False Claims Act: Causation Standard Up for Grabs

On February 13 AHLA posted a nice, lengthy analysis of the circuit split over the appropriate standard for proving "causation" in False Claims Act (FCA) cases. The FCA is probably the principal vehicle for bringing claims for violations of the Anti-Kickback statute (AKB). I previously published a lengthy post of this issue on December 5 (here).

Unfortunately, the AHLA analysis is behind two firewalls: a members-only firewall and another that limits access to members of AHLA’s Fraud and Abuse Practice Group.

Fortunately, the two authors -- John H. Lawrence & Michael H. Phillips, both of K&L Gates LLP -- have kindly posted for the full piece on their firm website. It's well worth a read, especially because, as the authors note, "the growing confusion and disagreement among district and circuit courts over this issue, coupled with the issue's import in FCA jurisprudence, make it a strong bet to be the next FCA issue decided by the Supreme Court."

Physician Acquitted in $15M Healthcare Fraud Prosecution

A federal jury in Maryland convicted the physician on five counts of healthcare fraud in connection with his billing practices for level 4 CPT codes for evaluation and management services (E/M) for Covid patients. According to Becker's Hospital Review:

Ron Elfenbein, MD, 49, owned First Call Medical Center and Chesapeake ERgent Care, which operated multiple drive-thru COVID-19 testing sites. He instructed employees, in addition to billing for COVID-19 tests, to bill for high-level evaluation and management visits, according to an Aug. 4 Justice Department news release. Dr. Elfenbein ordered the high-level visits to be billed for all patients, including those who were asymptomatic, getting tested for their employment requirements or being tested so that they could travel, according to the release. Dr. Elfenbein was accused of submitting false claims for tens of thousands of high-level visits that were ineligible for reimbursement. 

As analyzed by Husch Blackwell:

[U]nlike some CPT codes, E/M CPT codes are imprecise. There is purpose in E/M CPT codes’ imprecision in that it allows physicians flexibility to exercise their best judgment given the multitude of factors that go into medical decision-making.

But that imprecision in E/M CPT codes makes for difficult federal prosecutions. As the court held in overturning Dr. Elfenbein’s convictions, CPT codes’ “imprecision does not necessarily integrate well with the clear notice and due process guarantees of our criminal law” and “where the relevant CPT codes and related definitions are ambiguous and subject to multiple interpretations, problems clearly arise.” 

Does this mean DOJ can't win ambiguous-CPT code cases? Not at all (from Husch):

The court was careful to make clear that it is possible for the Justice Department to successfully prosecute defendants who take advantage of ambiguous CPT codes, but that such prosecutions must show objective falsity in a way the prosecutors failed to do in Dr. Elfenbein’s trial. The “Government sails in shallow waters when it prosecutes a case of this type; these cases require careful navigation,” wrote the court.

To make its point, the court pointed to several cases in which the Justice Department was able to navigate ambiguous waters, including one E/M CPT case in which the prosecution’s expert testified the medical judgment was “not even close to being properly classified” at the code’s level. And so, while prosecutions based on ambiguous CPT codes are clearly an uphill battle for the Justice Department, they are not insurmountably uphill. 

The district court's 90-page opinion is here. 

Latest Fraud Enfocement Actions include $148 Million Scheme

Here's the latest rundown from USDOJ, with some details on a couple of the most notable actions:

Lab Owner Pleads Guilty To $1.7 Million COVID-19 Test Fraud Scheme (December 1, 2023; U.S. Attorney's Office, Northern District of Texas)

Physician Sentenced For $1.2M Pill Mill Scheme (November 30 2023; U.S. Department of Justice)

Philadelphia Pharmacy Pleads Guilty To More Than $500,000 In Fraudulent Insurance Claims As Part Of Prescription Medication Scam (November 28, 2023; Pennsylvania Attorney General)

▶︎Man Charged In $148M Medicare And Medicaid Fraud Scheme (November 30 2023; U.S. Department of Justice)

A federal grand jury in Baton Rouge, Louisiana, returned an indictment today charging a Louisiana man for his role in a scheme to defraud Medicare and Medicaid of over $148 million in medically unnecessary definitive urine drug testing services.   

According to court documents, Brad Paul Schaeffer, 48, of Zachary, was a co-owner and chief executive officer of MedComp Sciences LLC (MedComp), a diagnostic laboratory located in Zachary. From approximately January 2013 through approximately August 2022, MedComp, at the direction of Schaeffer, allegedly billed Medicare and Medicaid for definitive testing of at least 15 substances in urine specimens it received, regardless of the patient’s treatment plan and history, or the request of the referring provider. 

To perpetuate the fraud, Schaeffer, through MedComp, allegedly took several actions, among them, writing off patient co-pays, directing MedComp staff to fill out and submit order forms on providers’ “behalf,” concealing the true nature, permissibility, and extent of testing from providers, orchestrating a pass-through billing scheme using hospitals, and paying kickbacks to physicians disguised as laboratory ownership interests. Schaeffer then allegedly used the fraudulent proceeds for his own benefit, including spending thousands of dollars to renovate a pool and on a pool house in his backyard, and to restore a truck. 

