As highlighted in a previous post, the $348 million judgment against the owners and operators of skilled nursing facilities in U.S. ex rel. Ruckh v. Genoa Healthcare, LLC, made serious waves in the FCA world. The judgment, which included a trebling of the jury’s damages verdict and fines of $5,500 for each of over 400 claims, far surpassed any settlement or judgment previously entered in a long-term care or skilled nursing case. However, on January 11, 2018, nearly a year after entering the landmark judgment, the Middle District of Florida overturned it. In doing so, the court reiterated some of the more stringent requirements a relator must meet in order to prevail on an FCA claim.
Care Plans and Paperwork Errors Led to Non-Compliance
In overturning its prior judgment, the court noted that the relator’s claim was not that the defendants billed the government for unnecessary, inadequate, or incompetent service, but rather that the failure to maintain comprehensive care plans and other paperwork defects rendered defendants’ Medicare claims fraudulent. Clearly unimpressed with the notion that such defects could support FCA liability, the court focused on the following three critical FCA elements and found the trial proof lacking as to each:
Escobar Informed Decision in Ruckh
Engaging in a lengthy discussion of Escobar, the court reemphasized the “rigorous and demanding” requirements for materiality and scienter called for by the Supreme Court. With respect to materiality, the court noted that the relator failed to offer any proof that if the government had known of the disputed practices, it would have viewed them as material and refused to pay the defendants as a result. In fact, the court pointed out that the government was aware of defendants’ practices—and had been since at least the inception of its investigation—yet never stopped paying defendants for the services provided. In this vein, the court made the following particularly noteworthy observation:
Every day that the government continues to pay for a good or service, notwithstanding some known or unknown non-compliance and, consequently, the greater the proposed repayment times three in the event of a successful False Claims Act action, the greater the practical impediment to proof of materiality.
Similarly problematic to the court was the total dearth of proof of the requisite level of knowledge on the part of defendants to sustain the FCA judgment. In that respect, the court found no evidence to support the conclusion that the defendants submitted false claims for payment knowing the government regarded the documentation issues as material to its payment decisions. As Escobar made clear, not only is proof of materiality required, but also proof that the defendant knew the government would have viewed a particular action, statement, or omission as material. Both were lacking here.
Relator Failed to Provide Evidence that Corporate Involvement Led to Improper Care
Finally, the court pointed to a fatal problem with the verdict against the management entity to the various skilled nursing facilities. While the relator complained about a corporate scheme to inflate Resource Utility Group (RUG) levels to meet budgets and increase corporate profits, the court noted that the relator failed to connect any testimony about RUG budgets or corporate profit expectations to a claim actually submitted to the government. In other words, to sustain FCA liability, this type of corporate involvement must actually cause false claims to be submitted—there must be a causal chain showing the corporate directive, pressure, or expectation actually led an employee to deliver improper care, which then formed the basis of a false claim. No such evidence was adduced at trial.
While the judgment in Ruckh understandably caused some concern within the healthcare industry, the court in overturning the judgment has perhaps signaled a return to reason in FCA cases. The court clearly took a very dim view of the relator’s proof and theories, and its order strongly reinforces Escobar’s primary principles. Escobar, the court noted, precludes an FCA claim based on garden-variety breach of contract or regulatory violations, and it “rejects a system of government traps, zaps, and zingers” that permits the government to retain the benefit of services provided, and recover three times the price it paid, because of immaterial contractual or regulatory non-compliance. According to the Ruckh court, the documentation issues that formed the basis for the jury’s verdict were precisely that kind of immaterial non-compliance, and the result was a judgment effectuating “an unwarranted, unjustified, unconscionable, and probably unconstitutional forfeiture.” The case is now pending in the Eleventh Circuit, and there is no doubt it will be closely watched by FCA practitioners and healthcare providers alike.
For more information on this lawsuit and the risks of False Claims Act litigation, contact Jeff Gibson at firstname.lastname@example.org.