Certificate of Medical Necessity Authorizing Inpatient Admission Was False Claim
Winter ex rel. U.S. v. Gardens Reg’l. Hosp. and Med. Ctr., Inc., 953 F.3d 1108 (9th Cir. 2020), the court of appeals reversed a district court order dismissing the plaintiff’s qui tam False Claims Act (FCA) complaint. The plaintiff’s complaint alleged that the defendant knowingly submitted Medicare claims with false “medically necessary” certifications from doctors authorizing inpatient hospitalizations. In a matter of first impression, the court held that a doctor’s certification of medical necessity for inpatient hospitalizations can be false or fraudulent within the meaning of the FCA. The court rejected the district court’s holding that only “objectively” false statements violate the FCA. On the contrary, the court found the FCA imposes liability for objective and subjective falsity. Moreover, the FCA carves out no exemption for clinical opinions, because “a doctor, like anyone else, can express an opinion that he knows to be false.” According to the court, “an opinion with no basis in fact can be fraudulent if expressed with scienter.” Additionally, the court held that a doctor’s false “medically necessary” certification satisfies the “materiality” element of an FCA claim. False certifications are material because Medicare reimburses hospital expenditures only when an inpatient admission is certified as medically necessary by a treating physician. Accordingly, the “medically necessary” certifications are material to Medicare’s decision to pay, and Medicare would not have paid the defendant’s claims had Medicare known the hospitalizations were, in fact, unnecessary. Finally, the court held that the plaintiff’s complaint plausibly alleged that the defendant submitted false claims.
FCA Claims Dismissed for Failure to Plead Fraud with Sufficient Particularity
Nathan A. Adams IV
In United States ex rel. Integra Med Analytics, LLC v. Baylor Scott & White Health, No 19-50818, 2020 WL 2787652 (5th Cir. May 28, 2020), the court of appeals affirmed dismissal of the plaintiff’s claims for failing to meet the pleading requirements of Federal Rule of Civil Procedure 8(a) and 9(b) for pleading the FCA’s element that there be “a false statement or fraudulent course of conduct.” In addition, the court determined that the plaintiff failed the plausibility standard at the pleadings stage. As background, the plaintiff alleged that Baylor Scott & White Health (Baylor) submitted $61.8 million in fraudulent claims to Medicare in violation of the FCA. In particular, the plaintiff claimed that Baylor fraudulently used higher-value complication or comorbidity codes (CCs) and major complication or comorbidity codes (MCCs) than were justified by actual medical diagnoses to increase its revenue. But the court ruled that the plaintiff failed the Rule 8(a) and 9(b) standard because its statistical analysis was equally consistent with Baylor being ahead of most healthcare providers in following new Centers for Medicare & Medicaid Service (CMS) guidelines. The plaintiff’s data showed that the healthcare industry as a whole caught up to Baylor in a couple of years.
The plaintiff also alleged that Baylor trained its physicians to focus on key words to “upcode” MCCs; pressured physicians to alter their original diagnoses and asked them to specify or change their diagnosis if it did not include CCs or MCCs and provided unnecessary treatment in order to code high value MCCs. The court ruled that this was unsurprising because CMS expected hospitals to work with their physicians and medical coders to understand and implement the CC list. The plaintiff relied on the testimony of a former medical coder for Baylor who claimed she was pressured to code unethically, but her claims were wholly conclusory and provided no example of the alleged unethical or fraudulent directives. The court also was not impressed by the plaintiff’s allegation that Baylor patients undergoing major heart surgery were put on a ventilator at a rate twice the national average. “These allegations do not withstand the heightened pleading requirements for fraud under Rule 9(b).”
In United States ex rel. Benaissa v. Trinity Health, No. 19-1207, 2020 WL 3455795 (8th Cir. June 25, 2020), the court affirmed summary judgment for the defendant regional healthcare system against the relator’s claim that, by paying physicians for referrals in violation of the Stark Law and Anti-Kickback Statute (AKS), it violated the FCA by knowingly presenting a false or fraudulent claim to the government, making a false statement material to a false or fraudulent claim and retaliating against him. The court determined that the plaintiff’s claims did not satisfy the particularity requirement. The relator, a trauma surgeon, admitted that he did not allege representative examples of false claims presented for payment or approval, lacked firsthand knowledge of the defendant’s billing practices and did not plead details of those billing practices indicating a reliable basis for knowledge regarding submission of fraudulent claims such as dates and descriptions of particular services, coupled with a description of the billing system into which records were likely entered.
