A unanimous panel of the U.S. Court of Appeals for the Eleventh Circuit (Eleventh Circuit) recently affirmed two grants of summary judgment in favor of defendant Lincare, Inc. d/b/a Diabetic Experts of America (collectively, “Diabetic Experts”) by the U.S. District Court for the Southern District of Florida (District Court). Diabetic Experts provided diabetic supplies to Medicare patients, some of whom had previously ordered medical supplies from Diabetic Experts for chronic obstructive pulmonary disease (COPD). To promote sales, staff at Diabetic Experts would place calls to individuals who had previously ordered COPD-related equipment regarding a need for diabetic supplies.
The relators in the action were two former salespersons of Diabetic Experts, who alleged that Diabetic Experts violated the FCA by submitting claims to Medicare that: (1) were submitted without adequate authorization for the Medicare beneficiaries; and (2) resulted from improper, unsolicited telemarketing calls to Medicare beneficiaries in violation of the governing Medicare regulations. To plead their case, the relators initially appended six examples of claims submitted by Diabetic Experts to Medicare to the complaint, which they purported were sufficient to establish FCA liability.
Diabetic Experts moved for summary judgment on the ground that the Medicare claims complied with applicable Medicare regulations, and therefore did not give rise to FCA liability. The District Court granted that motion, primarily resting its decision on the ground that “[a] reasonable, but erroneous interpretation of a complex statutory or regulatory scheme should not, without facts, demonstrat[e] reckless disregard” sufficient to establish the scienter requirement for an FCA claim. In its lengthy memorandum opinion, the District Court “recognized the possibility that its order may not be dispositive to the entire case,” and therefore did not grant summary judgment in its entirety. Thereafter, the relators cited three additional examples of alleged Medicare claims submitted by Diabetic Experts.
Diabetic Experts again moved for summary judgment with respect to the relators’ newly-raised claims, and the District Court granted that motion. Notably, the District Court held that the three additional examples proffered by the relators “fell within the exception to the anti-telemarketing prescription that applies where the beneficiary gives written permission to the Medicare supplier.” See 42 C.F.R. § 424.57(c)(11)(i) (stating that a supplier must “agree not to contact a beneficiary by telephone when supplying a Medicare-covered item” unless “[t]he individual has given written permission to the supplier to contact them by telephone concerning the furnishing of a Medicare-covered item that is to be rented or purchased.”) The relators appealed, and the Eleventh Circuit’s analysis focused on the scienter requirement of the FCA, requiring a relator to establish that a defendant acted “knowingly” – either by demonstrating “actual knowledge,” “deliberate ignorance,” or “reckless disregard” on the part of the defendant. Notably, neither “innocent mistakes” nor “simple negligence” will suffice.
The Eleventh Circuit, with respect to the District Court’s first summary judgment order, flatly rejected the basis for the District Court’s decision, stating that “a defendant’s reasonable interpretation of any ambiguity inherent in the regulation belies the scienter necessary to establish a claim of fraud under the FCA.” Rather, according to the Eleventh Circuit, the District Court “must determine whether the defendant actually knew or should have known that its conduct violated a regulation in light of any ambiguity at the time of the alleged violation.” As a matter of policy, the Eleventh Circuit further explained that, under the District Court’s interpretation of the FCA, “a defendant could avoid liability by relying on a ‘reasonable’ interpretation of an ambiguous regulation manufactured post hoc, despite having actual knowledge of a different authoritative interpretation.”
Notwithstanding its criticism of the District Court’s reasoning, the Eleventh Circuit affirmed the District Court’s rulings under “the correct standard.” With respect to the evidence proffered by the relators – one email addressing “an entirely different compliance issue” and another “postdat[ing] the relevant transactions by several months” – the Eleventh Circuit agreed with the District Court that no reasonable jury could conclude that Diabetic Experts knowingly submitted false claims. Nor did the Eleventh Circuit find any evidence that Diabetic Experts violated 42 C.F.R. § 424.57(c) under a plain reading of the regulation, which permits a supplier to contact a Medicare beneficiary via telephone when the beneficiary: (1) provides written permission for a supplier to contact them by telephone concerning the furnishing of a Medicare-covered item; or (2) receives at least one covered item from the supplier during the 15-month period preceding the date of contact. Notably, the District Court and the Sixth Circuit agreed that all of the relators’ examples of purported FCA violations fell squarely within those two exceptions.
The Eleventh Circuit, based on the above analysis, found nothing to suggest that Diabetic Experts or its “employees believed or had reason to believe they were violating Medicare regulations.” At the conclusion of the memorandum opinion, however, the Eleventh Circuit cautioned district courts against granting summary judgment in favor of a defendant solely on the ground that “a reasonable interpretation of an ambiguous regulation . . . would have permitted [a defendant’s] conduct.” Moving forward in light of this decision, healthcare companies are advised to focus on the lack of evidence associated with a relator’s claims in order to persuade the district court that a grant for summary judgment in favor of the defendant is warranted.