Kaiser Authors Article for Law360 on False Claims Act

False Claims Act, Medical Necessity and Government Regulation of Medicine

In recent years, much attention has been paid to what makes a claim “false” under the False Claims Act (“FCA”) when the underlying misconduct is based on the alleged lack of medical necessity for the services provided.  Bearing on this issue are Court of Appeals decisions from the Third, Sixth, Ninth, Tenth and Eleventh Circuits that have considered whether and under what circumstances a difference in medical opinion can suffice to prove “falsity” and “fraud” under federal law. Within just the last couple of months, the Thirdⁱ and Ninthⁱⁱ Circuits issued rulings concluding that a subjective medical opinion can indeed be “false” and rejecting the view of the Eleventh Circuitⁱⁱⁱ that there must be proof of an “objective falsehood” to support liability under the FCA. The Sixth and Tenth Circuits similarly have held that medical opinions are not insulated from scrutiny and may not be relied upon to shield against civil^iv or criminal^v liability.  Complicating this analysis further is the statutory prohibition against governmental regulation of medical practice that is enshrined in the Medicare statute, which could reasonably be expected to mean that the government may not substitute its own view of medical necessity for the independent, good faith judgment of a licensed medical professional.^vi

The Tenth Circuit addressed this issue in United States ex rel. Polukoff v. St. Mark’s Hospital, 895 F.3d 730 (10th Cir. 2018).  In that case, the relator sued a cardiologist and two hospitals under the FCA, alleging that the cardiologist performed medically unnecessary heart surgeries but fraudulently certified otherwise to Medicare in order to obtain reimbursement.  The lower court had granted defendants’ motion to dismiss, concluding that the relator’s claims were not cognizable under the FCA because medical judgments were matters as to which reasonable minds could differ and thus could not be “false” and, hence, the cardiologist’s certification that the surgery was medically necessary could not be false since it constituted such a medical judgment.  The Tenth Circuit rejected this reasoning, ruling that the FCA should be read broadly to reach all types of fraud and that “it is possible for a medical judgment to be ‘false or fraudulent’ as proscribed by the FCA.”^vii

The Tenth Circuit noted that claims based on medical necessity were actionable under the FCA, and that couching a false statement as an opinion does not insulate it from FCA liability.  The court went on to hold that “a doctor’s certification to the government that a procedure is ‘reasonable and necessary’ is ‘false’ under the FCA if the procedure was not reasonable and necessary under the government’s definition of the phrase.”^viii In so ruling, the Tenth Circuit noted that the risk of open-ended liability that might otherwise result from its broad interpretation of “fraudulent” is “addressed through strict enforcement of the [FCA]’s materiality and scienter requirements.”^ix  In that regard, the court commented that the relator alleged that both the cardiologist and the hospitals had “knowingly” submitted claims for medically unnecessary services and that, in the case of the cardiologist, he had provided false diagnoses in order to obtain reimbursement that he knew would otherwise be unavailable under Medicare and Medicaid billing guidelines.

In United States v. Paulus, 894 F.3d 267 (6th Cir. 2018), the Sixth Circuit approached this issue, not under the FCA, but rather in the context of a criminal prosecution for health care fraud and false statements. In Paulus, a cardiologist was indicted for exaggerating the extent of arterial blockages as reflected in angiograms so that he could bill for medically unnecessary coronary stent procedures.  The trial court directed a judgment of acquittal and ordered a new trial after concluding that the degree of arterial blockage (i.e., stenosis) was a matter of subjective medical opinion and that, accordingly, the defendant’s angiogram interpretations “could be neither false nor fraudulent.”^x  The Sixth Circuit reversed, commenting:

The degree of stenosis is a fact capable of proof or disproof.  A doctor who deliberately inflates the blockage he sees on an angiogram has told a lie; if he does so to bill a more expensive procedure, then he has also committed fraud . . .

…

… opinions – when given honestly – are almost never false . . . .

