Supreme Court Declines to Weigh in on Key Falsity Question

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For several years, courts have wrestled with the question of whether subjective clinical decisions regarding the type and amount of treatment patients may need can be false for purposes of establishing False Claims Act (FCA) liability.  The question of whether the FCA requires a showing of objective falsity has divided appellate courts in a number of recent high-profile cases.

For their part, practitioners have kept a close eye on whether the Supreme Court might bring much-needed clarity to this issue.  On February 22, the Supreme Court declined to do so, denying a petition for certiorari with respect to the Third Circuit’s opinion in U.S. ex rel. Druding v. Care Alternatives.

In Druding, the relators, who were former employees of a hospice provider, filed a qui tam action alleging that the hospice provider submitted false claims by routinely certifying patients who were not terminally ill for hospice care.  During the litigation, the relators’ expert examined the medical records of nearly 50 patients and concluded that the documentation did not support a certification of terminal illness for approximately 35% of those patients.  The hospice provider produced its own expert who testified a physician could have reasonably concluded that the patients at issue were terminally ill and needed hospice care.

The district court granted summary judgment, adopting an “objective falsity” test for the FCA’s falsity element and concluding, as the Eleventh Circuit held in U.S. ex rel. Paradies v. AseraCare, Inc., that a difference of expert opinions was insufficient for the relators to survive summary judgment.  The Third Circuit reversed and expressly declined to adopt the district court’s objective falsity standard.  Rather, the Third Circuit concluded that a hospice provider’s claim for reimbursement could be legally false under the FCA based upon an expert opinion that there was no reasonable basis for a physician’s certification of the patient as terminally ill.  In other words, the relators’ expert proof created a triable issue of fact regarding the question of falsity.

The Third Circuit’s opinion was a significant departure from the Eleventh Circuit’s opinion in AseraCare, where the Eleventh Circuit concluded that “a clinical judgment of terminal illness warranting hospice benefits under Medicare cannot be deemed false, for purposes of the False Claims Act, when there is only a reasonable disagreement between medical experts as to the accuracy of that conclusion, with no other evidence to prove the falsity of the assessment.”

In attempting to distinguish AseraCare, the Third Circuit noted that the Eleventh Circuit’s opinion had focused solely on factual falsity while ignoring legal falsity.  Under a legal falsity theory, the Third Circuit explained that a medical opinion that differs from the certifying physician’s opinion is relevant evidence of whether the latter was supported by the clinical information and documentation required by Medicare to accompany the certification and such evidence may create a triable issue for the jury.

The Third Circuit was not the only appellate court to weigh in on this key question of falsity last year, and just weeks later, the Ninth Circuit reached a similar conclusion.  In Winter ex rel. U.S. v. Gardens Reg’l Hosp. & Med. Ctr., Inc., the Ninth Circuit examined whether a doctor’s certification that inpatient hospitalization was medically necessary could be false or fraudulent under the FCA.  The Ninth Circuit revived a dismissed FCA suit alleging that a hospital, its management company, which also operated a nursing home, and various physicians orchestrated medically unnecessary inpatient admissions resulting in the submission of false claims.

The Ninth Circuit explained that a physician’s certification that admission is medically necessary may be false for the same reason any opinion may be false—the physician may make a subjectively dishonest certification.  The Ninth Circuit found that the relator’s complaint satisfied Rule 9(b)’s particularity pleading requirement, in light of the relator’s allegations that the defendants had a motive to certify falsely—to increase Medicare reimbursements—and that hospitalizations increased sharply after the nursing home’s management company gained control over the hospital.  The relator further detailed information regarding 65 patients that the hospital admitted without medical necessity.  These allegations, the Ninth Circuit concluded, were sufficient to survive a motion to dismiss.

Like the allegations in Druding and Winter, healthcare providers in recent years have increasingly faced civil and criminal enforcement actions premised on the allegation that services billed to government healthcare programs were not medically necessary in violation of the FCA and/or various criminal statutes.  Such actions—whether brought by the government in civil or criminal proceedings or qui tam relators in civil FCA cases—often pose significant issues for providers, as clinical determinations may be challenged many years after the fact premised on little more than an expert opinion that such care was medically unnecessary.  For those providers, the Supreme Court’s decision to forego weighing in on this key question of falsity is certainly a missed opportunity.

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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