In recent years, healthcare providers have increasingly faced civil and criminal enforcement actions premised on the allegation that services billed to government healthcare programs were not medically necessary. As a result, those claims allegedly have constituted fraud in violation of the civil False Claims Act (FCA) and/or various criminal statutes.

These actions – whether brought by the government in civil or criminal proceedings or qui tam relators in civil FCA cases – pose significant issues for providers. Often, disputing clinical judgments related to care or services provided many years in the past can be particularly challenging when efforts are made by the government or relators to use statistical sampling to establish civil liability and/or damages across a vast universe of claims. Given the risks associated with these cases, it is not surprising that there have been a number of high-dollar civil settlements involving medical necessity allegations against providers, including hospitals, physicians and providers of hospice, home health and therapy services. In criminal cases, the government likewise has secured a number of high-profile convictions and guilty pleas in cases challenging billing associated with allegedly unnecessary medical procedures.

In the face of such allegations, providers have made considerable headway in challenging the underlying fraud theory by arguing that claims for reimbursement for medical procedures or services cannot be false or fraudulent if the theory of wrongdoing is based on nothing more than a difference of opinion as to the propriety of the clinical judgment exercised by the provider. In a number of recent opinions, district courts have been receptive to the argument that such fraud claims should be dismissed, particularly where there is no evidence or factual allegations of conduct that could be characterized as resulting in objectively false claims. Two recent appellate decisions, however – one in a criminal action and the other in a civil FCA action – have blunted that argument and, in the process, potentially reinvigorated enforcement actions based on a theory of liability that had appeared to be losing steam.

United States v. Paulus

In United States v. Paulus, 894 F.3d 267 (6th Cir. 2018), the Sixth Circuit reversed the district court’s decision setting aside a guilty verdict against a cardiologist, who was charged with committing healthcare fraud and making false statements by exaggerating the extent of artery blockages so that he could perform and bill for unnecessary procedures.

Before the district court, both the government and the cardiologist agreed that interpreting angiograms amounted to a subjective exercise. The government’s proof showed that cardiologists assessing the degree of stenosis in a given angiogram can vary by up to 20%. The government offered proof, however, that the cardiologist at issue had performed far more angiograms than his colleagues, billed Medicare more for these procedures than anyone else in the country, and routinely diagnosed his patients with more stenosis or blockage than their angiograms showed to exist. In his defense, the cardiologist put on evidence of significantly higher variations in assessing the degree of stenosis and argued that he could not have been committing fraud when exercising his judgment in interpreting the amount of stenosis shown by angiograms given the inherent subjectivity at play.

Following the jury’s guilty verdict, the district court set aside that verdict and entered a judgment of acquittal because the district court determined that the government had failed to prove fraudulent intent or false statements on the part of cardiologist. The district court explained that the degree of stenosis “is a subjective medical opinion, incapable of confirmation or contradiction.” According to the district court, evidence at trial showed that interpreting angiograms is a difficult exercise and that cardiologists frequently disagree about the degree of blockage shown. Because the interpretations could not be “subject to proof or disproof,” the district court concluded that they could not be false or fraudulent.

The Sixth Circuit reversed, holding “[t]he degree of stenosis is a fact capable of proof or disproof. A doctor who deliberately inflates the blockage he sees on an angiogram has told a lie; if he does so to bill a more expensive procedure, then he has also committed fraud.” Whether this had occurred with respect to the cardiologist at issue was a question reserved for the jury.

The Sixth Circuit noted that opinions – such as those held by a provider performing allegedly medically unnecessary procedures – may trigger liability for fraud when they are not honestly held or when the speaker knows facts that are fundamentally incompatible with his or her opinions. The Sixth Circuit explained that while a doctor could never be faulted for misreading an angiogram, the government claimed something very different in presenting its case; namely, that the cardiologist “repeatedly and systematically saw one thing on the angiogram and consciously wrote down another, and then used that misinformation to perform and bill unnecessary procedures.” Though the cardiologist argued that he acted in good faith and that the government was unfairly second-guessing his medical judgment, the jury reached the opposite conclusion, and there was evidentiary support for that result. The Sixth Circuit also pointed to a plethora of evidence of fraudulent intent – the cardiologist’s huge billing numbers, enormous salary, and testimony from injured patients, among other things – as supporting the jury’s conclusion that the cardiologist was fraudulently over-diagnosing his patients and overbilling for unnecessary procedures.

U.S. ex rel. Polukoff v. St. Mark’s Hospital

While the Sixth Circuit’s opinion in Paulus tackled these issues in the context of a criminal prosecution, there is no reason to expect that its reasoning would not apply equally in FCA cases challenging medical necessity. In fact, the Tenth Circuit adopted nearly identical reasoning in an opinion issued shortly after Paulus. In a previous post [LINK], we discussed U.S. ex rel. Polukoff v. St. Mark’s Hospital, 2017 WL 237615 (D. Utah Jan. 19, 2017), where a cardiologist was accused of fraudulently billing Medicare for allegedly performing medically unnecessary procedures. The district court dismissed the action, concluding that subjective medical opinions, such as those concerning the reasonableness and necessity of the procedures at issue, could not be objectively false for purposes of pleading falsity in connection with FCA claims. (Notably, the district court in Paulus cited the district court’s opinion in Polukoff, among other similar cases, in support of its opinion setting aside the jury’s guilty verdict.)

The Tenth Circuit reversed, holding that it is possible for a medical judgment to be false or fraudulent under the FCA and explaining “that a doctor’s certification for the government that a procedure is ‘reasonable and necessary’ is ‘false’ under the FCA if the procedure was not reasonable and necessary under the government’s definition of the phrase.” Noting the potentially far-reaching ramifications of such a broad pronouncement, the Tenth Circuit cited the Supreme Court’s opinion in Escobar for the notion that the FCA’s rigorous materiality and scienter requirements should abate concerns about open-ended liability.

According to the Tenth Circuit, because the relator alleged that the cardiologist performed unnecessary procedures and knowingly submitted false certifications to the government that such procedures were necessary, all to obtain federal reimbursement, the relator pleaded sufficient facts to state an FCA claim and survive a motion to dismiss. Similarly, the relator adequately stated false certification claims against two hospitals where the procedures at issue were performed, since there were allegations that both entities submitted claims for hospital charges certified as complying with Medicare requirements.

Medical Necessity Cases – Beyond Paulus and Polukoff

Following the district courts’ respective opinions in Paulus and Polukoff, it certainly appeared that the tide might be shifting in favor of providers defending medical necessity cases, particularly given the inherent subjectivity in clinical decisions about the amounts and types of treatment and services patients might need. The appellate courts’ reversals of those opinions, however, appear to have stemmed that tide for the time being. Appeals still pending in a number of cases – including cases such as U.S. ex rel. Paradies v. Aseracare, Inc., No. 16-13004 (11th Circuit)  (appeal pending of entry of summary judgment for provider in case challenging medical necessity of hospice care following trial on question of falsity), and U.S. ex rel. Ruckh v. CMCII, LLC, No. 18-10500 (11th Circuit) (appeal pending of judgment setting aside jury verdict of $347 million against nursing home chain for failure to establish materiality under Escboar) – ultimately may dictate whether civil and criminal healthcare fraud cases challenging the medical necessity of procedures billed to federal healthcare programs truly stand on firmer ground or are merely momentarily shifting sands.

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