The False Claims Act (FCA) imposes liability on federal contractors who defraud government programs. Through the FCA, the Department of Justice (DOJ), often in cooperation with whistleblowers, recovered more than $3 billion in judgments and settlements over fraudulent charges to Medicaid, Medicare and other programs last year. But despite its moniker, the FCA does not explicitly define what constitutes a false or fraudulent claim, leaving it up to interpretation by the courts. The courts have disagreed in recent months, leading to a widening circuit split and a pending petition to the U.S. Supreme Court to address the matter.
What constitutes a false or fraudulent claim?
Until recently, there was general consensus that a violation of the FCA can only occur when there is an “objectively false” misrepresentation. Four circuits – the Fourth, Seventh, Tenth and Eleventh – had adopted that standard. However, in March 2020, decisions by two circuits – the Third and Ninth – strayed from this definition, finding that “legal falsity” is enough to constitute a false claim. Here is a look at the differences and the implications for government contractors.
Debate involves medical necessity
The debate has played out in cases concerning the medical necessity of services billed to Medicare and Medicaid. In FCA medical necessity cases, the government may challenge a doctor’s opinion about whether a billed procedure, treatment or test was reasonable, necessary and/or appropriate based on evidence-based clinical standards of care. To do so, the government must produce an expert witness to challenge the treating physician’s assertion.
Eleventh Circuit: United States v. AseraCare Inc.
The Eleventh Circuit recently reexamined the “objective falsity” standard in United States v. AseraCare Inc. In September 2019, the court held that a claim cannot be deemed false based on a difference of clinical judgment if there is no proof of an “objective” falsity.
AseraCare provides hospice care, and in order for a hospice claim to be eligible for Medicare reimbursement, physicians must certify that, based on their clinical judgment, the individual is terminally ill. The case centered on allegations that the company improperly certified certain patients as eligible for the Medicare hospice benefit. The government presented expert testimony that the patients were not, in fact, terminally ill at the time of certification, asserting that AseraCare’s contradictory claims were false under the FCA.
The Eleventh Circuit ruled against the DOJ, determining that “a clinical judgment of terminal illness warranting hospice benefits under Medicare cannot be deemed false, for purposes of the [FCA], 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.”
The court provided several scenarios that would constitute an objective falsehood, including “The certifying physician failed to review the patient’s medical records or otherwise familiarize himself with the patient’s condition before asserting the patient was terminally ill” and “Expert evidence proves that no reasonable physician could have concluded that a patient was terminally ill given the medical records.”
Third Circuit: United States ex. rel. Druding v. Care Alternatives
United States ex. rel. Druding v. Care Alternatives was brought by former employees of Care Alternatives, another hospice services provider, and it also involved patient eligibility for hospice care.
“The central question…is whether a hospice care provider’s claim for reimbursement can be considered ‘false’ under the FCA on the basis of medical-expert testimony that opines that accompanying patient certifications did not support patients’ prognoses of terminal illness,” the Third Circuit stated. “The answer is a straightforward Yes.”
In reaching its conclusion, the Third Circuit strayed from the objective falsity standard applied in AseraCare, “as the test is inconsistent with the statute and contrary to this Court’s interpretations of what is required for legal falsity.”
A physician’s judgment may be scrutinized and considered “false,” the Third Circuit held.
“We therefore find that a physician’s expert testimony challenging a hospice certification creates a triable issue of fact for the jury regarding falsity,” the court concluded.
Ninth Circuit: U.S. ex rel. Winter v. Gardens Regional Hospital and Medical Center, Inc.
In U.S. ex rel. Winter v. Gardens Regional Hospital and Medical Center, Inc., the Ninth Circuit similarly rejected the standard that the FCA required proof of “objective falsity.”
In the Winter case, the plaintiff contended that the defendants falsely certified that inpatient hospitalizations for certain patients were medically necessary. The Ninth Circuit said that because Congress did not define “false or fraudulent,” it would assume that Congress “incorporated the common-law definitions including the rule that a statement need not contain an ‘express falsehood’ to be actionable.” The court also noted that under “the common law, a subjective opinion is fraudulent if it implies the existence of facts that do not exist, or if it is not honestly held.” The court pointed out that the FCA imposes liability for all “false or fraudulent claims” and “it does not distinguish between ‘objective’ and ‘subjective’ falsity or carve out an exception for clinical judgments and opinions.”
The Ninth Circuit concluded that a physician’s certification that inpatient hospitalization was “medically necessary” can be false or fraudulent, just as any opinion can be false or fraudulent. “A doctor, like anyone else, can express an opinion that he knows to be false, or that he makes in reckless disregard of its truth or falsity,” the court said.
Takeaways for government contractors
The defendant in Care Alternatives has petitioned the Supreme Court to weigh in on the matter, which has far-reaching implications for many types of government contractors. If the Third Circuit’s view is adopted by the Supreme Court, and the government is able to broadly impose FCA liability to punish not just fraud, but good-faith professional judgments, it may lead to a dramatic increase in FCA litigation against well-meaning health care providers and other contractors – who would face the legal costs and potential damages and penalties that go along with it.
