Courts Increasingly Find That Defendants Did Not Knowingly Submit False Claims When They Followed Plausible Interpretations of Ambiguous Regulations

Dear Readers:

There have been several dramatic examples in the last few months where courts have either granted summary judgment in favor of False Claim Act ("FCA") defendants or even overturned jury verdicts in favor of relators. See e.g., U.S. ex rel Purcell v. MWI Corporation, Civ. No.14-5210, slip. op.(D.C. Cir. Nov. 24, 2015) (overturning jury verdict); U.S. v. Aseracare Inc., Civ. No. 2:12-CV-245-KOB, slip. op. (N.D. Ala. November 3, 2015)(overturning jury verdict); U.S. ex rel Phalp v. Lincare Holdings Inc. and Lincare Inc. d/b/a Diabetic Experts of America, __ F.Supp.3d__, 2015 WL 4528955 (S.D. Fla. July 13, 2015)(granting summary judgment for defendants); US ex rel Donegan v. Anesthesia Associates of Kansas City, 2015 WL 3616640 (W.D. Mo. June 9, 2015)(granting summary judgment for defendant). In each of these FCA cases, the court found that the defendant did not submit false claims to Medicare or other government agencies because the regulations which the defendants allegedly violated were ambiguous (or silent) and the defendants had adopted a plausible interpretation of that regulation, even if that interpretation was later found to be erroneous. The decisions have fallen two ways: because the regulations at issue which the defendants allegedly violated were ambiguous and the defendants adopted a plausible interpretation of them, these courts have found that either the defendant did not violate the regulation at issue and submit a false claim or if it did submit a false claim, the defendant did not do so knowingly. See Fried Frank's recent alert addressing the Purcell case; Sidley and Austin's recent blog post on Aseracare, and my blog post on Donegan.

Another case recently decided by U.S. District Judge Amy Totenberg of the Northern District of Georgia should be added to this list: U.S. ex rel Saldivar v. Fresenius Medical Care Holdings, Inc., 2015 WL 7293156 (N.D. Ga October 30,  2015). In Fresenius, the Court issued an interesting summary judgment order in a FCA qui tam case addressing whether and when a Medicare provider can be said to "know" that its Medicare billing practices were false. In an incredibly thorough (40 pages) and well-researched opinion, the Court found that the defendant did not have knowledge that its billing practices violated Medicare, even though the Court previously found that defendant had, in fact, submitted false billings. Well worth the read, the Court's ruling contains a number of "nuggets" that may be helpful to defendants in FCA cases relating to Medicare regulations.

The relator in Fresenius alleged that the owner of the largest chain of renal dialysis facilities, Fresenius Medical Care North America, billed Medicare for using and administering the "overfill" of two injectable drugs used in the treatment of patients suffering from end stage renal disease. In the vials containing these two drugs, the drug manufacturer always included a small amount more of the medicine beyond the stated amount on the vial, i.e., "overfill." Whereas Medicare normally only reimbursed Fresenius for the stated drug amount contained in a vial, Fresenius captured that extra bit of overfill from the vials and later administered it to patients. Fresenius billed Medicare for using and administering the overfill to its patients. 

Prior to January 1, 2011, the Centers for Medicare and Medicaid Services ("CMS") had not expressly prohibited Medicare providers such as Fresenius from billing for overfill. Not long before that date, CMS issued a regulation specifically prohibiting providers from billing for overfill and stating further that "the prohibition against billing for overfill was not a new policy" but instead "a clarification of existing policy." The relator alleged that Fresenius violated the FCA by administering overfill to patients and billing Medicare during 2005 to 2010, a period in which the relator contended that Fresenius should have known that Medicare prohibited it from billing for overfill.  

