By Robert B. Barnett Jr., J.D.
A diabetic-testing supplier did not violate the False Claims Act when it submitted Medicare claims that were based on previously signed authorizations rather than authorizations for the current services, because the relators failed to produce sufficient evidence that the supplier "knowingly submitted false claims," the Eleventh Circuit ruled. In affirming the Florida district court’s grant of summary judgment in favor of the supplier, the appellate court nevertheless rejected the trial court’s analysis of scienter, which determined that scienter can be precluded by a defendant’s identification of a reasonable interpretation of an ambiguous regulation that would have permitted its conduct. The proper analysis of scienter, the Eleventh Circuit said, is whether "the defendant knew or should have known that its conduct violated a regulation in light of any ambiguity at the time of the alleged violation" (U.S. ex rel. Phalp v. Lincare Holdings, Inc., May 26, 2017, Cohen, M.).
Two former salespersons for Lincare Holdings, Inc., a supplier of services for patients suffering from chronic obstructive pulmonary disease, filed a qui tam action in Florida federal district court under the False Claims Act, alleging that their former employer committed Medicare fraud when it submitted false claims on behalf of Medicare patients that received its services. According to the complaint, Lincare telemarketed diabetic-testing supplies to patients to whom it had previously provided Medicare-covered items related to chronic obstructive pulmonary disease. The relators alleged that Lincare violated the False Claims Act by (1) submitting Medicare claims based on generic authorizations that the patients signed during the earlier treatment rather than on authorizations that should have been obtained when the new services were provided; and (2) making telemarketing calls in violation of Medicare’s unsolicited telephone contact rules. Lincare filed a motion for summary judgment, which the court granted, dismissing all six examples of false claims that the relators contended violated the law. The court, however, permitted the relators to amend their complaint, which they did, alleging three new examples of unlawful telemarketing acts. The court then granted Lincare’s renewed motion for summary judgment on the amended complaint. The relators appealed the decisions to the Eleventh Circuit.
Medicare fraud. The relators were proceeding under a "false certification theory," in which they contended that Lincare falsely certified that it had complied with Medicare statutes and regulations in filing its claims. Under this theory, the fact that a defendant may have violated a Medicare law or regulation is not enough; the plaintiff must also establish that the defendant knew that it was certifying a false claim.
Scienter. In granting summary judgment for Lincare, the trial court concluded that Lincare lacked the required scienter because (1) the Medicare statute was ambiguous as to whether it required a new certification or whether an earlier signed authorization was sufficient and (2) Lincare’s interpretation of that ambiguity (that the older certification was sufficient) was reasonable. The Eleventh Circuit, however, was troubled that this interpretation would allow a defendant to avoid liability simply by generating an after-the-fact justification of its interpretation, even where it had actual knowledge. While ambiguity may be relevant, the Eleventh Circuit said, the correct standard is whether the defendant actually knew or should have known that its conduct violated a law or regulation in light of any ambiguity when the violation occurred. Applying this standard, the appellate court found that Lincare lacked the required scienter. The only evidence that the relators offered to establish scienter were two emails, one that dealt with a different compliance issue and one that dealt with this compliance issue but was written several months after these transactions, neither of which was sufficient to establish the required scienter.
Telemarketing. Although the Medicare regulations prohibit contacting a Medicare beneficiary by phone, they contain three exceptions. One exception is where the individual has given written permission to be contacted by phone (42 C.F.R. sec. 424.57(c)(11)(i)), while another exception permits contact where a Medicare-furnished item has already been provided to the beneficiary within the previous 15 months (42 C.F.R. sec. 424.57(c)(11)(iii)). The contacts made to the beneficiaries in the original complaint fell within the exception allowing contact for supplies provided within the previous 15 months. The three contacts made to the beneficiaries in the amended complaint were covered under the exception for prior written permission. The appellate court ruled that the district court had correctly determined that the recipients of those calls had given prior permission.
As a result, the Eleventh Circuit affirmed the district court’s grant of summary judgment for Lincare, with modification to the proper test for scienter.
The case is No. 16-10532.
Attorneys: Daniel W. Allen (Bautista LeRoy LLC) for Gerry Phalp. A. Brian Albritton (Phelps Dunbar, LLP), Jessica Kirkwood Alley (Freeborn & Peters LLP), and Steven L. Brannock (Brannock & Humphries, PA) for Lincare, Inc. d/b/a Diabetic Experts of America and Lincare Holdings Inc.
Companies: United States of America; Lincare, Inc. d/b/a Diabetic Experts of America; Lincare Holdings Inc.
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