FCA Alert : Lawyers & Attorneys for Whistleblower, False Claims Act & Qui Tam Defense : Kelley Drye & Warren LLP

The relator alleged that the defendant had over-billed Medicare by admitting thousands of patients that had no medical necessity in violation of the federal FCA and had also paid excessive compensation to its physicians in violation of the Medicare Act and the Anti-Kickback Act.  The defendant contended that the Eleventh Amendment immunity defense bars the present lawsuit because a hospital district, such as the defendant here, is defined under Florida law as “state agency or instrumentality,” and thus an “arm of the state.”  The defendant also referred the court to state court decisions that have held that a hospital district is “subject to the rights and responsibilities of public agencies,” such as bond validation, public bidding requirements and compliance with Florida’s public records laws.   The defendant further argued that the state exercised a high degree of control over its operation and fiscal life because it was overseen by a board of commissioners appointed by the state and because the state had oversight with respect to the use of all state funding received by defendant. 

The court rejected the defendant’s arguments and found that hospital districts in Florida more closely resembled political subdivisions of the state, such as counties and municipalities, that do not enjoy Eleventh Amendment protection.  In short, the court noted that the defendant in this case failed to demonstrate an “absence of independence” or any widespread or “unusual degree of control by the state.” 

Colucci alleged that BIMC manipulated Medicare reimbursements by taking advantage of two factors: teaching hospitals, like BIMC, are able to bill for certain costs, such as salaries and overhead, that non-teaching hospitals, like Kings Highway and Doctors Hospital, cannot. Kings Highway and Doctors Hospital had a higher percentage of Medicare patients (referred to as Medicare Penetration), which results in higher Medicare reimbursement rates. BIMC consolidated the Medicare claims of Kings Highway and Doctors Hospital under BIMC’s Medicare provider number. However, according to Colucci, “the hospitals’ operations remained completely separate,” the consolidation did not increase “operating efficiencies,” and Medicare patients did not receive any additional services or a reduction in the cost of services. Colucci argued that BIMC’s claims submitted to Medicare were factually false and legally false based on false express certifications. The Court rejected each of Colucci’s arguments.

BIMC’s Claims Were Not Factually False

“A claim is factually false where the claimant supplies [1] an incorrect description of goods or services provided or [2] a request for reimbursement for goods or services never provided.” The allegations against BIMC do not fall within either category. Moreover, there are no Medicare regulations or statutes setting forth billing procedures or rates when teaching and non-teaching hospitals are consolidated. The Court, therefore, found no factual falsity, reasoning:

Hence, there is some uncertainty as to whether BIMC’s consolidation and subsequent submission of claims was permissible under Medicare. The worst that can be said of BIMC is that it took advantage of the uncertainty in the regulations to maximize its Medicare billings. This is not fraud… Simply put, Colucci has alleged nothing more than that BIMC took steps to maximize its Medicare reimbursements, pursuant to Medicare statutes and regulations.

BIMC’s Claims Were Not Legally False Based on a False Certification Theory

A claim is legally false “where a party certifies compliance with a statute or regulation as a condition to governmental payment.” Colucci relies on an express false certification theory. An express false certification is “a claim that falsely certifies compliance with a particular statute, regulation or contractual term, where compliance is a prerequisite to payment.”

In Institutional Cost Reports (ICRs) submitted to Medicare, BIMC certified the following: “I further certify that I am familiar with the laws and regulations regarding the provision of health care services, and that the services identified in this cost report were provided in compliance with such laws and regulations.” The Court held that this certification is insufficient to create liability under a false certification theory because it is not a precondition of payment and does not certify compliance with a specified statute or regulation. Additionally, Colucci never even alleged a particular statute or regulation that was violated by BIMC.   

BIMC Did Not Knowingly Submit False Claims

One necessary element of a violation of the FCA is that the defendant act “knowingly.” The claims against BIMC fail for the additional reason that the Complaint fails to allege that BIMC knew or should have known that their billing method was illegal. As the Court held:

Even assuming the claims submitted by BIMC were “false,” given the lack of clarity in the law, it cannot be said that defendants “knew” the claims were false. In the absence of a clear obligation on the part of BIMC to bill for each component separately, FCA liability is not appropriate, for the FCA is intended to punish only “wrongdoing,” not honest mistakes.

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This holding should be reassuring to defendants that, at least in this Court, the Government will not be permitted to stretch the FCA to reach every type of conduct of which it does not approve. Defendants should nonetheless beware that other courts, particularly outside of the Second Circuit, have interpreted the FCA more liberally.