Granting summary judgment in favor of Fresenius, the Court found that the company did not violate the FCA because "no reasonable jury could find that Fresenius acted knowingly or recklessly" in billing Medicare for administering overfill to patients during the period at issue. In handing down its decision, the Court 

• Bifurcated the summary judgment motions, addressing initially whether Fresenius billing Medicare for overfill constituted a "false claim." After granting summary judgment in favor of the government and finding that such billings were false, the Court permitted additional discovery and a second summary judgment motion addressing whether Fresenius "knew" or was reckless in submitting false claims. Though it initially granted partial summary judgment on the "falsity" question, the Court observed later: "If the Court had been, at that time, presented with the record as it is now developed, the Court would likely not have reached the falsity element at all. Whether overfill administration was reimbursable from 2006 through 2010 is not clear on the face of any one statute or regulation. And although, as explained in this Order, there were those in the industry who believed overfill administration was not reimbursable during that time, given the ambiguity in the Medicare rules and the record now presented, no reasonable jury could decide that Fresenius was reckless, let alone acted with actual knowledge that overfill was not reimbursable."

• Found that Fresenius did not know that billing for overfill was false nor was it reckless in failing to recognize such billings were false. In the initial part of its analysis and at the end, the Court emphasized that Medicare rules or regulations were "silent" as to the issue of whether a provider, such as Fresenius, could bill for overfill. Notwithstanding CMS's statement that its 2011 regulation forbidding providers from billing overfill was simply a "clarification" of existing policy, the Court observed that nothing unequivocally prohibited providers from using and billing for overfill.

• Acknowledged that Medicare did have a policy prohibiting billing for "discarded overfill" -- a close question that simply gave rise to an ambiguity as to whether overfill could be used and billed. The Court explained: "One could have deduced from the Medicare policy on discarded drugs that overfill was free, and thus should not be billed even if administered. But one could alternatively, reasonably assume that by prohibiting overfill billing only when overfill is discarded, Medicare implicitly recognized that overfill can be billed when administered."

• Examined numerous sources as to Fresenius' knowledge about overfill and billing in order to determine if Fresenius acted recklessly: 
• Statements by Fresenius' executives over the years reflecting that they believed billing for overfill was permissible;
• Open knowledge among staff about the policy to use and bill overfill, including knowledge by the Monitor of a Medicare Consent Decree of a company acquired by Fresenius;
• Advice by the company's lawyers that billing for overfill did not violate Medicare rules;
• Previous FCA qui tam cases brought against the company that made similar allegations and which had either been dismissed by the relator or which the company had addressed and was then dismissed or abandoned by the relator;
• Periodic reviews by HHS-OIG of the company's billing practices, its knowledge from those reviews that Fresenius was billing overfill, and the OIG's failure to object; and
• Statements made by the company to Medicare showing it was openly using/billing overfill.

• Refused to accord any real weight to a fiscal intermediary's 2005 negative comments on overfill. The Court noted that the "closest" that Fresenius "got to a warning" that billing for overfill might be improper was a 2005 document from its Medicare fiscal intermediary (n/k/a as a "Medicare Administrative Contractors") primarily addressing "wastage" but also stating that providers could not bill for "wasted overfill." Even this, the Court observed, did not "tip the scales in favor of a finding of recklessness." The fiscal intermediary's document, the Court explained, was "several steps removed from an authoritative interpretation of CMS rules or regulations" and the Court cited several cases emphasizing the "limited authority" of a fiscal intermediary. Moreover, the document itself did not qualify as "official" policy of the fiscal intermediary.

• Most importantly, the Court rejected the relator's argument that Fresenius had sufficient information at its disposal that it should have connected the dots and concluded from these different sources that it could not bill Medicare for administering overfill. Observing that a failure to put such information together may have been "arguably negligent," the Court found that it did not support a finding of recklessness. Fresenius had adopted a plausible interpretation of Medicare rules and regulations that was consistent with its communications with the OIG and CMS and some in the industry.

Fresenius together with the other cases cited above stand for strict enforcement of the FCA's knowledge requirement. As the D.C. Circuit explained in Purcell,"innocent mistakes made in the absence of binding interpretive guidance [should not be] converted into FCA liability, thereby avoiding the potential due process problems posed by penalizing a private party for violating a rule without first providing adequate notice of the substance of the rule." 

A. Brian Albritton
December 1, 2015

Worth The Read: Interpreting Unclear Medicare Regulations and FCA Liability - U.S. ex rel Parker v. Space Coast Medical Associates, L.L.P.

