By Jeffrey H. Brochin, J.D.
Despite falsification of records, a hospital’s noncompliance with regulations was deemed to be minor or insubstantial, and the FCA claim therefore lacked the requisite element of materiality.
A federal appeals court has affirmed the district court’s granting of summary judgment to Lawrence Memorial Hospital (hospital) thereby dismissing the False Claims Act (FCA) complaint brought by the relator. Although the allegations of falsification of patient arrival times were found to be true, the fact that CMS’s investigator closed the investigation into the charges, and that CMS continued to pay the hospital’s Medicare bills, indicated that the noncompliance did not amount to materiality as required by the FCA statute (U.S. ex rel. Janssen v. Lawrence Memorial Hospital, February 7, 2020, Tymkovich, T.).
IQR, OQR and HVBP programs. The relator alleged that the hospital engaged in scheme to fraudulently receive money from Medicare reimbursement, by falsifying of patients’ arrival times in order to increase Medicare reimbursement under certain pay-for-reporting and pay-for-performance programs the U.S. government uses to study and improve hospitals’ quality of care. The reporting and performance programs at issue were the Inpatient Quality Reporting (IQR) program, the Outpatient Quality Reporting (OQR) program, and the Hospital Value Based Purchasing (HVBP) program. To varying degrees, each of the programs rely on measures that incorporate patients’ arrival times, which are considered by CMS because it helps the government analyze the timeliness of the care patients receive.
Finding of falsifications. The appeals court noted that the district court had in fact made a finding that numerous pieces of evidence in the record supported the contention that the hospital knowingly falsified patient records with the intent of causing abstracted "arrival times" to be later than they would have been absent the falsification. Included in that evidence was the testimony of a former registration clerk in the emergency department that she was trained and instructed to delay registration of patients until after the administration of electrocardiograms so that the arrival time on the patient’s record was synonymous with their EKG time. However, notwithstanding that finding, the district court also found that the relator failed to raise a genuine issue of material fact with respect to the materiality element of the alleged falsehoods.
When FCA liability attaches. The court noted that FCA liability attaches only where the alleged misrepresentations are material to the government’s decision to pay on a reimbursement claim. Assessing materiality requires analysis of the effect on the likely or actual behavior of the recipient of the alleged misrepresentation which in the instant case was CMS. The relator argued that materiality was subject to a much broader interpretation and that a false statement could be material even if the government’s decision to pay or not pay on the claim did not hinge on that statement alone.
Relevant factors for materiality. However, the appeals court rejected that interpretation, and ruled that in cases where the allegations base FCA liability on noncompliance with regulatory or contractual provisions, the relevant factors include, but are not limited to: (1) whether the government consistently refused to pay similar claims based on noncompliance with the provision at issue, or whether the government continued to pay claims despite knowledge of the noncompliance; (2) whether the noncompliance went to the "very essence of the bargain" or was only "minor or insubstantial;" and (3) whether the government expressly identified a provision as a condition of payment.
Finding of immateriality. The court referenced the government’s administrative scheme for ensuring that hospitals remain in compliance with regulations and for bringing them back into compliance when they fall short of what the Medicare regulations and statutes require. Although that scheme envisions administrative procedures designed to address noncompliance with requirements of the IQR and OQR programs, including inaccurate reporting, substituting FCA liability for every failure to achieve perfect compliance with Medicare regulations would not only undermine the government’s administrative program, but would render the FCA a general antifraud statute and tool for policing minor regulatory compliance issues, a stance that is contrary to the Supreme Court’s precedence in FCA cases.
Accordingly, the court looked not to whether the relator demonstrated some inaccuracies in the hospital’s reporting, but to whether she demonstrated sufficiently widespread deficiencies that would likely affect the government’s payment decision. The court concluded that her pleadings did not meet that threshold: CMS’s investigators reviewed the matter of falsification of records, but decided to close the investigation, and, in light of the, at most, minimal nature of the inaccuracies in the hospital’s reporting under the IQR, OQR, and HVBP programs, the court found that the relator’s allegations did not go to the essence of the bargain between the hospital and CMS and were therefore immaterial.
For the foregoing reasons, the appeals court affirmed the granting of summary judgment to the hospital dismissing the FCA complaint.
The case is No. 19-3011.
Attorneys: Sarah Alderks Brown (Brown & Curry LLC) for Stacey L. Janssen. Mark A. Cole (Spencer Fane LLP) for Lawrence Memorial Hospital.
Companies: Lawrence Memorial Hospital
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