Courts Are Increasingly Skeptical of FCA Suits Alleging Technical Violations of Medicare Regulations

Merle M. DeLancey Jr.

False Claims Act (FCA) suits against health care providers have dramatically risen during the last three years. However, recent decisions indicate that courts are becoming increasingly skeptical of suits which allege that technical violations of Medicare regulations are actionable FCA violations. The most recent decision indicating such increasing skepticism was issued by the Eighth Circuit Court of Appeals last week in U.S. ex rel. Ketroser v. Mayo Foundation, 2013 WL 4733986, No. 12-3206 (8th Cir. Sept. 4, 2013). In that case, relators brought a qui tam action under the FCA against the Mayo Clinic and several related entities (Mayo). Relators asserted that Mayo falsely billed Medicare for surgical pathology services when it did not submit written reports for each surgical pathology service billed, which was allegedly required by Medicare regulations. The Eighth Circuit found that the regulations at issue did not require such written reports. However, the Eighth Circuit also signaled that even if Mayo was noncompliant with Medicare’s rules and requirements, the relators had not established the “scienter” necessary to show that Mayo “knowingly” submitted false or fraudulent claims for Medicare payment in violation of the FCA. The court concluded that because Mayo’s interpretation of the applicable requirements was at least reasonable, it did not violate the FCA even if it did make a technical mistake under the rules, because it did not act “with the knowledge that the FCA requires before liability can attach…”

Similarly, two weeks earlier, in U.S. ex rel. Steury v. Cardinal Health, Inc., 2013 WL 4436264, No. 12-20314 (5th Cir. Aug. 20, 2013), the Fifth Circuit dismissed a qui tamrelator’s claims under the FCA that alleged defective medical pumps were sold to the government. The crux of the relator’s FCA claims were that Cardinal falsely certified to the U.S. Department of Veterans Affairs (VA) that the pumps were merchantable each time it requested payment from the VA for the devices-a so-called “implied false certification” theory. In its decision, the Fifth Circuit noted that the FCA is not a general “enforcement device” for federal statutes, regulations, and contract provisions. It held that for any false certification claim to be actionable under the FCA, express or implied, the government must indicate that the compliance being certified is a condition or prerequisite for payment. The Fifth Circuit then dismissed the Relator’s claims for failing to plead any facts that showed that merchantability was a stated condition or prerequisite without which the government would not have paid the defendant.

Additionally, in U.S. ex rel. Hobbs v. MedQuest Associates, Inc., 711 F.3d 707 (6th Cir. 2013), the Sixth Circuit in April dismissed a qui tam suit brought under the FCA alleging that MedQuest, a diagnostic testing firm, had filed false claims for reimbursement under Medicare Part B. The Sixth Circuit found that while the government had raised reasonable arguments that MedQuest violated applicable Medicare regulations, it had not made compliance with these regulations a condition or prerequisite for payment. The Sixth Circuit, similar to the Fifth Circuit, affirmed that the FCA is not a vehicle to police technical compliance with complex federal regulations and that the “bluntness” of the FCA’s hefty fines and penalties were an inappropriate tool for ensuring compliance with Medicare program requirements.

In sum, during recent months the courts have become more skeptical of FCA cases against health care providers, which assert that mere technical violations of Medicare regulations are actionable under the FCA. If health care providers can show that they have reasonably attempted to interpret and abide by Medicare regulations, they may have viable defenses against FCA liability, even if technical mistakes were made. Health care providers may also be able to successfully limit the scope of potential FCA liability to only those specific requirements which have been designated as conditions or prerequisites for payment.