Are Allegations of Lack of Medical Necessity in False Claims Act Cases a Basis for Settlement or Trial?

“Services or supplies that are needed for the diagnosis or treatment of your medical condition and meet accepted standards of medical practice.”

See, http://bit.ly/2CXaywP.

The phrase “accepted standard of medical practice” is also in CMS's Medicare Program Integrity Manual within its definition of “reasonable and medically necessary services.”

As a practical matter, an “accepted standard of medical practice” is not always black or white or “one size fits all,” particularly in relatively new areas of medicine. It is colored in gray. Considerations of the individual patient, the particular training and views of the healthcare provider, and myriad other factors play into what is often a subjective decision. All one has to do is look at the various guidelines over the years in how to treat pain — with or without opioids — to know that medical treatment that was an “accepted standard” in the past may no longer be one today. And what about a test that is a life-saver for 1% of the population? Is that an insufficient number to make it a medically necessary test? How can such a decision within the purview of the trained provider be “false,” subjecting that provider to a lawsuit brought by the Federal Government accusing the provider of fraud? In spite of the rhetorical nature of this question, providers have routinely settled cases where the crux of the allegation is that the defendant's medical judgment underpinning a decision that a certain treatment is medically necessary is contrary to the relator's views, medical association guidelines or a CMS National or Local Coverage Determination, arguably making any claims for reimbursement for those services “false.”

For example, in June of this year, a hospice agreed to pay $8.5 million to settle a case where the complaint alleged that the provider knowingly submitted false claims to Medicare and Tennessee Medicaid and retained overpayments by deeming patients eligible for hospice and palliative care, contrary to the relator's view that the patients were not declining in health and would not be expected to die within the time period for a terminally ill patient. The press release issued by the settling hospice made clear that it disputed each one of the allegations.

Also in June of this year, a provider of hyperbaric oxygen therapy (HBOT), while not admitting to the allegations, agreed to pay $22.51 million to settle a False Claims Act case for allegedly causing false claims to be submitted to Medicare for “medically unnecessary or unreasonable” HBOT.

In each of these cases, the crux of the allegation that the services were not medically necessary was that the relator disagreed with the defendant's judgment that they were medically necessary.

In the hospice case, the Relator, a nurse, alleged that she personally reviewed the patient files and examined the patients and determined they were not declining but, rather, improving in health, while other medical personnel who had not interacted with the patients as much as she had directed her to those facts showing decline. There were other allegations, however, showing something more than a difference of medical opinion, including direction from non-medical personnel to treat patients the relator viewed as ineligible as eligible, and deletion of certain entries in the medical records that would have shown patient improvements.

In the HBOT case, the Relator — a nurse with expertise in wound care and the title of Director of Quality and Research — alleged that he conducted surveys of patient records and concluded that multiple doctors had misdiagnosed patients who did not qualify for HBOT under National and Local Coverage Determinations or under Clinical Practice Guidelines, making the claims for reimbursement for those services false. Further, according to the Relator, he was tasked with preparing reports of his surveys and, when he presented at least one of them reflecting the Relator's view that a large percentage of the diagnoses were incorrect (thereby making the patients ineligible and the claims false), the CEO of the company reacted by stating, “Make it go away. This will sink us.” In addition, there were very specific objective factors tied to the applicable coverage decision such that a finding that a wound was measured the wrong way, for example, could deprive the claim of eligibility. In other words, the misdiagnosis would not be viewed as a subjective medical decision, but instead as one rejecting specific factual requirements for coverage.

While the settled cases tend to allege something more than merely a difference of medical opinion, the False Claims Act cases alleging lack of medical necessity that have not settled provide additional insight. One such example is a case brought by a doctor against another doctor whose practice the Relator doctor was seeking to buy. The Relator alleged that the defendant doctor, and the hospital in which he worked, were performing unnecessary heart surgeries relating to the closing of a hole between two chambers. See, United States ex rel. Polukoff v. St Mark's Hospital, 2:16- cv-00304 (D.Utah, Jan. 19, 2017). Unlike the HBOT case, however, there was no National Coverage Determination; in other words, Medicare had not weighed in as to what circumstances would have to be present for this surgery to be deemed medically necessary. Instead, the Relator, noting that the reason given by the defendant to perform this surgery when he did was to avoid future strokes, argued that proof that the surgery was unnecessary could be found in Guidelines from the American Heart Association and American Stroke Association, which stated that there was no evidence that this surgery prevented strokes and, thus, should not be conducted unless the patient had already suffered at least two of a particular kind of stroke. The defendant doctor disagreed with this view and maintained that not conducting this surgery to possibly prevent a stroke was “unethical.” Id.

