheat the federal government out of its money,” and it further observed:

At bottom, [relator] fundamentally misapprehends the very purpose of the FCA—the FCA is not a mechanism to police regulatory compliance with VEVRAA; it is a mechanism to hold liable contractors who defraud the federal government.

Of the important lessons of this case, the most fundamental is that flimsy evidence of scienter will increasingly be scrutinized by the courts at summary judgment. Relators who fall short on evidence backing their claims of knowledge and recklessness will pay the ultimate price of dismissal.

Last week, two different district courts dismissed False Claims Act (FCA) claims on scienter grounds — one on a motion to dismiss and one at summary judgment. While FCA plaintiffs frequently claim that scienter is a fact-intensive inquiry best resolved by the factfinder, this is often not the case, as these two decisions underscore. FCA defendants should always explore every possible opportunity to seek dismissal based on lack of knowledge or recklessness, first on the pleadings and, failing that, at summary judgment.

On August 19, the U.S. District Court for the Eastern District of Pennsylvania granted a motion for summary judgment on scienter grounds in U.S. ex rel. Budike v. PECO Energy, in which the relator alleged FCA violations based on purported overcharges for electricity to the U.S. Navy.  The court held that where the evidence showed that PECO addressed and attempted to resolve malfunctions with a meter, the relator could not establish recklessness. Although there was evidence that the meter was malfunctioning and the defendant was unable to fix it, this was insufficient: “PECO’s ineptitude in successfully repairing the meter does not, alone, trigger FCA liability.”

On August 20, the U.S. District Court for the Northern District of Illinois granted a motion to dismiss, also on scienter grounds, in U.S. ex rel. Sibley v. A Plus Physicians Billing Service, Inc.  This case involved the alleged use of false or altered reimbursement codes. The court held that the relator had failed to allege scienter on the part of the president of the billing service:

The only allegations relator makes specifically about Schoewe are that: (1) he is the president and a co-owner of A-Plus and is “responsible for submitting the claims” created by its billers; (2) he, along with [his codefendant], “trained [relator] on the job”; (3) he told relator that “her bonus depended on maintaining a certain level of reimbursements”; (4) relator “complained to … [him] about being asked to bill improperly”; (5) he promised [clients] … that A-Plus would “continue billing in the same fashion”; (6) he told relator that he was “okay” with her “billing [the clients’ account] properly”; and (7) he ordered relator get approval for [client] claims she had not submitted for lack of documentation.  These allegations are insufficient to state an FCA claim against Schoewe in accordance with Rule 9(b).

However, the Sibley court did not dismiss the complaint against the codefendant who, as relator’s supervisor, was alleged to have specifically instructed relator to select codes to maximize reimbursement rather than to reflect actual services provided.

Sibley is also notable inasmuch as it held that a retaliation claim under the FCA, even after the 2009 amendments, cannot be maintained against individuals.

While factually very different, these two district court outcomes indicate that courts will scrutinize allegations and purported evidence of scienter and that, in many instances, whether a defendant has acted with knowledge or recklessness should not make it to the factfinder.

We previously posted on the U.S. Department of Justice’s motion for reconsideration of the United States District Court for the Northern District of Alabama’s order bifurcating the element of falsity from scienter (and the other False Claims Act (FCA) elements) at trial in U.S. ex rel. Paradies v. Aseracare, Inc. Last Thursday, the court denied the motion for reconsideration. The court was unpersuaded by DOJ’s contention that bifurcation had never been done before in an FCA case. “Just because a trial technique has never been done does not preclude the court from using its discretion to do so.”  The court also noted—perhaps turning DOJ’s “never been done before” argument against it—that “[t]he parties have not directed the court to any other False Claims Act trial involving a [M]edicare hospice benefit.”

With respect to DOJ’s arguments about juror confusion and duplicative evidence in the different phases of a bifurcated trial, the court rejected them, and reiterated its position that evidence of “general corporate practices” unrelated to actual, allegedly false claims would be inadmissible in the first trial phase.