Instead, the relator claimed that he satisfied the particularity requirement by alleging that the defendant received a large Medicare reimbursement and that if the defendant compensated physicians for illegal referrals, every claim submitted for services would be false under the FCA. Thus, he asked, which is more likely: that the defendant did not submit any claims for the services associated with these physicians or that the defendant submitted at least some claims? The court ruled that this sort of general inference is not specific enough to give the defendant notice of the particular misconduct that is alleged to constitute the fraud charged, so that they can defend against it. Because the plaintiff failed to allege with particularity that the defendant submitted a claim for payment to the government, he also could not establish that the defendant’s allegedly false statements were “material” to any claim that was actually submitted. In addition, the relator failed to demonstrate that the defendant knew he was engaged in a protected activity, so the relator could not prevail on his retaliation claim.
Mining Patient Records for Solicitation Is a Potential AKS and FCA Violation
In Stop Ill. Health Care Fraud, LLC v. Sayeed, 957 F.3d 743 (7th Cir. 2020), the court of appeals reversed the district court’s granting of the defendants’ motion for judgment on partial findings, holding that the district court failed sufficiently to explain its conclusion that the defendants did not engage in an illegal patient referral scheme in violation of AKS and, by extension, federal and state FCAs. The relator alleged that Management Principles Inc. (MPI) and Healthcare Consortium of Illinois (HCI) orchestrated an illegal patient referral scheme in which MPI paid HCI $5,000 per month in exchange for access to all HCI patient records. The plaintiff alleged that MPI used HCI’s patient records to solicit and acquire new patients for MPI’s subsidiary physician practice and home health agency. MPI’s monthly payments to HCI began in 2010, pursuant to a vague “Management Services Agreement,” which made no reference to sharing patient records. However, defendant Asif Sayeed, owner and manager of MPI, testified the agreement facilitated “data mining” of HCI’s patient records, a process that helped MPI grow its patient rolls. Additionally, an MPI employee testified that her role was to go to HCI, copy medical and contact information from client files and, subsequently, contact those patients to determine if they needed medical care. If the contacted patient required care, the MPI employee referred the patient to MPI’s subsidiary physician practice. The court of appeal found that the district court’s decision did not acknowledge the testimonial evidence supporting this “file-access” theory of referrals. Additionally, the court found that the district court failed to explain itself when finding the plaintiff’s complaint showed “no evidence” that MPI intended the management services agreement to induce referrals. Accordingly, the case was remanded for additional proceedings.
Medical Expert Testimony That Medicare Reimbursement Could Be False Saves FCA Claim
Nathan A. Adams IV
In United States ex rel. Druding v. Care Alternatives, 952 F.3d 89 (3d Cir. 2020), the court reversed summary judgment in favor of the defendant and determined that the defendant’s claim for Medicare reimbursement could be considered false under the FCA based on medical-expert testimony that patient certifications did not support a terminal illness prognoses. The court considered the premise of the district court’s holding — that a mere difference of opinion is insufficient to show FCA falsity — at odds with the meaning of “false” under the statute. The reliability and believability of expert testimony is for the jury to decide. The court decided that the relators were not required to show that the physicians’ prognoses of terminal illness were objectively false to prevail on their FCA claims. According to the court, “By requiring ‘factual evidence that Defendant’s certifying doctor was making a knowingly false determination,’ the District Court’s ‘objective’ falsity standard conflates scienter and falsity.”
Penalty Enhancement for Controlled Substances Act Requires “But-For” Causation
In U.S. v. Jeffries, 958 F.3d 517 (6th Cir. 2020), the court of appeals reversed a district court order granting the defendant a new trial, finding the district court incorrectly interpreted 21 U.S.C. § 841(b)(1)(C) to require proof of both proximate causation and but-for causation. At trial, the defendant was convicted of violating the Controlled Substances Act (Act), 21 U.S.C. § 841(a)(1), for possessing fentanyl with intent to distribute. Additionally, the defendant was convicted of violating the act, 21 U.S.C. § 841(b)(1)(C), for distributing fentanyl, the use of which resulted in death. § 841(b)(1)(C) significantly enhances the penalty for violating § 841(a)(1) if “death or injury results from the use of [emphasis added]” an unlawfully distributed controlled substance. At trial and on appeal, the defendant argued that “results from” requires the government to prove 1) the defendant’s actions proximately caused death and 2) but-for the use of the distributed drug, death would not have occurred. In a question of first impression for the court of appeal, it held “results from” is unambiguous language requiring the government only show proof of but-for causation between the use of a controlled substance and resulting death or injury. According to the court, “The question under this statute’s language is whether death resulted from use of the controlled substance—not whether death was a foreseeable result of the defendant’s § 841(a)(1) violation [i.e., conduct].” Dissenting, Judge Bernice Bouie Donald argued that the court should interpret “results from” against a common law backdrop and apply the rule of lenity to select an interpretation most favorable to the defendant. Accordingly, the dissent interpreted “results from” as requiring the government to prove both proximate causation and but-for causation between defendant’s conduct and the use of a controlled substance, and resulting injury or death.
