Sixth Circuit in MedQuest: No FCA Liability for Violation of Medicare Conditions of Participation Without Violation of Conditions of Payment

On April 1, 2013, the U.S. Court of Appeals for the Sixth Circuit overturned an $11.1 million False Claims Act (FCA) judgment by the U.S. District Court for the Middle District of Tennessee against MedQuest Associates, Inc., a large provider of diagnostic imaging services, and three of its Nashville, TN-area facilities. The decision, which analyzed Medicare regulations concerning conditions of participation and conditions of payment, further clarifies for health care providers that, in the Sixth Circuit’s view and similar to the views of some other circuits, violations of Medicare conditions of participation, absent violations of conditions of payment, are not a basis for FCA liability. Moreover, the decision clarifies the Sixth Circuit’s view that violations of certain Medicare requirements should not be construed as violations of Medicare conditions of payment.

Background

The district court held that MedQuest violated the FCA under three theories, the first two being express and implied false certification theories. MedQuest facilities made 343 claims for diagnostic tests supervised by physicians that were not listed in its Medicare enrollment forms. 

First, the court concluded that MedQuest violated an express certification that the physicians listed in its Medicare enrollment forms would be supervising tests.  Independent diagnostic testing facilities (IDTFs) are required to identify supervising physicians in their enrollment applications.  Each IDTF signs a certification that it will notify its Medicare contractor if any information in its enrollment form becomes inaccurate and is required to notify Medicare in the event that its list of supervising physicians changes. 

Second, the court concluded that MedQuest later implicitly, and falsely, certified that those tests were provided in accordance with Medicare regulations and by physicians approved by Medicare when it submitted claims for reimbursement. 

Lastly, under an additional theory, the lower court found that MedQuest violated the FCA by failing to update Medicare enrollment forms to reflect that it had recently acquired one of its facilities and also by continuing to use the former owner’s billing number after the acquisition.  After acquiring the entity, MedQuest operated it like a subsidiary, submitted 945 claims using the former owner’s billing number and failed to re-enroll the facility in a timely manner.

The Sixth Circuit’s Opinion

The Sixth Circuit reversed the judgment of the lower court under all three theories, holding that a false certification theory only applies where the regulation violated is a Medicare condition of payment, as opposed to a condition of participation.  With respect to express certification, the court noted that the government could not point to any express certification made by MedQuest that it was in compliance with applicable physician supervision requirements.  Moreover, in any case, the certification language in the enrollment form did not itself condition payment on compliance with any particular law or regulation.

The Sixth Circuit held that the implied false certification theory also failed because the supervising physician requirements and other requirements applicable to IDTFs were not conditions of payment.  Although the government had linked the Medicare supervising physician requirements to the separate Medicare “reasonable and necessary” requirement, which is a condition of payment, the Sixth Circuit said this was a strained reading of regulations that did not actually refer to the “reasonable and necessary” requirement.  The “reasonable and necessary” standard, as a condition of payment, only required that MedQuest provide an appropriate level of supervision by qualified physicians, generally.  However, although MedQuest had failed to provide supervision via physicians listed in its enrollment forms, it had not failed to provide the appropriate level of supervision via qualified physicians, generally.  Therefore, MedQuest had not violated a Medicare condition of payment and FCA liability was inappropriate.

Lastly, the Sixth Circuit held that MedQuest had not violated a condition of payment in failing to re-enroll the facility it acquired and in using the former owner’s billing number.  In the court’s view, the government had failed to point to any regulation in effect at the time of MedQuest’s actions that conditioned payment on having an accurate, updated enrollment form reflecting current ownership.  Although the government had pointed to a Medicare regulation requiring that the facility performing services be an IDTF and although the MedQuest facility was not formally approved and enrolled as an IDTF, the Sixth Circuit stated that, based on its interpretation of the applicable regulations, enrollment and approval are not required for an entity to be an IDTF and therefore satisfy the applicable condition of payment.  Also in the court’s view, the government had failed to provide support for the proposition that the purchaser of a corporate practice is not legally entitled to use the corporation’s billing number.  The court stated that there was no reason to believe that the corporation, which was enrolled with Medicare, was dissolved by the acquisition.  Thus, there was no reason to conclude that MedQuest, as the acquirer of the corporation, was not entitled to use its billing number. 

Notably, in assessing MedQuest’s conduct as a whole, the Sixth Circuit stated that it appeared MedQuest ignored Medicare regulations and took actions that were at odds with the goals and aims of the Medicare program.  However, it concluded that although MedQuest’s conduct was addressable through Medicare administrative sanctions, the FCA was an inappropriate tool for enforcing compliance with the technical requirements at issue.

Topics:  False Claims Act, Healthcare, Medicare, MedQuest, Physicians

Published In: Civil Procedure Updates, Government Contracting Updates, Health Updates, Insurance Updates, Mergers & Acquisitions Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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