▶︎Caretaker Charged With Involuntary Manslaughter, Neglect For Failure To Renew Patient’s Medications Which Led To Fatal Seizure Episode (November 29, 2023; Pennsylvania Attorney General)

Kelly Gonzales, 48, was the administrator at ARC of Lawrence County, a personal care home in New Castle, when she failed to renew a prescription for the patient’s anti-seizure medication. Gonzalez then altered medical records to indicate that a health care provider discontinued the medication — which was not true.

As the administrator of the personal care home, Gonzales was responsible for the administration and management of the home, including the health, safety, and well-being of the residents. This included ensuring the residents’ paperwork was complete, that they attended all medical appointments, and received their prescribed medication in a timely manner.

According to the complaint, the resident was diagnosed with a seizure disorder and was prescribed anti-seizure medication to control his seizures. He died at the care home on Dec. 2, 2021 after not receiving his medication for over 10 days. Upon autopsy, it was discovered that the seizure disorder caused his death and that the levels of anti-seizure medication in his system were well below therapeutic levels.

Gonzales was charged Tuesday with felony counts of neglect of a care dependent person and tampering with records, and misdemeanor involuntary manslaughter. Gonzales surrendered Tuesday, was arraigned and released on her own recognizance.

What's the Test for Causation in a False Claims Act Suit Based Upon the Anti-Kickback Act?

This is an issue only a lawyer could love, but there's already a circuit split, and two federal judges in the Massachusetts District have reached opposite conclusions, with one of them asking for a resolution by the First Circuit, which will either deepen the split or (if it comes up with a third approach) broaden it. Considering the large number of qui tam actions for AKB violations that are litigated each year, this is an important issue that cries out for resolution by SCOTUS. 

How much do lawyers love this issue? Here is a collection of law firms' commentary on the issue in the last couple of months --

• Haynes and Boone, Another Win for Defendants on the Issue of Causation in AKS-Based FCA Cases (Oct. 5) (extensive analysis)
• Sidley: District of Massachusetts Adopts But-For Causation Test for FCA Claims Premised on AKS Violations (Oct. 3)
• WilmerHale: Government Setback “Resulting From” Another Court Adopting the “But For” Causation Standard for False Claims Act Cases Furthering Court Split (Oct. 19)
• DLA Piper: Massachusetts District Judge rules that government must clear high causation bar in False Claims Act cases (Oct. 10)
• ArentFox: Federal Judge Rules Government Must Demonstrate “But-For” Causation for Anti-Kickback Statute Claims (Oct. 6)
• Goodwin Procter: “Greenfield Fraught with Problems”: District of Massachusetts Holds But-For Causation Required in False Claims Act Cases Based on Kickbacks (Oct. 5)
• Bradley: District of Massachusetts Split on Causation Standard in Kickback FCA Cases (Oct. 30)
• Mintz: Courts Continue to Grapple with the Causation Standard for False Claims Act Suits Based on Alleged Kickback Schemes, While the Supreme Court Stays on the Sidelines (Oct. 5)
• Squire Patton Boggs: Federal Courts Continue to Grapple with Causation in Anti-Kickback-Based False Claims Act Cases (Nov. 29)
• Bass Berry & Sims: District Courts Wrestle with Causation in Kickback Cases While Circuit Courts Remain Divided (Oct. 5)
• Weiner Brodsky Kider: Mass. Federal Court Adopts More-Stringent Causation Standard for FCA Claims Based on Alleged Unlawful Kickbacks (Oct. 12)
• McGuireWoods: The Growing Causal Divide: But-For Causation in AKS/FCA Actions (Dec. 4) (citations and some hyperlinks to opinions)
• Akerman: Teva FCA Decision Sheds Light on Varying Interpretations of the Elements of an FCA Claim (Aug. 10)
• Hogan Lovells: Anti-kickback causation in FCA suits: text or purpose? (undated, but apparently written before the D. Mass. split)
• Ropes & Gray: Sixth Circuit Requires But-For Causation and Narrowly Defines Remuneration under AKS (April 4) (before the D. Mass. split)
• Arnold & Porter: More Disagreement About the Causation Standard for AKS Cases Under the FCA (July 21) (before the Regeneron case created a split within the Mass. District)

For a very brief introduction to the laws involved in this split, you can start with the HHS OIG website.

False Claims Act Settlement with EHR Provider for $31 Million

First, $31 million is a significant piece of change. Second, this was a qui tam relator ("whistleblower") case initiated by two health care professionals at a facility that used the defendant's software; the relators  collected $5.58 million for their trouble. Third, it represents a rare foray by the government into the world of healthcare tech; defendant was NextGen Healthcare Inc. (NextGen), an electronic health record (EHR) technology vendor.

In brief, NextGen was accused of selling EHR software that wasn't properly tested or certified. Medicare money was paid for the development of the software, and NextGen's assertion that its software was properly tested and certified was false. The company was also accused of violating the Anti-Kickback Law, which makes it illegal to pay anyone anything (directly or indirectly, overtly or covertly, in cash or in kind) for a referral (or to induce a referral) of an item or service for which a federal health program (like Medicare) will pay. According to the announcement from DOJ's Office of Public Affairs, "NextGen [allegedly] knowingly gave credits, often worth as much as $10,000, to current customers whose recommendation of NextGen’s EHR software led to a new sale. The government alleges that other remuneration, including tickets to sporting events and entertainment, was also provided to induce purchases and referrals."