In August 2005, former employees of the defendant hospital located in Tulsa, Oklahoma filed a complaint alleging various practices by the defendant constituted violations of the federal FCA.  The alleged practices included “drive-by” therapy sessions, where therapists were instructed by the hospital to see a patient for no more than fifteen minutes but document the session as lasting an hour.  At the same time, the defendant was billing Medicaid a per diem rate for each residential patient based on the patient’s length of stay at the hospital.  Oklahoma regulations require inpatient psychiatric programs to provide “active treatment” for residential patients, consisting of a minimum of twenty-one hours of total weekly therapy for each residential patient.  The complaint alleged that the “drive-by” sessions were knowing violations of the active treatment requirement for residential patients and billing Medicaid a per diem rate for each resident patient, irrespective of the number of weekly therapy hours provided, resulted in the submission of false claims.  Prior to the filing of the complaint, the Oklahoma Health Care Authority audited and assessed fines against the defendant for its failure to provide the required number of weekly therapy hours for certain patients.  The United States did not intervene in this action.

The court found that the relators could prevail under a theory that the defendant hospital submitted false claims based on a theory of implied certification of compliance with certain regulations.  The court explained that a violated regulation that is a “condition of participation” in the overall health care program cannot support an implied false certification theory because such regulation is generally enforced through administrative mechanisms, such as removal or exclusion from the program.  In order to support an implied false certification claim, the regulation must be a “condition for payment,” defined in the Tenth Circuit as “those which, if the government knew they were not being followed, might cause it to actually refuse payment.” 

The court went on to hold that the minimum weekly therapy hours, or the active treatment requirements, were conditions of payment because:  (1) they are not explicitly labeled as a condition of participation in either federal or state law; (2) a “reimbursement” provision in the Oklahoma regulations indicates that the “per diem rate” encompasses costs for inpatient psychiatric therapy; (3) the requirements are objective or quantitative and do not require the application of any “qualitative standard measuring the efficacy” of the therapy provided; (4) relevant federal and state officials in this case testified that they understood the requirements to be conditions for payment; and (5) the audit or inspection process outlined in the Oklahoma regulations pertaining to these services is tied to reimbursement and limited to identifying ‘non-compensable’ Medicaid days for purposes of assessing overpayment.  That the hospital in this case was previously assessed fines by the auditing body as a result of deficient provision of services did not foreclose a finding of falsity. 

In reaching its conclusion, the Oklahoma district court dismissed relators’ theory of “factually false” claims since there was no false information provided on the face of the claims.  For example, there was no evidence that the defendant knowingly entered false or incorrect billing codes on the claim forms in order to receive higher payment. 

The court also rejected relators’ factual falsity theory premised on the decision in United States v. NHC Health Care Corp., 163 F. Supp.2d 1051 (W.D. Mo. 2001), which permitted the United States government to proceed against a health care provider that similarly billed Medicaid on a per diem rate while failing to provide minimum health care services required under the law.  The court held that, in the context of “bundled per diem Medicaid billing,” a plaintiff must present facts demonstrating the provision of “worthless services” or “grossly negligent services” in order to prevail on a theory of factual falsity.  The relators here were unable to make this showing because even the worst case patient received at least fifty percent of the required weekly therapy hours.

According to the letter, at the meeting, AHA proposed that several updates be made to the DOJ’s 1998 guidance document titled “Guidance on the Use of False Claims Act in Civil Health Care Matters.” AHA’s proposals include, but are not limited to, the following :

• DOJ coordination requirements should apply not only to designated “National Initiatives,” but for any investigation that involves claims submitted by more than one provider and originates from (1) allegations raised by a whistleblower; (2) referral from a CMS contractor; or (3) “data mining” by any DOJ or HHS component or contractor.
   
• Any requests for information and records should take into account the cost and burden of ediscovery and be based on an individualized assessment of provider circumstances. Relevant factors include: (1) the extent to which provider databases and accounting records are searchable and easily accessible; (2) the scope, cost and burden attendant to litigation hold notices, including data storage and retrieval costs; and (3) the impact of delayed review of provider submissions and delayed resolution on provider accounting and debt ratios.

AHA stated that it believes steps like those outlined above can restore confidence in the working relationship between hospitals and the DOJ by offering providers a clear assurance that such oversight authority will be exercised properly and judiciously. AHA requested that the DOJ prepare a response to its proposals and meet with AHA during the week of January 24, 2011. We will continue monitoring these discussions and will post any further developments.