After years of investigation and litigation, and on the eve of a highly anticipated trial, the government abandoned its FCA case against ManorCare, the nation’s second-largest operator of skilled nursing homes and assisted living centers. In a joint motion filed on November 8, 2017, the government announced that it would move for dismissal with prejudice of U.S. ex rel. Ribik v. HCR ManorCare Inc., No. 1:09-cv-00013 (E.D. Va.). The move marks an unexpected victory for ManorCare and a significant defeat for the government, which was seeking to recover over $500 million in damages and fines in the case.
The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we will continue to take a closer look at recent legal developments involving the FCA. This week, we examine recent court decisions that considered the question of objective falsity in connection with FCA cases based on an alleged lack of medical necessity of the healthcare services provided to beneficiaries of federal healthcare programs.
A recent jury verdict in an FCA lawsuit pending in the United States District Court for the Middle District of Florida resulted in a not-so-subtle reminder of just how high the stakes can be in such litigation. On February 15, 2017, in U.S. ex rel. Ruckh v. Genoa Healthcare, LLC, a case in which both the United States and the state of Florida declined to intervene, the jury returned a verdict finding that the operators of 53 skilled nursing facilities(SNFs) had committed FCA violations resulting in more than $115 million in damages. The FCA violations resulted from the submission of false claims to Medicare and Medicaid stemming from the inflation and upcoding of Resource Utility Group (RUG) levels for patients and false certifications that the SNFs had created timely and adequate patient care plans.
The jury’s verdict represented only actual damages. On March 1, 2017, the district court assessed a statutory penalty of $5,500 per claim to 446 false claims and trebled the jury’s damages number, the result being a staggering judgment of almost $348 million. This dwarfs even the largest of the long-term care settlements that have preceded it.
A number of recent FCA decisions have grappled with the question of objective falsity, particularly in the context of FCA claims where the alleged falsity is premised on a lack of medical necessity in connection with the medical services provided. The most recent in this line of cases considered whether a relator alleging nothing more than a difference of medical opinion regarding medical necessity of a particular cardiac procedure failed to plead objective falsity as required to state an FCA claim as a matter of law.
In U.S. ex rel. Polukoff v. St. Mark’s Hospital, 2017 WL 237615 (D. Utah Jan. 19, 2017), the relator alleged that a cardiologist and two Utah hospitals fraudulently billed the government for medically unnecessary cardiac procedures involving the surgical closure of a patent foramen ovale (PFO), which is a “a small opening in the wall separating the two upper chambers of the heart” that exists in about 25% of the population and is typically asymptomatic. Adults with a PFO have an increased risk of suffering a stroke; although, according to the district court, “[o]pinions regarding the use of a PFO closure to prevent strokes have varied over the past decade.”
In recent years, civil enforcement efforts involving the FCA have grown significantly. Today, the FCA impacts a vast array of businesses, as it is commonly used to redress false claims for government funds involving everything from government contracts to Medicare and Medicaid to federally insured mortgages. The versatility and reach of the FCA has enabled DOJ to use this powerful enforcement tool to recover more than $20 billion during the last five years alone.
A review of several recent FCA settlements indicates that the DOJ continues to actively pursue FCA claims for a wide range of conduct and in a wide variety of industries.
On September 1, 2016, the U.S. Court of Appeals for the Seventh Circuit reversed the dismissal of an FCA lawsuit by the U.S. District Court for the Eastern District of Wisconsin, and in doing so, evaluated the particularity required to survive a motion to dismiss under Rule 9(b) as it relates to both a relator’s obligation to plead specific claims and the specifics of the underlying fraudulent conduct at issue.
There are a number of key issues that will drive the government’s enforcement efforts in the coming year and that will have a significant impact on how healthcare fraud matters are pursued by relators asserting FCA claims and are defended on behalf of healthcare providers. In the coming weeks, we will examine these issues in greater depth and why healthcare providers should keep a close eye on these issues. This week, we examine the government’s continued enforcement focus on long-term care providers.
The previous year saw the continued trend of an increasing number of FCA cases based on the theory that long-term care services (e.g., skilled nursing, home health, or hospice) provided to patients were medically unnecessary, and therefore, the healthcare provider submitted false claims in connection with those services. See, e.g., U.S. ex rel. Hayward v. SavaSeniorCare, LLC, No. 3:11-cv-0821 (M.D. Tenn.), United States’ Consolidated Complaint in Intervention (Oct. 26, 2015); U.S. ex rel. HCR ManorCare, Inc., No. 1:09-cv-00013 (E.D. Va.), United States’ Consolidated Complaint in Intervention (April 10, 2015).
DOJ recently reached settlements in connection with three long running enforcement efforts, amassing more than $1 billion in settlement funds. These settlements reflect the continued expansion of aggressive government enforcement in the healthcare industry. Since January 2009, DOJ claims recovery of more than $16.2 billion in healthcare-related FCA cases alone.
Swiss pharmaceutical company Novartis AG agreed to pay $390 million to settle allegations that it provided unlawful rebates to specialty pharmacies to boost prescription refills for Novartis products. While Novartis did not admit that these rebates constituted illegal kickbacks, it did acknowledge providing rebates to three specialty pharmacies to incentivize an increase of prescription refills. This settlement comes at the conclusion of Novartis’ five-year CIA resulting from a settlement with DOJ in 2010. As part of its latest settlement, Novartis has agreed to extend its CIA for an additional five year period. Additionally, Novartis has agreed to amend its CIA to include obligations covering the company’s interactions with specialty pharmacies and to provide an annual report to DOJ detailing Novartis’ compliance with the CIA.
On September 29, 2015, the Fourth Circuit granted a petition for interlocutory appeal that may result in the first significant appellate decision to determine whether an FCA plaintiff may rely on statistical sampling to prove liability or damages.
In U.S. ex rel. Michaels v. Agape Senior Community, Inc., relators asserted that a nursing home operator violated the FCA by submitting false claims with respect to hospice and other nursing home-related services. While not in complete agreement, the parties both asserted that the action, in which DOJ declined intervention, involved more than 10,000 patients and more than 50,000 claims. The district court concluded that relators would be required to prove the falsity of each and every claim based upon evidence relating to each particular claim.
On March 31, 2015, in United States v. Robinson, the U.S. District Court for the Eastern District of Kentucky issued the latest opinion approving the use of statistical sampling by the government and relators to establish FCA liability. In Robinson, the government has asserted that an optometrist provided medically unnecessary optometric services to nursing home residents over a five-year period and subsequently billed Medicare for these services. As support for its medical necessity argument, the government submitted an expert witness opinion based on an examination of a sample of 30 of the 25,779 claims at issue.
In moving for summary judgment, the defendant argued in part that the government should not be permitted to utilize statistical sampling to extrapolate FCA liability and damages to the 25,779 claims at issue. The government contended that requiring a claim-by-claim review in FCA cases involving this magnitude of claims would enable many defendants to evade prosecution and that other courts have found statistical sampling appropriate in establishing FCA liability in similar cases.