New Trigger of False Claims Act Liability

I know an attorney whose firm was subject to a disqualification motion by opposing counsel on the basis that one of their offices was in a suite that didn’t have a Certificate of Occupancy from the local building department. The motion was denied on the grounds, I believe, of being patently ridiculous.

But if the issue involved your billings for healthcare services, the outcome might have been different: All of your claims might have been deemed “false claims” subject to recoupment times a factor of 3, plus other penalties.

The U.S. Supreme Court recently broadened the basis for turning otherwise valid claims for reimbursement into false claims. It did so by finding that, in some circumstances, an implied false certification can be the basis for False Claims Act (“FCA”) liability.

The case known as Universal Health Inc. v. U.S. et al. ex rel. Escobar et al is very intriguing. Here are the highlights and an interesting new twist:

The Theory

Claims for payment from the federal government are wrapped in specific representations about the goods or services provided. For example, the use of a CPT code constitutes a representation that the services underlying that code were actually delivered.

The “implied false certification” concept holds that specific representations come bundled with implied certifications of certain underlying compliance with statutory, regulatory, or contractual requirements. Under that theory, if a claimant omits to inform the government that it is out of compliance with an underlying requirement, the claim is rendered false.

In Universal Health, the Supreme Court endorsed the implied false certification concept where two conditions are satisfied:

1. The claim does not merely request payment, but also makes specific representations about the goods or services provided. [Note: CPT coded claims are such claims.] and
2. Failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.

Materiality Is Key

The Court stated that under the FCA, the misrepresentation must be material to the other party’s course of action, but that statutory, regulatory, and contractual requirements are not automatically material, even if they are labeled conditions of payment.

Materiality means “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”

But How Material?

Of course, this begs the question of how “material” something must be to be seen as material in the context of your billings.

Although the issue involved a question of state law in respect of a state-run program that was not federally funded, several years ago one of my clients had millions of dollars of claims rejected due to the fact that a fictitious name filing had lapsed.

So what, actually, it is material? Consider the following thought experiment:

Last Hospital Before Freeway (“Last Hospital”) is located in State X. State X has a strong prohibition on the corporate practice of medicine. Because it cannot directly employ physicians due to that prohibition, Last Hospital engages in a very common end-run: It controls 287 physicians through a captive medical group (“Captive”).

Captive becomes a provider under a Medicare Advantage Plan (a federally funded plan) run by Trustusalot Health Plan.

Four years and 7,312 claims later, Trustusalot “discovers” that Captive is a captive medical group. It files a FCA case against Captive taking the position that:

1. Captive is operating in violation of State X’s law prohibiting the corporate practice of medicine.
2. Compliance with that law is material to Trustusalot’s payments to Captive under the Medicare Advantage Plan.
3. Each of the 7,312 claims was a false claim.

Of course, that example is just a thought experiment. But it might be real at some point soon. After all, there are plenty of carriers managing federal health care program dollars, and plenty of government agencies, too, and each of them can use litigation as a business weapon.

The take-aways for you:

1. It’s likely that the Universal Health case will result in more FCA whistleblower actions.
2. CPT coded services are specific representations as to the goods/services provided.
3. There are probably thousands of laws and regulations governing the operation of your business, so many that it’s probably the case that no single person or even group of persons could list them all for you. Compliance with a subset of those is likely material. Which ones are material in respect of any particular specific representation becomes the treble damages plus up to $21,563 in civil  monetary penalties per claim question.
4. Materiality is a double-edged sword. It unlocks the key to implied false certification for whistleblowers. But the argument over lack of materiality is a defense for targets of this type of FCA case.
5. The best practical advice is to audit your medical group’s/business’s compliance with the broadest range of underlying regulations and laws. This can be stratified into those categories that are clearly material, those that may be material, and those that are less likely to be material.