Tuesday, July 28, 2015

No False Claims Act Liability Based on Ambiguous Medicare Regulations: Donegan v. Anesthesia Associates of Kansas City

Medicare regulations are often complex, ambiguous (especially when applied), and bereft of any guidance by the Centers for Medicare and Medicaid Services (CMS) or the local Medicare administrative contractor. As the 4th Circuit aptly observed, Medicare statutes and regulations "are among the most completely impenetrable texts within human experience." Rehabilitation Ass'n of Va., Inc. v. Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994). As a result of the complexity of these regulations, qui tam relators are increasingly exploiting the ambiguities of Medicare billing regulations in order to bring qui tam actions alleging Medicare providers submitted false claims when they failed to follow the relator's interpretation of billing regulations.

In US ex rel Donegan v. Anesthesia Associates of Kansas City, 2015 WL 3616640 (W.D. Mo., June 9, 2015), the Western District of Missouri recently addressed whether False Claims Act (FCA) liability can be based on an ambiguous Medicare regulation for which there was no authoritative interpretation prohibiting the defendant's billing practice. The Court found as a matter of law that the relator could not establish that the defendant knowingly submitted a false claim because the relator could not "show that there is no reasonable interpretation of the law that would make the [defendant's] allegedly false statement true."

In this qui tam case, the relator sued an anesthesiologist group practice alleging that it had fraudulently billed for anesthesiology services that its anesthesiologists did not "direct" but only "supervised." The case turned on whether the anesthesiologists complied with a Medicare billing regulation, referred to as the "Seven Steps" regulation, and the question of whether the anesthesiologists "personally participated in the most demanding aspects of the anesthesia plan including . . . emergence." 

The issue facing the Court was that there was no authoritative interpretation of "emergence." In its regulation, CMS did not define "emergence," when it began or when it ended. Moreover, no Medicare billing contractor had provided a Local Coverage Determination that defined "emergence" either. The Court noted further that there was "no guidance from any national or state anesthesiology organization defining 'emergence' because emergence is a process, and each patient is different."  

Fortified with the testimony of two experts, the relator argued that emergence excluded time in the recovery room after an operation: to personally participate in the patient's "emergence" from anesthesia that had been administered by a certified registered nurse anesthetist (CRNA) under the physician's "direction" meant the physician had to examine the patient in the operating room. In fact, one expert even referenced "a nationwide medicare carrier for railroad retirees" which defined "emergence" as the period between when anesthesia is no longer administered to the patient and before the patient is turned over to the recovery room. Citing its own evidence, the defendant, however, argued that emergence included a patient's time in the recovery room, which is where its physicians most often checked in on patients who had been administered anesthesia by CRNAs.  

The Court granted summary judgment in favor of the defendant on the relator's only remaining theory left from the amended complaint: that the defendant's anesthesiologists did not personally participate in patient's emergence from anesthesia because emergence did not extend to the recovery room.  

First, the Court rejected the relator's attempt to assert another theory of liability that was not contained in the amended complaint. Acknowledging that this unpled theory "may be meritorious," the Court nevertheless held that the relator may not assert new theories of FCA liability that were not contained in the amended complaint and which were "based on information learned during discovery." "A relator," the Court stated, "cannot plead an FCA violation generally and then fill in the blanks following discovery." Because the relator described a "distinct, independent scheme" and had not pled this theory of liability or provided a representative example in the complaint, the Court "cannot consider this theory of liability." 

Second, observing that the "Seven Steps" regulation is ambiguous because there is no authoritative interpretation in the regulation or otherwise as to when emergence ends, the Court found that the defendant reasonably interpreted the regulation's reference to emergence to include a patient's recovery in the recovery room. The Court acknowledged that the defendant's interpretation is "opportunistic because it has a financial motive to interpret the regulation that way." Yet, in the "absence of an authoritative contrary interpretation of the regulation . . . a defendant does not act with the requisite deliberate ignorance or reckless disregard by taking advantage of a disputed legal question." Moreover, the Court conceded that "the relator has arguably put forth a more reasonable interpretation of the regulation," but "this is not enough" because the relator "must carry its burden of showing that there is no reasonable interpretation of the law that would make the allegedly false claim valid."

Donegan is a real step forward in preventing relators from exploiting ambiguities in Medicare regulations to bring a qui tam action against Medicare providers and hold them hostage if they do not settle. Of course, the Court is not saying a defendant's mistaken or opportunistic interpretation can never give rise to other civil remedies by Medicare -- the government has numerous avenues other than the FCA to enforce its regulatory interpretations. Yet, civil remedies are one thing, but subjecting a defendant to harsh FCA sanctions for violating an ambiguous regulation is a whole different order of magnitude. This is especially true for Medicare providers, like the defendant in this case, who easily can bill and submit thousands of small Medicare claims and for whom the $5,500 - $11,000 penalty per Medicare claim can quickly lead to exposure for catastrophic damages if they lose. Essentially, the Court's ruling has brought common sense back to the analysis of when a false claim arises when dealing with ambiguous regulations. Now, at least in the 8th Circuit, a defendant who reasonably interprets an ambiguous regulation in the absence of a contrary authoritative regulation cannot know that its interpretation is false and thus cannot be found guilty of violating the False Claims Act.

