Court of Appeals Finds Medical Necessity Material in FCA Liability

Jane Winter, former Director of Care Management at Gardens Regional Hospital filed a qui tam action under the False Claims Act (FCA).  Winter alleged Gardens Regional Hospital and Medical Center, Inc. submitted, or caused to be submitted Medicare claims falsely certifying that patients’ inpatient hospitalizations were medically necessary.  He claimed the admissions were not medically necessary and were contradicted by patients’ medical records and hospital admissions criteria.  The district court dismissed Winter’s complaint for failure to state a claim.  The United States Court of Appeals exercised jurisdiction under 28 U.S.C. § 1291.  

Medical Necessity Requirement

Medicare provides basic health insurance for individuals 65 or older, disabled, or end-stage renal disease.  Medicare payment benefits are not made for expenses of items or services “[that] are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.”  Providers are reimbursed by Medicare for inpatient hospitalization when a physician certifies such services are required.

The Department of Health and Human Services, Centers for Medicare & Medicaid Services (CMS) administers Medicare and issues guidance regarding reimbursement.  CMS defines “reasonable and necessary” services to meet but not exceed the patient’s medical need.  Admitting patients to the hospital for inpatient treatment requires a formal admission order from a physician “who is knowledgeable about the patient’s hospital course, medical plan of care, and current condition.”

False Claims Act

The FCA imposes civil liability on persons who:

• Knowingly presents or causes to be presented, a false or fraudulent claim for payment or approval.
• Knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim, or
• Conspires to commit a violation of (a) or (b).

Private plaintiffs can enforce FCA provisions by bringing a qui tam lawsuit on behalf of the U.S. Plaintiffs may allege false statements or fraudulent courses of conduct, made with the “scienter,” that was material, causing the government to pay money or forfeit moneys due.  Claims for unnecessary treatment are considered false claims.  According to 31 U.S.C. § 3729(b)(1), defendants act with scienter if they know the treatment was not medically necessary, or with deliberate ignorance or reckless disregard of whether the treatment was medically necessary.

Winter’s Complaint

Winter alleged Rollins Nelson, 50% owner of S&W, a management company that oversaw Gardens Regional Hospital and Medical Center, admitted patients that were not supported by patients’ medical records.  Winter’s complaint gave details on multiple patient admissions that were billed to Medicare and found not medically necessary.  She alleged patients were admitted with no evidence of disease between July 2014 and September 2014 leading to over $1,287,701.62 in false claims to the Medicare program.  She made multiple attempts to bring the false claims to the attention to owners of S&W, the hospital’s Chief Operating Officer, and case managers, but instead was fired and replaced with an employee who never questioned inpatient admissions

Winter’s Allegation of False or Fraudulent Statements

The U.S. Court of Appeals interpreted the FCA broadly with Congress’ intention “to reach all types of fraud, without qualification, that might result in financial loss to the Government.”  It noted Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2004, 195 L. Ed. 2d 348 (2016), which states the FCA imposes a liability for presenting a “false or fraudulent claim for payment or approval,” and causing a “false record or statement material to a false or fraudulent claim.”  Congress did not define “false or fraudulent.”  This led the court to use its common-law definition and include the rule that “a statement need not contain an “express falsehood” to be actionable.”  The court also described the FCA to be broader than common law because under 31 U.S.C. § 3729(b)(1)(B) ‘knowingly’ requires no proof of specific intent or fraud.

According to 31 U.S.C. § 3729(b)(4), the term ‘material’ is the “tendency to influence, or be capable of influencing, the payment or receipt of money or property.”  The district court determined the failure to meet the InterQual criteria was not material.  The U.S. Court of Appeals disagreed.  It concluded a false certification of medical necessity can be material.  It held Winter’s allegations false certifications requirement “so central” to the Medicare program that the government would not have paid the claims if it would have known the inpatient hospitalizations were unnecessary.

Scienter

The Defendants requested the court determine whether Winter adequately alleged scienter.  This occurs when a party has knowledge of the “wrongness” of an act or event prior to committing it.  The district court did not address the issue.  The Court of Appeals noted that under Rule 9(b), scienter is not required to be pleaded with particularity, but may be alleged generally.  A complaint only needs to allege facts supporting a plausible inference of scienter.  Unlike common law fraud claims, Plaintiffs are not required to prove a “specific intent to defraud” under the FCA.

Conclusion

The U.S. Court of Appeals held that a false certification of medical necessity could give rise to FCA liability.  It held that a false certification of medical necessity could be material because medical necessity is a statutory prerequisite to Medicare reimbursement.  The U.S. Court of Appeals reversed the district court’s ruling.  For more information on the False Claims Act, contact Whitcomb Selinsky PC.