What FCA Bar Can Learn From District Court Hospice Ruling
April 18, 2022 I LAW 360 I Christopher C. Sabis
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The months following the height of the pandemic have seen significant False Claims Act activity. A recent decision from the U.S. District Court for the Middle District of Tennessee denying dismissal of U.S. v. Curo Health Services Holdings Inc. has implications for providers and companies across the healthcare industry, particularly hospice providers.
While Curo is just one of myriad FCA district court decisions, Nashville is the health care capital of the U.S., and Middle Tennessee is home to over 500 health care companies with an approximately $67 billion annual economic impact on the area.
The ruling provides plaintiffs with quotable ammunition when responding to motions to dismiss. It also merits attention from in-house and outside counsel seeking dismissal of FCA cases.
The court's March 21 denial of motions to dismiss in Curo addresses several FCA issues, including (1)the application of the heightened pleading standard of Federal Rule of Civil Procedure 9(b) to FCA cases; (2) the treatment of differences in clinical judgment at the motion to dismiss stage; (3) the application of the FCA's reverse false claims provision; and (4) the potential liability of parent companies for the submission of false claims.
Background
To be eligible for hospice services under Medicare or Medicaid, patients must be terminally ill, meaning they have "a life expectancy of 6 months or less if the terminal illness runs its normal course." A hospice provider must certify the patient is in terminal condition at the beginning of each so-called election period of the patient's stay to qualify for federal reimbursement.
As the Curo court acknowledged, there is "nothing inherently wrong with the patient's being in hospice care for much longer than six months," but the patient must remain eligible. Medicare and Medicaid pay for hospice services on a per diem basis. The court opined in Curo that this creates an incentive for unscrupulous providers to add days to the beginning of a hospice stay to receive a higher reimbursement from federal health care programs.
In Curo, the U.S. and Tennessee allege that hospice defendants executed a scheme to falsely certify patients for hospice care before they reached the terminal stage of their illnesses.The defendants moved to dismiss five principal sets of allegations for failure to state a claim:
- The defendants sought dismissal of the government plaintiffs' claims as to 24 of their locations because — although the plaintiffs pled some examples of specific patients for whom they believed some or all of the provided hospice care was medically unnecessary — they did not plead examples of patients from these facilities;
- The defendants sought dismissal, regarding the facilities for which the government plaintiffs did plead examples, of any claims that fell outside the dates pled for those exemplar patients;
- The defendants requested dismissal of all claims against the facilities' parent companies;
- The defendants moved to dismiss allegations that merely alleged a disagreement as to the clinical judgment of certifying practitioners; and
- The defendants sought to dismiss the government plaintiffs' counts alleging reverse false claims.
The court denied each request.
Request to Narrow Claims by Time and Location
The court addressed the defendants' Rule 9(b) arguments — failure to plead specific examples for certain facilities and narrowing of claims to the time frames of the specific allegations — together. It interpreted these arguments as an effort to convert the government plaintiffs' specific examples into "fence posts erecting an artificial boundary outside which the plaintiffs' claims, no matter how otherwise well-pleaded, can extend."
Although the court acknowledged that Rule 9(b) requires an FCA plaintiff alleging a wide-ranging scheme to "'provide examples of specific' fraudulent conduct that are 'representative samples' of the scheme," it ruled that the government plaintiffs did not need to plead examples from every facility or every period of the alleged scheme. Rule 9(b), according to the court, "requires a plaintiff to plead specifically, not exhaustively."
The court's opinion offers a favorable application of Rule 9(b)'s heightened pleading standard for FCA plaintiffs to analogize to in future cases. While it is generally accepted that a plaintiff need not plead its claims exhaustively under Rule 9(b), the Curo decision allows the government plaintiffs to proceed to discovery on allegations of fraud against two dozen hospice locations without providing a single example of the alleged conduct at those facilities.
Widespread application of this approach could be problematic for companies operating numerous locations, as a couple of allegedly bad apples in a small subset of facilities may provide enough specificity to sustain more sweeping — and costly — allegations against the larger bunch.
Moreover, the Curo court did not find the question to be close, calling the defendants' arguments a strikingly aggressive and unsupported reading of Rule 9(b). The court opined:
An enterprising defendant can find lines like these to draw anywhere, no matter how well-pleaded a complaint is … What qualifies as a sufficient set of examples for any given case, however, depends on the nature of the allegations at issue, not on a rote checklist of dates and service locations.
Such an approach places a premium on the ability of FCA defendants seeking to narrow the scope of FCA allegations to draw these case-by-case lines in their favor. Depending on the circumstances, this may include highlighting differences in the leadership, practices or other aspects of their locations.