While the court’s denial of the motion for reconsideration was not unexpected, it was undoubtedly the correct result, evidencing the court’s desire to ensure that DOJ properly establishes the element of falsity without unduly prejudicing the defendant with evidence irrelevant to the falsity question.  After all and in the words of the court, “no FCA liability exists without a false claim.”

The decision last fall in United States ex rel. Martin v. LifeCare Centers of America, Inc., No. 08-cv-251, 2014 WL 4816006 (E.D. Tenn. Sept. 29, 2014), has led to considerable discussion among lawyers who litigate claims arising under the False Claims Act (FCA). This decision represents the first time any court has found statistical sampling and extrapolation sufficient to establish FCA liability. Some courts had previously endorsed the use of sampling to demonstrate damages once liability has been established. Other courts had affirmed Department of Health and Human Services (HHS) administrative decisions that applied sampling in concluding that Medicare had overpaid government contractors. But the LifeCare decision went further, denying the defendant’s motion for summary judgment relating to the government’s use of statistical sampling to show falsity – the very essence of a false claim for payment by the government.

What is particularly noteworthy about the LifeCare decision is the nature of the government’s allegations for which the Court found extrapolation appropriate. In LifeCare, the government has alleged that LifeCare, a company that operates skilled nursing facilities, billed Medicare for medically unnecessary rehabilitation therapy services. A determination of medical necessity as to each of the services billed to Medicare turn on the individualized (and not collective) decisions of clinicians. The defendant argued that individualized decision-making cannot be demonstrated accurately through collective proof. Nevertheless, the court in LifeCare concluded that this argument “highlights the very nature of statistical sampling: that a smaller portion of claims will be used to draw an inference about a larger, not entirely identical, population of claims.” Some commentators have reacted to this reasoning by concluding that LifeCare gives the government and relators license to sidestep proof of falsity for each alleged claim for payment.

Another recent decision, United States v. AseraCare, Inc., No. 2:12-CV-245-KOB, 2014 U.S. Dist. LEXIS 167970 (N.D. Ala. Dec. 4, 2014), illustrates a similar conclusion. In that case, 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. In its decision, the court concluded that statistical evidence was sufficient evidence of falsity to defeat summary judgment.

However, a close reading of both LifeCare and AseraCare demonstrates that these cases contain important limitations. First, the LifeCare court recognized that its decision was the first of its kind. Other courts are not bound to follow its reasoning. Second, both courts noted that plaintiffs seeking to use sampling would still be subject to Daubert challenges. Moreover, LifeCare does not stand for the proposition that a plaintiff can prove FCA elements other than falsity by virtue of presenting a valid sample. In opposing summary judgment, the government represented that it intended to establish scienter by evidence of “corporate practices and pressure, and that LifeCare knew those practices likely caused the submission of false claims given the complaints it received nationwide from its employees and others.” The court approved of the manner in which the government proposed to establish scienter, recognizing that “the Government . . . does not intend to use statistical sampling to prove this element of the FCA” (emphasis added). Interestingly, the government’s evidence as to the defendant’s knowledge that its practices “likely caused the submission of false claims” was not tested at summary judgment, as the court noted “the lack of evidence submitted by either party” and allowed the case to proceed to trial only because “the Court [was] not persuaded at this juncture that the Government will be completely unable to establish that Defendant had knowledge of the alleged false claims.”

This reasoning enlightens how defendants should attack claims based upon statistical extrapolation, because it reinforces important limitations of FCA liability, even if other courts were to follow LifeCare and AseraCare. In all FCA cases, plaintiffs must demonstrate scienter and causation in addition to falsity. Although LifeCare and AseraCare may endorse a shortcut to establishing falsity, they do not stand for the notion that plaintiffs may establish the remaining elements through a statistically valid sample alone.

Instead, where FCA plaintiffs rely on collective proof to establish scienter and causation, they must present evidence of a pattern or practice and that the defendant knew – or was reckless in not knowing – that this practice “likely caused the submission of false claims.” Without presenting evidence that a defendant was aware of (or recklessly disregarded) the fact that its practices were likely causing the submission of false claims, plaintiffs cannot proceed to trial. In short, even under LifeCare and AseraCare, a statistical sample alone is not enough to prevail.