Dear Readers:

I commend to you the analysis of the Middle District of Florida opinion, U.S. ex rel Space Coast Medical Associates, LLP, 2015 WL 1456122 (M.D. Fla. Feb. 6, 2015), by Arnold and Porter attorneys Mark D. Colley, Alan E. Reider, and Murad Hussain. Space Coast is another example wherein a court refused to find that a defendant "knowingly" submitted false claims when the Medicare regulations at issue were unclear and the defendant's interpretation of the regulations was not unreasonable.

In this qui tam case, the relators alleged that physicians in an oncology practice failed to provide the proper level of supervision required by "Medicare guidelines." In its order granting the motion to dismiss filed by Messrs. Colley, Reider, and Hussain, the Court conducted a thorough analysis of these so called "guidelines" only to find after analyzing the regulations, the Medicare Benefit Policy Manual, and Local Coverage Determinations that they did not actually require "that radiation oncologists be the physicians who supervised the radiation therapists at issue" and that the regulatory authorities relied on by relators were not preconditions for payment of Medicare claims. Following cases such as U.S. ex rel Hixson v. Health Mgmt. System, Inc., 613 F.3d 1186, 1190 (8th Cir. 2010), the Court then went a step further and found that the Defendants did not knowingly submit a false claim because relators had not shown that "Defendants' interpretations of the regulations were unreasonable."

A. Brian Albritton

August 26, 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

Defendant's Breach of Ambiguous Government Contract Prevents Court from Finding the Defendant Knowingly Submitted a False Claim for Payment

Relators frequently bring qui tam cases based in large part on allegations that a defendant violated some obscure government regulation. These alleged regulatory violations become the basis for a False Claim Act qui tam when the defendant "certifies" to the government its compliance with regulations in conjunction with submitting a request for payment to the government. Yet, what if the underlying regulations were ambiguous, unclear, or simply had not been previously applied in the manner urged by the relators? Can the alleged violation of such ambiguous regulations give rise to a False Claims Act case? More often, courts are answering "no" and refusing to permit the False Claims Act to be used to police violations of unclear or ambiguous regulations.

A good example can be found in the recent Third Circuit case, U.S. Department of Transportation ex rel Arnold v. CMC Engineering, Inc., et al., __ Fed. Appx.__, 2014 WL 2442945 (3rd Cir. June 2, 2014). In this qui tam case, the Third Circuit affirmed the entry of summary judgment in favor of the defendant on the grounds that the defendant could not have "knowingly" submitted a false claim because the contractual terms it allegedly violated were so ambigious that no reasonable jury could have found a knowing violation.

In CMC Engineering, the defendant was a contractor who provided inspection services to the Pennsylvania Department of Transportation ("PennDOT") in support of federally funded highway projects. PennDOT contracted with the defendant for several different classes of inspectors, and the PennDOT contract set forth different credential and experience requirements for the inspectors. The relator, a construction engineer for PennDOT, alleged that CMC's inspectors who worked on the project did not have the contractual qualifications that entitled CMC to the pay rates it billed to PennDOT which were ultimately paid by the federal government. The relator contended that defendant "submitted factually and legally false claims by knowingly requesting payments at certain rates for inspectors it knew did not meet credentialing requirements." As to what the acceptable credentials were for the inspectors, the relator argued that those were set forth in the only "reasonable" interpretation of the CMC's contract with PennDOT.

The Court found, however, that the "language of the contracts . . .  undermines [relator's] assertion that the contract is susceptible to only one reading" and that "the contracts themselves are ambiguous concerning the credentials required for particular positions that justify particular pay rates." The Court noted further that PennDOT employees acknowledged that the contract terms were "open to interpretation" and that PennDOT had subsequently taken steps to make them clearer. "As a result of this ambiguity," the Court observed, "there is no evidence from which a reasonable jury could find CMC 'knowingly' made a factually false claim or false certification . . . by requesting reimbursement for inspectors at rates for which [the relator] contends they were unqualified."

In short, given that many government regulations are often as clear as mud, cases like CMC Engineering represent a welcome trend among courts who are skeptical of relators who try to use the False Claims Act either to police technical regulatory violations or to enforce ambiguous and unclear government regulations.

A. Brian Albritton
June 25, 2014