But opinions are not, and have never been, completely insulated from scrutiny.  At the very least opinions may trigger liability for fraud when they are not honestly held by their maker, or when the speaker knows of facts that are fundamentally incompatible with his opinion. . .when the maker of an opinion does not believe what he or she is saying – in such a case, the speaker has falsely represented their own state of mind.

For this reason, we think it is clear that Paulus was convicted for misrepresenting facts, not giving opinions.  Paulus was charged with lying about the results of the angiograms he conducted and using those lies to bill the taxpayers for unnecessary stenting procedures.^xi

In a more recent decision, United States v. AseraCare, Inc., 938 F.3d 1278 (11th Circ. 2019), the Eleventh Circuit addressed this issue in the context of hospice fraud allegations brought under the FCA.  There, the relator alleged that AseraCare, a for-profit multi-state hospice chain, had submitted false claims to the Medicare Program for patients who did not qualify as terminally ill and thus were not entitled to the Medicare hospice benefit.

After the jury found for the government based on evidence that included dueling expert testimony concerning whether the patients at issue in the trial were terminally ill and thus eligible for the Medicare hospice benefit, the district court ordered a new trial, concluding that it had committed reversible error in its instructions to the jury by not explaining that (1) that the FCA’s falsity element requires proof of an objective falsehood; and (2) that a mere difference of opinion between physicians, without more, is not enough to show falsity.

The Eleventh Circuit agreed that the government must prove an “objective falsehood” and more than a “mere difference of reasonable opinion concerning the prognosis of a patient’s likely longevity.”^xii   On that basis, the Eleventh Circuit affirmed the lower court’s ruling granting a new trial with a revised jury instruction. The Eleventh Circuit also ruled, however, that the lower court had gone too far in sua sponte granting summary judgment to AseraCare, noting that an opinion regarding terminal illness can be deemed objectively false in various circumstances, such as when the certifying physician does not honestly hold such an opinion, or when a physician does not consider the underlying medical record at all in issuing an opinion, or when the physician knew or had reason to know the opinion was incorrect or when no reasonable physician would conclude that a patient had a terminal illness based on the underlying medical record.^xiii

Just this year, the Third and Ninth Circuits rejected the “objective falsity” requirement adopted by the 11th Circuit in Aseracare, concluding that falsity under the FCA is not limited to objective or factual falsity, but can also encompass subjective and legal falsity.

In United States ex rel. Druding v. Care Alternatives, 952 F.3d 89 (3d Cir. 2020), the 3rd Circuit held, in the hospice context, that for purposes of the FCA, “our cases instruct that FCA falsity simply asks whether the claim submitted to the government as reimbursable was in fact reimbursable, based on the conditions for payment set by the government.”^xiv  In other words, “falsity” under the FCA includes “circumstances where a claim for reimbursement is non-compliant with requirements under the statute and regulations.”^xv  The court concluded that the concept of “objective falsity” improperly conflates the FCA concepts of falsity and scienter, that subjective medical opinions may indeed be false under the FCA and that “[u]nder a legal falsity theory, a medical opinion that differs from the certifying physician’s opinion is therefore relevant evidence of . . . [the regulatory requirement relating to] whether there was documentation accompanying the certification that supported the medical prognosis.”^xvi  The Third Circuit thus ruled that “a difference of medical opinion is enough evidence to create a triable dispute of fact regarding FCA falsity,” although liability under the FCA would ultimately depend on whether the separate element of scienter can be satisfied.^xvii

The Ninth Circuit reached a similar conclusion in Winter ex rel. United States v. Gardens Regional Hospital, 953 F.3d 1108 (9th Cir. 2020), in which the court considered whether a medical opinion certifying the need for an inpatient hospitalization can be false under the FCA.  The court ruled in the affirmative, concluding that a medical opinion, like any other representation, could be false, and that “Defendants act with the required scienter if they know the treatment was not medically necessary, or act in deliberate ignorance or reckless disregard of whether the treatment was medically necessary.”^xviii  The court further rejected the requirement of “objective falsity,” commenting that “[u]nder the plain language of the statute, the FCA imposes liability for all ‘false or fraudulent claims’— it does not distinguish between ‘objective’ and ‘subjective’ falsity or carve out an exception for clinical judgments and opinions.”^xix  However, falsity does not automatically mean there is liability.  In this regard, the court was careful to explain that “falsity is a necessary, but not sufficient, requirement for FCA liability—after alleging a false statement, a plaintiff must still establish scienter.”^xx

