On June 22, 2017, the United States Court of Appeals for the Fifth Circuit, in Maxmed Healthcare, Inc. v. Price, upheld an administrative determination by a Medicare Administrative Contractor (MAC) based on an audit of a sample of 40 home care claims. From its sample findings, the MAC extrapolated to a universe of 130 claims and determined that the home care agency under audit had been overpaid almost $800,000 on the grounds that the sampled patients were not homebound or the services provided were not “medically necessary.” The Maxmed Court’s endorsement of sampling and extrapolation involving medical-necessity reviews may have broader implications for the use of that tool in False Claims Act (FCA) investigations and lawsuits.

Among other arguments, Maxmed Healthcare, the home care agency under audit, maintained that any overpayment based on lack of medical necessity “should only be determined after a review of each beneficiary’s specific claims, and it is fundamentally at odds with extrapolation concerning home health care claims.” Citing to the federal Centers for Medicare and Medicaid Services (CMS) Medicare Benefit Policy Manual and the Medicare Act, the Fifth Circuit held, to the contrary, that Congress and CMS contemplated the use of sampling and extrapolation in post-payment audits, where “there is a sustained or high level of payment error.”  Citing 42 U.S.C. § 1395ddd(f)(3)(A).

In defending against FCA actions premised on the alleged lack of medical necessity of services, providers have argued that disputes over medical necessity involve essentially subjective differences in medical opinion as opposed to the “objective falsity” of Medicare or Medicaid claims, and that a medical-necessity determination requires a particularized claim-by-claim review, specific to each patient, that does not allow for extrapolation to a universe of hundreds or thousands of other claims.  Those arguments may be more difficult to sustain under the Eleventh Circuit’s holding in Maxmed. To avoid the reach of Medmax, providers in FCA cases will likely try to distinguish the “garden variety” audit liability involved in Medmax from the liability imposed under the False Claims Act – with its per claim penalties and treble damages – premised as it is on a finding of falsity among other rigorous elements.

USDCSDNYEarlier this month, the Southern District of New York dismissed the remaining claim in United States ex rel. Kolchinsky v. Moody’s Corp., ruling that Moody’s alleged “false claim” was not material under the standards set in Universal Health Services, Inc. v. United States ex rel. Escobar. The analysis of this case is instructive for other FCA cases, including health care fraud, for the court’s analysis on dismissal of FCA claims on materiality grounds. The court had previously dismissed the Relator’s claims in February but gave leave for him to amend his complaint with respect to claims about certain inaccuracies in Moody’s Ratings Delivery Service. The Relator filed an amended and somewhat more specific complaint thereafter, alleging that Moody’s provided ratings it knew to be inaccurate directly to its subscribers, which included the federal government. Continue Reading FCA Case Dismissed on Materiality Standard

USDHHS-sealNew regulations have been released in the form of a Final Rule (announced at 82 Fed. Reg. 4100) (the “Final Rule”), revising and expanding the authority of the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) to exclude entities and individuals from participation in federal health care programs. The Final Rule adds to the OIG’s longstanding statutory authority to issue exclusions, which was most recently expanded by Congress in the 2010 Affordable Care Act.

The Final Rule was announced on January 12, 2017, and was intended to go into effect on February 13, 2017. The new administration’s temporary freeze on pending regulations delays that effective date until March 21, 2017. Continue Reading New Regulations Expand Authority of HHS OIG to Issue Exclusion Orders