Plaintiffs Must Meet FCA’s Demanding Materiality Requirement to Avoid Dismissal
Tiffany A. Roddenberry
In United States ex rel. Porter v. Magnolia Health Plan, No. 18-60746, 2020 WL 1887791 (5th Cir. April 15, 2020), the relator alleged that her former employer, Magnolia Health Plan (Magnolia), which contracts with the Mississippi Division of Medicaid to help administer the state’s Medicaid program, violated the FCA by using licensed professional nurses (LPNs) for tasks requiring the expertise of registered nurses (RNs). Specifically, the relator claimed that Magnolia improperly used LPNs to serve as case and care managers. The federal government declined to intervene. Magnolia moved to dismiss, arguing that the complaint did not satisfactorily allege an essential element of an FCA claim — that the purported false statement or fraudulent course of conduct was material.
The district court and the Fifth Circuit on appeal agreed with Magnolia. In so ruling, the Fifth Circuit emphasized that the FCA is “not an all-purpose antifraud statute or a vehicle for punishing garden-variety breaches of contract or regulatory violations.” Here, the relator did not establish materiality because her complaint failed to allege a specific contractual provision or law that required RNs to staff case and care manager positions, and the relator did not otherwise establish that the staffing of these positions by RNs was a material term of the contracts. Additionally, that the Mississippi Division of Medicaid continued to pay Magnolia and even renewed Magnolia’s contract after learning of the relator’s allegations “substantially increase[d] the burden on [the relator] to establish materiality.” Accordingly, the Fifth Circuit affirmed the district court’s dismissal of the complaint with prejudice.
Conviction and Sentence for Conspiracy to Commit Healthcare Fraud and Other Crimes Affirmed
Patrick Scott O’Bryant
In United States v. Robaina, Case No. 19-11171, 2020 WL 2770543 (11th Cir. May 28, 2020), the defendant appealed a conviction for money laundering and conspiring to commit healthcare fraud and wire fraud, raising three issues: 1) whether the district court erroneously admitted extrinsic other acts evidence, 2) erred by failing to give a curative instruction following the prosecutor’s improper statements, or 3) erred in calculating the defendant’s guideline range because it improperly a) determined the amount of loss for which the defendant was responsible, b) imposed an aggravating role enhancement and 3) enhanced the defendant’s offense level for obstruction of justice. The Eleventh Circuit affirmed the conviction and sentence on all accounts.
First, the admitted evidence was inextricably intertwined with the evidence regarding the charged offense, as the evidence provided necessary background information concerning how the defendant came to operate the clinics that engaged in the fraudulent activity at issue. Moreover, because the defendant claimed he did not know his co-conspirator had participated in fraudulent schemes and did not know she was committing fraud, his involvement with her in a prior insurance fraud scheme was admissible to show that his acts were without mistake and with the intent to defraud healthcare companies.
Second, the challenged prosecutor’s remarks were not improper, as they only urged the jury to draw reasonable inferences from the evidence presented at trial. Furthermore, they did not affect the defendant’s substantial rights.
Third, regarding the application of the sentencing guidelines, it was not a clear error for the district court to include fraudulent claims of the corporation for which the co-conspirator was president, as these claims were foreseeable in connection with the conspiracy. Furthermore, it was not an error to determine that the defendant was an organizer or leader of the conspiracy, as evidence showed he exercised significant decision-making authority. Thus, the court did not err in increasing the defendant’s base offense level based upon his role in the conspiracy. Last, because the defendant provided deliberately misleading testimony on material subjects, it was not an error to enhance the defendant’s offense level for obstruction of justice.
Government’s Alleged Receipt of Defense Counsel’s Work Product Deemed Non-Prejudicial
Patrick Scott O’Bryant
In Coloma v. United States, 799 F. App’x 788 (11th Cir. 2020), the petitioner was a federal prisoner serving a 12-year sentence for conspiracy to defraud the United States and for violations of AKS. The petitioner filed a 28 U.S.C § 2255 motion to vacate, which the district court denied. The petitioner argued that the government violated his Fifth and Sixth Amendment rights when it obtained duplicate copies of his attorney work product from a government-contracted copying service. The court of appeals affirmed the denial, as the petitioner failed to show that the government’s alleged receipt of his counsel’s work product was outrageous or prejudicial to him. Substantial evidence at trial from 23 witnesses and conclusory assertions to suggest how the government’s possession of this information harmed him was not enough to show prejudice. Likewise, the Sixth Amendment argument was circular and inapplicable, as the petitioner’s defense counsel was not rendered ineffective by the government allegedly obtaining duplicate copies of the defense team’s work product.