Clinical Disagreements
The court next addressed the defendants' argument that certain claims only alleged disagreements with certifying physician's clinical judgments.
The defendants relied on the U.S. Court of Appeals for the Eleventh Circuit 's 2019 holding in U.S. v. AseraCare that a "reasonable difference of opinion among physicians reviewing medical documentation ex post is not sufficient on its own to suggest that those judgments — or any claims based on them—are false under the FCA."
The court acknowledged that the AseraCare principle is "probably correct," but distinguished the government plaintiffs' claims from this standard. The court conceded the claims "involved prognosis determinations that required the exercise of judgment," but determined this was not the end of the inquiry, particularly at the motion to dismiss stage.
Citing U.S. v. Paulus, a 2017 criminal health care fraud case from the U.S. Court of Appeals for the Sixth Circuit, the court ruled that medical "opinions are not, and have never been, completely insulated from scrutiny" for fraud.
At the very least, opinions may trigger liability for fraud when they are not honestly held by their maker, or when the speaker knows of facts that are fundamentally incompatible with his opinion.
The Curo court's application of AseraCare and Paulus provides a road map for plaintiffs pleading medical necessity cases. Plaintiffs will look to Paulus and Curo to guide allegations that the opinions of a treating physician or a defense expert are somehow illegitimate, and that the differences should be resolved by a jury.
But applying a Paulus-based exception to the "probably correct" principle of AseraCare risks swallowing the rule.
For example, Curo suggests that allegations sounding in clinical disagreement themselves can satisfy the Paulus standard at the pleading stage. The court ruled that, within the context of a broader fraud scheme, allegations that a patient's medical records and lab tests did not support a diagnosis are sufficient to survive a motion to dismiss. This begs the question of when the interpretation of such records leaves the realm of clinical judgment.
The court also concluded that, in the hospice context, a provider's incorrect prediction of life expectancy can itself be corroborative evidence that the diagnosis was dishonest or unsupported. Government and relator's counsel may cite to argue for a significantly cabined application of the AseraCare standard in future cases.
Reverse False Claims
The court next denied dismissal of the government plaintiffs' reverse false claims counts. The FCA's reverse false claims provision essentially renders the knowing avoidance of an obligation to pay money to the U.S., or to repay overpayments, an FCA violation in and of itself.
The defendants argued that the plaintiffs did not sufficiently plead actual knowledge of the alleged overpayments or that the defendants acted recklessly, so there was no identified obligation creating a reverse false claim.
The court adopted a broad application of the FCA's reverse false claims provisions. It ruled that the government plaintiffs' allegations that internal audits and company personnel had identified several medical necessity issues consistent with the alleged scheme were sufficient to survive a motion to dismiss "even if the court were to adopt the strictest reading possible, requiring nothing short of actual knowledge."
This ruling creates concerns similar to those regarding court's Rule 9(b) ruling, as it uses internal company reviews of certain claims to support scienter as to a much broader range of allegedly false submissions.
Claims Against Parent Companies
The last principle issue involved claims against the hospice facilities' parent companies. The defendants argued the parent companies "were not actually the entities evaluating individual patients, filling out [certificates of terminal illness], or filing claims for payments."
The government plaintiffs responded that the parent companies' actions contributed to the alleged fraud.
The court agreed with the defendants that "even if unlawful activities took place and even if those activities benefited a particular defendant, the FCA will not provide the appropriate enforcement mechanism unless the defendant has been sufficiently tied to a claim for payment."
But the court found the government plaintiffs had pled that nexus sufficiently, ruling that the parent companies' financial incentives to employees and company-wide documentation policies that allegedly encouraged terminal diagnoses satisfied the FCA's mandate that liability attaches to anyone who causes the presentation of a false statement or record supporting payment.
"There is simply no requirement," wrote the court, "that a defendant's culpable actions be independently illegal for some reason other than those set out in the FCA itself.
The court's acceptance of allegations regarding legal corporate policies and practices as sufficient to plead FCA liability for parent companies is concerning for health care entities.
Applying the Curo court's approach, parent companies may be forced to defend allegedly illegal actions of their subsidiary entities even though the parents' conduct was legal.
Such language also has implications for private equity investment in health care businesses if the investing companies exercise sufficient management, supervision and policymaking authority.
Conclusion
The Curo decision offers FCA plaintiffs favorable precedent on several hot-button issues. It merits attention from both the FCA plaintiffs drafting similar claims — and the in-house and outside counsel seeking to dismiss them.
The health care industry is the top target of federal fraud enforcement efforts, and these companies and their counsel should monitor health care fraud cases regularly, particularly in active civil fraud enforcement districts like the Middle District of Tennessee.