While there is clearly daylight between the AseraCare decision and the others when it comes to the concept of “objective falsity” and whether an honestly held medical opinion can ever be deemed “false” under the FCA,  the decisions in all of the cases are similar insofar as they condition liability (civil or criminal) on more than a mere divergence of medical opinion, but rather require some level of scienter that transforms what would otherwise be a simple difference of opinion into a fraudulent act.

This reasoning would be consistent with the prohibition against government regulation of the practice of medicine “or the manner in which medical services are provided.”^xxi  One could argue that the statement by the Tenth Circuit in Polukoff that “a doctor’s certification to the government that a procedure is ‘reasonable and necessary’ is ‘false’ under the FCA if the procedure was not reasonable and necessary under the government’s definition of the phrase”^xxii violates this principle.  After all, if the government is prohibited from regulating the practice of medicine or dictating the manner in which medical services are provided, then how can a physician’s certification of medical necessity be “false” merely because the government has a different view?  The rest of the court’s analysis in Polukoff , however, suggests that the decision was primarily focused on the conditions for imposing liability under the FCA, beyond merely a finding of “falsity,” emphasizing the “knowing” submission of false claims and the defendant’s deliberate falsification of diagnoses to obtain reimbursement.

The lesson of these decisions is that a physician’s opinion concerning the medical necessity of an item or service will not be insulated from scrutiny or liability under federal law where the opinion-holder has engaged in knowing misconduct rather than exercising good faith medical judgment.  As noted, that could include rendering a medical opinion while knowing it is false and not honestly held, or rendering an opinion while consciously choosing to ignore the contents of the medical record.  Even the AseraCare decision, while differing on whether the FCA requires proof of “objective falsity,” is in agreement that a medical opinion falling into any of these categories may support FCA liability.  In such circumstances, the record reveals more than just a reasonable difference of medical opinion, and thus no inconsistency exists between prosecution of the opinion-holder and the statutory prohibition barring the government from regulating the practice of medicine.

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ⁱ United States ex rel. Druding v. Care Alternatives, 952 F.3d 89 (3d Cir. 2020).
ⁱⁱ Winter ex rel. United States v. Gardens Regional Hospital, 953 F.3d 1108 (9th Cir. 2020).
ⁱⁱⁱ United States v. AseraCare, Inc., 938 F.3d 1278 (11th Circ. 2019).
^iv United States ex rel. Polukoff v. St. Mark’s Hospital, 895 F.3d 730 (10th Cir. 2018).
^v United States v. Paulus, 894 F.3d 267 (6th Cir. 2018)
^vi 42 U.S.C. § 1395 expressly provides:

Nothing in this title shall be construed to authorize any federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided … or to exercise any supervision or control over the administration or operation of any … person [providing health services].

See also; Evelyn v. Kings County Hosp. Ctr., 819 F. Supp. 183, 196 (E.D.N.Y. 1993) (“Such deference … is consistent with Congress’s express directive that Medicaid and Medicare not become vehicles for federal supervision or control over the practice of medicine or the manner in which medical services are provided. Neither did Congress intend federal authorities to exercise any direct supervision or control over the administration or operation of any health care institution.”).
^vii Id. at 742.
^viii Id. at 743.
^ix Id.
^x Id. at 275.
^xi Id. at 275-76.
^xii Id. at 1297.
^xiii Id. at 1302.
^xiv Id. at 97.
^xv Id. at 100.
^xvi Id.
^xvii Id.
^xviii Id. at 1114.
^xix Id. at 1117.
^xx Id. at 1118.
^xxi 42 U.S.C. § 1395.
^xxiiPolukoff, 895 F.3d at 743.

Reprinted with permission from Law360.