A. Brian Albritton
July 28, 2015

Monday, July 6, 2015

Violation of Government Contract Does Not Give Rise to False Claim Where Government Knows of Violation and Continues to Pay Claims

Dear Readers:

I commend to you the recent False Claims Act case of U.S. ex rel Thomas v. Black and Veatch Special Projects Corp., 2015 WL 3570661 (D. Kan. June 5, 2015). The Court granted summary judgment in favor of the defendant, a government contractor, who contracted with the United States Agency for International Development ("USAID") to provide services and support for power projects in Kandahar, Afghanistan. In a common sense ruling, the Court found that defendant did not falsely certify its compliance with the provisions of the USAID contract because USAID continued to make numerous contract payments to the defendant even after it both learned of the defendant's failure to comply with one of the contract's provisions and was served with a copy of the qui tam complaint together with relators' disclosure of material evidence.

The USAID contract provided for defendant to submit invoices every two weeks to the USAID, which in turn, reviewed and evaluated whether the work was satisfactory, and if it was, authorized periodic payments to the defendant. All work remained subject to USAID's final inspection and acceptance, and the USAID contracting officer was permitted to reduce or suspend payments if he found substantial evidence that the defendant failed to comply with any material requirement of the contract.

Among its many provisions, the USAID contract required the defendant to comply with Afghan law and to obtain work visas and permits for all foreign citizens working for the defendant on the contract in Afghanistan. The relators, employees of the defendant, discovered that forged documents had been submitted to the Afghan government on behalf of seven of the defendant's employees, and they informed the USAID of their discovery. Subsequently, the defendant conducted its own internal investigation and confirmed to USAID that forged educational documents had been provided on behalf of seven employees to the Afghan government in order to obtain work permits for them.  

In their qui tam complaint, Relators alleged that the defendant submitted legally false claims for payment to USAID by impliedly certifying its compliance with Afghan law in its periodic requests for contract payment. Relators cited to a Federal Acquisition Regulation that required defendant and its personnel to comply with all applicable United States and host country laws. Relators asserted that because defendant fraudulently obtained permits and visas in violation of Afghan law, it failed to comply with a contractual prerequisite of payment and as a result falsely certified its compliance with the contract.  

Granting summary judgment in favor of the defendant, the Court found that the realtors had not provided any facts to show that "USAID may have reduced or refused payments" based on alleged false documents and the violation of Afghan law.  The Court found that compliance with Afghan law "was not material to the government's decision to pay defendant's invoices" because "USAID . . . continued to pay defendant, even though it knew about these allegations and even though . . . it could not determine whether defendant had filed the forged documents."

Remarkably, the Court noted further the government continued to pay the contract even after the relators filed their qui tam suit:  
USAID's conduct after relators filed suit also demonstrates that compliance with Afghan law did not matter to the government's payment decision. Relators commenced this action and provided a copy of the Complaint and a statement of all material facts to the government on August 23, 2011. . . .  . Since then, defendant had submitted at least forty-seven invoices for USAID payment. USAID never demanded that defendant refund any amount paid. Nor has it reduced or withheld payment of any invoice submitted after realtors filed suit. Instead, USAID has accepted and paid for all deliverable components completed by defendant under the contact. . . . . USAID's conduct after relators filed this action demonstrates that defendant's compliance with Afghan work permit and visa requirements did not matter to the government's payment decision. 2015 WL  3570661 *13 (citations omitted).
In short, the Court found that the defendant's compliance with Afghan law provision must not be material to the contract's conditions of payment because USAID continued to make payments on its contract even though it was aware of relators' qui tam suit and the defendant's contractual violation. 

The case illustrates two of the maddening aspects of qui tam litigation. First, the government should have dismissed this case when it was filed on the basis that the agency did not believe the defendant's had violated a material provision of the contract.  Instead, as the government so often does, the relator filed a qui tam suit alleging that the defendant violated some government contractual provision or regulation, the government declined to intervene and of course said nothing and the relator prosecuted the matter in the name of the government --all the while as the government agency in question continued to do business with the defendant in the same manner that is alleged to be a FCA violation in the suit.  Almost assuredly, the U.S. Attorney's Office would have inquired of USAID when relators filed their suit and they should have learned then that USAID did not find the contract violation to be material.  Yet, the government permitted the qui tam to proceed even though the government later permitted the defendant to obtain  statements from the USAID contracting representatives who confirmed that they knew "about the defendant's conduct" but continued to direct that USAID pay defendant's invoices.  

Second, the case offers some hope to defendants who are accused by realtors --but not the government-- of violating some obscure or ambiguous regulation or contractual provision. This case permits the defendant to use the government's knowledge of the alleged violation and its continued payment of claims to show that the so called violation must not be material if the government does nothing in the face of these allegations and continues to pay claims.

Defendant's counsel Kathleen Fisher, Nathan F. Garrett, and Todd P. Graves, (the former U.S. Attorney for Kansas City, Missouri) of the Graves Garrett firm should be commended for their excellent work in securing this decision by the Court.

A. Brian Albritton

July 5, 2015