Striking Government Experts in Health Care False Claims Act Cases: U.S. ex rel Lawson v. Aegis Therapies, Inc.

Experts play a crucial role in False Claims Act cases involving disputes over whether a provider's claims for reimbursement by Medicare violate Medicare rules and regulations. If both sides, relator/government and the defense, have experts, then unless an expert's testimony is stricken or limited, the dueling opinions of experts will often create issues of fact and thereby prevent either side from obtaining summary judgment. Moreover, courts frequently give experts wide latitude in expressing their opinions under the rubric that expert opinions will "assist the trier of fact" even though an expert's opinions and methodology may be highly suspect.

A case that recently demonstrated that the tolerance for experts --in this instance, government experts-- is not limitless and that refused to permit experts to testify on the grounds that their testimony would not help the jury is U.S. ex rel Lawson v. Aegis Therapies, Inc., 2015 WL 1541491 (March 31, 2015, S.D. GA). In this instructive case, the Court struck the testimony of two government Medicare experts on the grounds that they essentially applied an incorrect and more stringent regulatory standard to evaluate the defendants' Medicare billing practices. Moreover, the Court refused to permit one expert to recast and equate that more stringent standard as the correct regulatory standard "based on her personal experience." 

In Aegis, a relator brought a False Claims Act case against a skilled nursing facility ("SNF") and a rehabilitation therapy company which provided services to the facility's residents. Among other things, the relator claimed that the SNF provided medically unnecessary care to the residents, and as a result, submitted false claims for reimbursement to Medicare. The government intervened in the case, and it retained two experts, a physician and a nurse practitioner, both of whom opined that out of a random review of 30 patient files, 29 patients had received medically unnecessary rehabilitative care.

The defendants moved to exclude the testimony of these two experts, alleging that they employed the "wrong standard" to determine what constitutes "reasonable and necessary" medical services in their evaluation of the SNF patients' medical records. Essentially, the defendants challenged the "reliability of the experts' methodology and the helpfulness of their testimony to the jury." The Court agreed and struck the government's two experts, finding that their testimony was "not based on a reliable methodology and it will not assist the trier of fact in determining a material factual question."

The Court's decision to exclude the experts turned in large part on what standard was to be applied to determine "what level of improvement [for the patient] is required for a skilled service to be necessary" and covered under Medicare. The Court found that the applicable Medicare standard for determining whether "reasonable and necessary medical services" were provided to patients depended on whether there was a reasonable expectation that the service being provided (e.g., speech-language pathology services, physical therapy, occupation therapy) will cause the patient to "improve materially in a reasonable and generally predictable period of time." Instead of applying this "material improvement" standard, the government's experts applied a different standard. In assessing whether the defendants had provided medically necessary services to the patients, the government's experts evaluated whether the services provided to the SNF's patients caused a "significant practical improvement" in the patient's condition. This later standard, the Court observed, had a "different meaning on its face than the applicable 'material standard.'"

Though the evaluating standards for what constitutes a reasonable and medically necessary service were different on their face and derived from different parts of the Medicare program (Part A and Part B), the government argued that the experts' use of the "significant improvement" standard, though different legally than the "material improvement standard," essentially meant the same thing in the "ordinary sense." In turn, one of the government's experts assured the Court that she had, "in fact, applied the correct standard." The Court was having none of it. The Court observed that "using a standard --either in its regulatory sense or in its ordinary sense-- that is decidedly at odds with the actual governing standard" does not assist the trier of fact to determine the facts at issue in the case. In fact, such testimony, the Court went on, could "confuse or mislead the jury" such that the risk of confusing the jury outweighed "any potential benefit" from the testimony.

Having stricken the government's experts, the Court granted summary judgment to the defendants in part based on the government's failure to show that the defendants had, in fact, submitted false claims to Medicare.

The Aegis case is a remarkable decision. First, the Court clearly took the time to review the complex Medicare law, regulations, and manuals at issue. It did not throw up its hands at the complexity of the issues, but instead sifted through it and the testimony to come up with a well reasoned decision as to what legal standard should be used to determine whether the Medicare services provided were medically necessary, i.e., the standard for determining whether the Medicare claims at issue were false. Second, in so doing, the Court did not defer to the experts on the issues of law "as applied" in the context of deciding whether a particular service provided to patients was medically necessary. Third, in Lewis Carroll's book, Through the Looking Glass, Humpty Dumpty says, "When I use a word . . . it means just what I choose it to mean -- neither more nor less." The Court rejected that approach. The terms, "material' and "significant," are not fungible nor may they be interpreted to mean the same when used in the "ordinary" way. 

A. Brian Albritton
November 5, 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