stat-samplesThe U.S. Court of Appeals for the Fourth Circuit missed an opportunity earlier this month in United States ex rel. Michaels v. Agape Senior Cmty, Inc., No. 15-2145, 2017 WL 588356 (4th Cir. Feb. 14, 2017), to provide clarity on one of the hottest issues in FCA litigation—whether an FCA relator may use statistical sampling and extrapolation to establish FCA liability. Courts frequently permit the use of statistical sampling to establish damages in FCA cases where liability has already been established. Applying the method to the question of liability, however, remains highly contested, given that courts have long held that the False Claims Act requires a relator to prove the falsity of each claim submitted for payment and the resulting damages. While a number of district courts have faced this question—and have reached different conclusions on its propriety, especially since the District Court for the Eastern District of Tennessee’s decision in United States ex rel. Martin v. Life Care Centers of America, Inc., 114 F. Supp. 3d 549 (E.D. Tenn. 2014)—no appellate court has ruled on the issue. With the Fourth Circuit’s decision—or lack thereof—relators, federal healthcare program providers, and the FCA bar continue to await guidance.

In Agape, the relators—former employees of the defendant, an operator of a network of nursing facilities in South Carolina—filed an interlocutory appeal to the district court’s denial of their request to:

  1. examine a random sample of claims submitted by the defendant to federal healthcare programs for services that the relators claim were not provided or were not medically necessary;
  2. have their experts assess those claims for falsity; and then
  3. extrapolate their findings to a universe of more than 50,000 claims.

Continue Reading Statistical Sampling Stumble – Fourth Circuit Misses Opportunity to Provide False Claims Act Guidance

bikersIn a case with important considerations for False Claims Act cases, Lance Armstrong will face claims at trial that he fraudulently obtained funds from the United States Postal Service because of alleged violations of his sponsorship contract. On February 13, 2017, a D.C. federal judge ruled on competing motions for summary judgment setting the stage for a trial on the issues of implied certification and potential damages.

Armstrong argued that because the invoices sent to the Postal Service did not contain representations about the services rendered, the implied certification theory outlined in the Supreme Court case Universal Health Services, Inc. v. United States, ex rel. Julio Escobar and Carmen Correa (“Escobar”) was inapplicable.  Specifically, Armstrong argued that the Escobar implied certification test was inapplicable because Armstrong’s invoices did not make “specific representations about the goods or services provided . . . ” The D.C. district court agreed that the invoices merely requested payment and made no other representations, but held that the lack of a representation of the services in Armstrong’s invoices was not dispositive of the implied certification issue at summary judgment. Whereas the Supreme Court limited the holding in Escobar to its facts and expressly declined to “resolve whether all claims for payment implicitly represent that the billing party is legally entitled to payment,” the  D.C. Circuit had already explicitly addressed such omissions in United States v. Scientific Applications International Corp. In that case, the D.C. Circuit said that a claim for payment “need not include ‘express contractual language specifically linking compliance to eligibility for payment,’ . . . [but] ‘[r]ather, all the government must show is ‘that the [claimant] withheld information about its noncompliance with material contractual requirements.’”  In other words, Armstrong’s material omission that he was using performance enhancing drugs when he signed the sponsorship agreements was sufficient to allege implied certification, even though the invoices or demands for payment themselves did not make any representations. Continue Reading Federal Judge Ruling in United States ex rel. Landis v. Tailwind Sports Corporation, et al. Sets Stage for Trial on Issues of Implied Certification and Potential Damages

DOJEffective February 3, 2017, DOJ announced an increase in civil monetary penalties for FCA violations. This is the second annual increase, indexed to inflation, since the Bipartisan Budget Act of 2015, which required all federal agencies to increase civil monetary penalties under their jurisdiction by the change in the Consumer Price Index.

Last year’s “catch-up adjustment” almost doubled False Claims Act civil monetary penalties, given that they were last adjusted in 1986. That initial increase took minimum per-claim FCA penalties to $10,781 from $5,500 per claim and maximum per-claim penalties rose to $21,563 from $11,000 per claim. The adjustments announced last week increased minimum per-claim penalties by $176 to $10,957 and maximum penalties by $353 to $21,916.

These increases apply to any FCA penalties assessed after February 3, 2017, for FCA violations that occurred on or after November 2, 2015. For violations occurring before November 2, 2015, the 1986 penalty range ($5,500 – $11,000) still applies.