The District Court, noting that this case appeared to be about subjective medical judgment rather than any objective false fact — a necessary element of a False Claims Act case — granted defendants' motion to dismiss at the pleading stage under Federal Rule of Civil Procedure 12(b)(6), reiterating another court's holding that “[e]xpressions of opinion, scientific judgments, or statements as to conclusions about which reasonable minds may differ cannot be false.” Id.

In July, the Tenth Circuit reversed. See, United States ex rel. Polukoff v. St Mark's Hospital, No. 17-4014 (10th Cir., July 9, 2018). The court relied heavily on the CMS Medicare Program Integrity Manual's definition of “reasonable and medically necessary” services; in particular, the section requiring that the services be “furnished in accordance with accepted standards of medical practice.” The court then noted two allegations that supported the Relator's view that the services were contrary to accepted standards; that the defendant doctor operated contrary to the Guidelines, and that he performed over 800 of these surgeries in 2010 when the renowned Cleveland Clinic did not even reach 50 such surgeries in the same period. These allegations were sufficient to overcome a motion to dismiss.

In short, the Tenth Circuit ruled that just because a decision involves subjective medical judgment does not, as a matter of law, mean that the claim cannot be false. Further, in response to the defendant's point that this decision will open up the floodgates for suits attacking medical judgments, the court noted that the recent decision in Universal Health Services, Inc. v. United States ex rel. Escobar, No. 15-7 (U.S. Sup. Ct., June 16, 2016) (Slip op.), requiring evidence that the false statement be material to Medicare's decision to pay, will prevent that from occurring. In summary, this case holds that a complaint alleging that a provider submitted claims based on a medical view different from the Relator's and a medical association's, coupled with claims data suggesting the defendant is an outlier, can survive a motion to dismiss.

While the Tenth Circuit and the Sixth Circuit, in a similar reversal, have let stand a complaint and a jury verdict (see, United States v. Paulus, No. 17-5410 (6th Cir., June 25, 2018)), the Eleventh Circuit has yet to weigh in on a case in a very different procedural posture; that of a court sua sponte granting summary judgment. U.S. v. CGNSC Administrative Services, No. 16-13004 (AseraCare). AseraCare is a hospice case where the government intervened. Like the Caris case, the Relator there claimed that the patients were not terminal and therefore not eligible for hospice. Noting that the only evidence the government (and Relator) presented to support the claim that the defendants submitted false claims for hospice patient reimbursement was one expert doctor's opinion that, based on his review of the medical records, the patients were not terminal and thus were not eligible for hospice, making the certifications of eligibility false, the District Court sua sponte granted defendants summary judgment.

Rejecting evidence of both medical association guidelines and a Local Coverage Determination as not providing evidence of any objective false fact, the court quoted Blaise Pascal: “Contradiction is not a sign of falsity, or the lack of contradiction the sign of truth.” The Eleventh Circuit now has the appeal. If it supports the lower court's decision, there will arguably be a Circuit split on whether a case alleging only differing medical opinions — whether the relator's, an experts or a medical association's, and outlier statistics, with nothing more — is enough to proceed.

These cases should be viewed also in the light of the Memorandum released by the Department of Justice on Jan. 25, 2018, written by Associate Attorney General Rachel Brand. The Brand Memo directs attorneys in the civil fraud division to not “convert agency guidance documents into binding rules,” thereby prohibiting the use of another agency's — e.g., CMS or Medicare — guidance document to presumptively or conclusively prove that a person violated a statute or regulation because “agency guidance documents cannot create any additional legal obligations.”

Conclusion

The possibility of a developing circuit split, together with the current Administration's repeated statements about reducing regulations in the healthcare arena, coupled with the Brand memorandum's guidance limiting directive, suggest that settling a medical necessity False Claims Act case may not be the only route when the allegations sound more in subjective medical judgment than objective fact. While we await the Eleventh Circuit's decision, parties to such litigation would be wise to conduct a thorough survey of the nature and strength of evidence supporting their view of “reasonable and necessary” within their particular medical community before deciding whether to settle or litigate.

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Jacqueline C. Wolff, a member of this newsletter's Board of Editors, is a partner in Manatt, Phelps and Phillips LLP's New York office and is Co-Chair of the firm's Corporate Investigations and White Collar Defense group.