Something Old, Something New (Hellacious Health Fraud (VI))

 

Here are a couple of recent cases that caught my eye. First, the old style of health care fraud:

• Evergreen Hospice, LLC (Evergreen), a hospice company located in Tulsa, Oklahoma, appears to be a Mom & Pop operation that advertises a Servant Attitude ("We are givers, not takers. We are listeners, not talkers. We are promoters of others and will perform our roles with humility and dignity") and touts their institutional commit to Ethics ("We will not participate in or tolerate dishonesty or unethical behavior"). On June 29 DOJ announced that Evergreen agreed to pay $48,830.70 to resolve allegations that it violated the False Claims Act by knowingly submitting false claims to Medicare for hospice care provided to beneficiaries who were not terminally ill. Medicare's hospice program requires a physician's certification that the patient/beneficiary is terminally ill, i.e., will probably die within 6 months. The settlement announcement included the usual boilerplate that liability was not established. The U.S. Attorney's announcement added: "'Unfortunately, some healthcare providers seek to defraud Medicare by billing unnecessary hospice services. Left unchecked, this misconduct would deplete funds available for terminally ill patients desperately in need of the relief that hospice care provides."

And something new(-ish):

• A key feature of 2010's Patient Protection and Affordable Care Act (PPACA, ACA, or Obamacare) offered state governments a deal. It was well known that many states had substantial populations of individuals who were not old enough to qualify for Medicare and had too much income to qualify for Medicaid. (States get to establish the eligibility criteria for Medicaid and some, like mine, disqualify individuals at a ridiculously low income level.) The federal government's offer: cap your eligibility at 133% of the federal poverty level (effectively 138% of FPL after accounting for the 5% income disregard feature of Medicaid) and we will pay 100% of the cost of expanded coverage for the first few years, 95% for the next few years, and 90% from then on. In return, states (including California) agreed that at least 85% of the services provided to the expanded population would be for "allowed medical expenses." Shortfalls would need to be returned to the state and ultimately to the U.S.

The four defendants in this case are [1] a county organized health system (COHS) that contracts to arrange for the provision of health care services under California’s Medicaid program (Medi-Cal) in Santa Barbara County and San Luis Obispo County, California; [2] a not-for-profit hospital network operating in Santa Barbara County; [3] a non-profit outpatient clinic operating in Santa Barbara County; and  [4] a non-profit community health center operating in Santa Barbara and San Luis Obispo Counties. The four allegedly violated the False Claims Acts (state and federal) by falsely certifying that they met the 85% minimum from 2014-16. The net result was that Medicaid expansion funds were used to subsidize non-Medicaid services. 

The four defendants settled the suit for $68 million, of which $12.58 million will go to the whistleblower, the former medical director of the COHC. 

False Claims Act and Circuit Splits

Who doesn't love a good circuit split? It's the stuff dreams are made of. Well, if not dreams, at least law review comments, cert. petitions, amicus briefs, and the occasional grant (or denial) of certiorari.

My friend Rachel Rose is giving a lecture for the Federal Bar Association on July 12 in which she will discuss the False Claims Act in the context of Fed. R. Civ. P. 9(b)'s requirement that fraud be pleaded with particularity. Rachel's starting point is the Supreme Court's denial of certiorari in United States ex rel. Owsley v. Fazzi Associates, Inc. on Oct. 17, 2022. In Owsley the qui tam relator posed this issue for the Court: "Whether Federal Rule of Civil Procedure 9(b) requires plaintiffs in False Claims Act cases who plead a fraudulent scheme with particularity to also plead specific details of false claims." [emphasis added] The district court dismissed the complaint and the Sixth Circuit affirmed, stating: "Owsley's complaint provided few details that would allow the defendants to identify any specific claims—of the hundreds or likely thousands they presumably submitted—that she thinks were fraudulent. For that reason alone her complaint fell short of the requirements of Civil Rule 9(b)."

The cert. petition identified "a longstanding circuit split about how Rule 9(b) works in FCA cases":

The Sixth Circuit is one of five that adopt a more rigid approach to Rule 9(b), requiring relators to plead details of false claims in addition to details of fraudulent schemes. Seven circuits adopt a more flexible approach that allows the presentment of claims to be inferred from circumstances (including from a fraudulent scheme), and does not require details of claims.  [Pet. at 10]

Of course, the Court doesn't give reasons when it denies review. That's what it means to have discretion to control this part of the Court's docket. So we don't know why the Court decided, as it has repeatedly in the past, to punt. 

The issue in Owsley is pretty darned fundamental to all False Claims Act litigation, including those involving health care providers (which appears to be a very large percentage of all False Claims Act litigation). It may be impossible for some (many?) relators to plead the details required to identify specific false claims without discovery, and a strict application of the particularity requirement will result in a dismissal before discovery can begin.