By Jeffrey H. Brochin, J.D.
Neither Recovery Audit Contractor (RAC) nor HHS Office of Inspector General (OIG) audits raised the scienter of fraud in a way that was similar to what a relator alleged in her False Claims Act (FCA) complaint, for purposes of the FCA’s public disclosure bar.
A federal district court in Illinois has ruled that the public disclosure bar did not apply where the disclosures made to the government in the course of a set of audits performed by a Recovery Audit Contractor (RAC) under contract with CMS and the HHS Office of the Inspector General (OIG) were not similar to those made by the relator, and they covered different time periods. Although disclosures made to the government are deemed to be public disclosures, the government audits did not contain facts establishing the essential elements of fraud (U.S. ex rel. Grazioso v. R1 RCM, Inc. February 22, 2019, Dow, R.).
Fees for inpatient recommendations. Between January 2010 and October 2013, the relator worked in the emergency department of a hospital in Washington, D.C., and she alleged that the operators of the hospital, Washington Hospital Center Corporation (WHC), and, MedStar Health Inc. (MedStar) had arranged with R1 RCM, Inc. (R1) to review WHC’s physicians’ decisions concerning the medical necessity of admitting patients for inpatient stays. Her FCA complaint alleged that since 2007, R1 entered into uniform "fees-for recommendations ‘concurrent review’ contracts" with over 250 hospitals in more than 30 states. Pursuant to those contracts, R1 allegedly used off-site reviewers to generate written "recommendations" purporting to justify the inpatient admission of federally-insured patients as to whom the hospitals’ own emergency departments and other staff physicians had previously determined did not meet the medical necessity requirements for an inpatient hospital stay. MedStar moved to dismiss for lack of jurisdiction or, in the alternative, for summary judgment, citing the public disclosure bar, however, for the reasons stated below, the court denied the motion.
Government audits as disclosures. It was not disputed that prior to the relator filing suit in February 2013, certain public disclosures were made concerning WHC’s alleged misclassification of inpatients. The disclosures included a set of audits performed by an RAC and the OIG. The RAC audited medical records associated with more than 900 inpatient claims submitted by WHC to Medicare in order to audit whether WHC billed Medicare for inpatients who should have been placed in observation status and billed on an outpatient basis. By February 2013, RAC had reviewed 870 WHC inpatient claims and initially found 59.4 percent did not satisfy inpatient medical necessity criteria and should have been billed on an outpatient basis. MedStar publicly disclosed the RAC audits in its financial statements for fiscal year 2012.
The court noted that the Seventh Circuit has reasoned that since the purpose of a public disclosure is to alert the responsible authority that fraud may be afoot, the government’s possession of the information exposing a fraud is alone sufficient to trigger the public-disclosure bar, and, the Seventh Circuit has repeatedly construed the public disclosure bar as a jurisdictional one.
Negligently versus knowingly. The court cited precedent under which the DOJ’s threatening legal action has been held to be an explicit allegation of fraud to which the public disclosure bar undoubtedly applies. However, in the instant case, there were no allegations that any FCA claims against MedStar were ever contemplated, much less threatened or settled. Instead, the OIG’s final report showed that WHS did not provide a cause for its billing errors, but indicated that it identified an opportunity for education and improvement.
In keeping with the FCA’s scienter requirement, the public disclosure bar applies only in instances where one can infer, as a direct and logical consequence of the disclosed information, that the defendant knowingly—as opposed to negligently—submitted a false set of facts to the government. Here, the court was not persuaded that evidence that WHS made even a large number of incorrect assessments of the medical necessity for particular inpatient admissions was enough to support an inference that MedStar knowingly submitted false facts to the government. Accordingly, although the RAC and OIG audit findings constituted public disclosures, they were not of a nature to trigger the public disclosure bar, and the court therefore denied MedStar’s motion.
The case is No.: 1:13-cv-01194.
Attorneys: J. Brad Pigott (Pigott Reeves Johnson, P.A.) for Cherry Graziosi. Jesse A. Witten (Drinker Biddle & Reath LLP) for MedStar Health, Inc. Terra Reynolds (Latham & Watkins LLP) for R1 RCM, Inc.
Companies: MedStar Health, Inc.; R1 RCM, Inc.
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