FCA Deeper Dive: Objective Falsity and Medical Necessity Cases

by Bass, Berry & Sims PLC
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The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we will continue to take a closer look at recent legal developments involving the FCA. This week, we examine recent court decisions that considered the question of objective falsity in connection with FCA cases based on an alleged lack of medical necessity of the healthcare services provided to beneficiaries of federal healthcare programs.

Several opinions were issued last year concerning what is required to establish falsity in FCA cases premised on allegations of medically unnecessary care.  Such cases often center on a battle of medical experts, with the parties disputing whether proof exists of an objective falsehood and/or whether objective falsity is a prerequisite to FCA liability.

Two noteworthy cases, U.S. ex rel. Paradies v. AseraCare, Inc., 2016 WL 1270521 (N.D. Ala. Mar. 31, 2016), and U.S. ex rel. Wall v. Vista Hospice Care, Inc., 2016 WL 3449833 (N.D. Tex. June 20, 2016), involved allegations that hospice providers submitted false claims to Medicare by certifying patients as eligible for hospice who did not have a prognosis of six months or less to live if their illness ran its normal course. In both cases, the respective district courts granted summary judgment for the defendant hospice provider on the issue of falsity, i.e., whether the patients at issue were terminally ill and eligible for hospice care.  In so ruling, the district courts explained that the government (in AseraCare) and relator (in Wall) failed to point to any objective evidence of falsity and instead relied solely on subjective clinical analysis.

The district court’s opinion in AseraCare emphasized that the government did not challenge the existence of a physician’s certification of terminal illness for the claims at issue and did not identify any evidence that the certifying physician relied on any false or incorrect information or that clinicians withheld information from the certifying physicians.  Absent such allegations, the district court ruled that the government’s case rested on a “contradiction based on clinical judgment or opinion” that “alone cannot constitute falsity under the FCA as a matter of law.”

The district court’s opinion in AseraCare is currently on appeal before the Eleventh Circuit and will be an important case to watch in 2017 regarding the need to identify objective falsity in FCA cases premised on the question of medical necessity.

Similarly, in Wall, the district court noted that if the relator had put forth evidence that a physician certified eligibility despite never actually seeing the patient or that a physician did not actually believe the patient had less than six months to live when certifying otherwise, such evidence could establish liability, but that “an FCA claim about the exercise of [clinical] judgment” cannot rest on “questioning subjective clinical analysis;” instead, the relator must identify “objectively verifiable fact[s] at odds with the exercise of that judgment.”

Notably, the district court in Wall also found that defendants’ “aggressive marketing and enrollment policies” were “not sufficient to prove falsity,” when relator failed to establish any “causal link” between defendants’ “policies, a few instances where medical information was allegedly falsified, and actual false or fraudulent certifications and claims.” See also AseraCare, 2016 WL 1270521, at *4-5 (N.D. Ala. Mar. 31, 2016) (“[P]ractices that may be improper, standing alone, are insufficient to show falsity without proof that specific claims were in fact false when submitted to Medicare.”).

Outside the hospice context, in U.S. ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770 (7th Cir. 2016), a case where the relator alleged a mental health clinic fraudulently billed for medically unnecessary services related to urine screens and patient visits for medications as a result of certain company policies, the Seventh Circuit affirmed the dismissal of the majority of the allegations because the relator failed to provide “medical, technical, or scientific context which would enable a reader of the complaint to understand why [the defendants’] alleged actions amount to unnecessary care forbidden” by the relevant Medicare statute.  The Seventh Circuit explained that “Acacia’s policies could have entirely innocent explanations” and relator’s failure to plead “a concrete basis” “to question the appropriateness of these policies” (e.g., how Acacia’s policies compare to other clinics) was fatal to its complaint.  Furthermore, the complaint’s reliance on relator’s “personal estimation” was deemed insufficient to establish falsity considering that “relators may not be in a position to see the entire picture” and “their perspective may be colored by considerable bias or self-interest.”  The Seventh Circuit concluded that relator’s “subjective evaluation, standing alone, is not a sufficient basis for a fraud claim.”

However, in U.S. ex rel. Hayward v. SavaSeniorCare, Inc., 2016 WL 5395949, at *13 (M.D. Tenn. Sept. 27, 2016).where the government has alleged that a SNF operator billed Medicare for medically unnecessary skilled therapy, the district court observed that while “[m]any cases hold that objective falsity is a prerequisite to FCA liability,” one case had held that “proof of an objective falsehood is not the only means of establishing an FCA claim,” and in two other cases, courts were not willing to “automatically exclude” FCA liability when facts relied upon clinical judgment.  The district court, in denying the defendants’ motion to dismiss, did little to explain why objective falsity was not required in this instance, beyond generally stating that the district court’s “present concern is not what must be proven, but rather what must be pled.”  The district court found “the essence of the claims [to be] the same” as those in U.S. ex rel. Martin v. Life Care Centers of America, Inc., where the district court denied a motion to dismiss the government’s allegations against a SNF operator. See U.S. ex rel. Martin v. Life Care Centers of America, Inc., No. 08-251, Dkt. No. 106 (E.D. Tenn.). It reached this conclusion even though the district court acknowledged that, unlike in Life Care, the government’s complaint did not reference the patient exemplars’ “clinical characteristics” or allege that the patient exemplars “could not reasonably be expected to participate in certain [therapy] activities.”

During previous years, we have covered in depth the use of statistical sampling to establish FCA liability across a broad universe of claims.  Last year, in Wall, the district court concluded that such extrapolation was impermissible. The district court reached that conclusion in connection with granting the defendants’ motion to strike relator’s statistical expert, who extrapolated from a physician’s testimony regarding the hospice eligibility of a patient sample to conclude that defendants had submitted false claims on approximately 12,000 patients.  The district court explained that each hospice claim is uniquely fact-dependent, implicating “different patients, different medical conditions, different caregivers, different facilities, different time periods, and different physicians,” and is based on prognostication, which is inherently uncertain.  Citing to a recent Supreme Court decision, Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 367 (2011), the district court noted that “[w]here the nature of the claim requires an individualized determination, that determination cannot be replaced by ‘Trial by Formula.’”  The district court concluded that, while there are circumstances where statistical sampling may be appropriate, the diversity of claims rendered proof of liability through statistical sampling evidence inappropriate.

No appellate court has resolved whether statistical sampling and extrapolation can be used to establish liability in an FCA case.  The issue was certified for interlocutory appeal to the Fourth Circuit in U.S. ex rel. Michaels v. Agape Senior Cmty., Inc., a non-intervened FCA case involving the medical necessity of certain services furnished to nursing home patients.  But, the Fourth Circuit did not reach this issue in its opinion, thereby leaving the issue an open question at the appellate level.

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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