Health Law Daily Fight to receive rate reduction exclusion no basis for false claims liability
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Tuesday, August 9, 2016

Fight to receive rate reduction exclusion no basis for false claims liability

By Kayla R. Bryant, J.D.

A hospital is not liable under the False Claims Act (FCA) (31 U.S.C. §3729 et seq.) when it reasonably interprets an ambiguous statute to mean that it qualifies for an exemption from a Medicaid payment reduction. The U.S. Court of Appeals for the Eighth Circuit affirmed the dismissal of an FCA case, finding that the University of Minnesota Medical Center (UMMC) did not submit false claims to the government during its attempts to have a children’s unit established as a children’s hospital under Minnesota law, nor during the period where it was granted the exemption before it was revoked (Olson v. Fairview Health Services of Minnesota, August 8, 2016, Smith, L.).

Rate changes. The qui tam case was filed by a relator who served as the Minnesota Department of Human Services (DHS) manager of payment policy and rates management. In an effort to decrease government expenditures, Minnesota Statute section 256.969 was amended to decrease Medicaid reimbursement rates by 10 percent, with an exclusion for children’s hospitals. UMMC did not originally qualify for the exemption, but argued to DHS that it met the definition of a children’s hospital and should qualify. Although it was granted the exemption retroactively and reimbursed, an audit later determined that UMMC did not qualify. The relator claimed that UMMC violated the FCA through its request and demands presented to DHS and claims filed after it obtained the exemption, but the district court found that the complaint did not specifically identify false claims or misrepresentations (see Relators receipt of a death threat foreshadowed the demise of case, March 18, 2015).

Statutory interpretation. Minnesota law does not define a children’s hospital, but the 10 percent reduction statute states the "children’s hospitals whose inpatients are predominantly under 18 years of age…are excluded from this paragraph." UMMC repeatedly asked if its children’s unit was exempt from the rate reduction, but the relator stated that the children’s unit operated within the hospital and did not have its own hospital license, so it could not be considered a children’s hospital.

The relator stated that UMMC made a fraudulent claim that its unit was a children’s hospital, but the appeals court found that the matter was not so simple due to the lack of definition. It also noted that a federal designation of a children’s hospital under 42 C.F.R. section 412.23(d) does not require a distinct license, and that this regulation actually supported UMMC’s argument. The court found UMMC’s inquiry into the children’s unit’s classification to be reasonable. It also noted that UMMC’s receipt of an additional payment from DHS after the exemption was applied retroactively did not establish any liability, because UMMC was under no obligation to refuse or return that money. The dismissal was affirmed.

The case is No. 15-1780.

Attorneys: Brian E. Wojtalewicz (Wojtalewicz Law Firm, Ltd.) for Paul Allen Olson. Kristin Berger Parker (Leonard Street LLP) for Fairview Health Services of Minnesota, and its wholly owned subsidiary or affiliate University of Minnesota Medical Center, Fairview, a/k/a Fairview University Medical Center.

Companies: Fairview Health Services of Minnesota; University of Minnesota Medical Center, Fairview; Fairview University Medical Center

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