FCA Ruling: Proof of Falsity Needed to Show Fraud

Last week, the 11th Circuit Court of Appeals handed down its long-awaited decision in United States v. AseraCare, Inc. The case, brought under the False Claims Act (FCA) and argued way back in March 2017, alleged that AseraCare, a for-profit multi-state hospice chain, had submitted false claims to the Medicare program for patients who were not entitled to the Medicare hospice benefit because they did not qualify as terminally ill.

The district court had taken the highly unusual step of bifurcating the trial to address the “falsity” of the claims separately from all the other elements required to prove liability under the FCA, including “scienter” (i.e., knowledge of the falsity). After the jury found for the government based on evidence that including dueling expert testimony regarding 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) the FCA’s falsity element requires proof of an objective falsehood, and (2) a mere difference of opinion between physicians, without more, is not enough to show falsity. The trial court then went even further by considering and ultimately granting summary judgment to AseraCare sua sponte after concluding that the government had failed to produce any admissible evidence other than its expert’s testimony that the medical records for the subject patients did not support a terminal diagnosis. The government appealed.

The 11th Circuit ultimately agreed with the district court’s conclusion that proof of objective falsity was required and that to show objective falsity under the FCA in the hospice context, the government must prove more than a “mere difference of reasonable opinion concerning the prognosis of a patient’s likely longevity.” On that basis, the 11th Circuit affirmed the lower court’s ruling granting a new trial with a revised jury instruction.

The 11th Circuit also ruled, however, that the lower court had gone too far in sua sponte granting summary judgment to AseraCare. The appeals panel noted that an opinion regarding terminal illness can be deemed objectively false in various circumstances, such as when (i) the certifying physician does not honestly hold such an opinion, (ii) the physician does not consider the underlying medical record at all in issuing an opinion, (iii) the physician knew or had reason to know that the opinion was incorrect, or (iv) no reasonable physician would conclude that a patient had a terminal illness based on the underlying medical record.

The 11th Circuit agreed with the government that the trial court had erroneously refused to consider other evidence that might have supported an inference that AseraCare had knowledge of the falsity of the claims and was aware that the claims it submitted did not reflect a physician’s good-faith clinical judgment. The 11th Circuit ruled that the lower court should have considered all the evidence, in both the trial and summary judgment records, in determining whether a triable issue existed concerning AseraCare’s knowledge of falsity, and that the government had been improperly prevented from introducing such evidence due to the lower court’s bifurcation of the trial in a way that precluded that evidence from being introduced or considered for that purpose. Given the unusual bifurcation, the 11th Circuit concluded that it “is only fair that the Government be allowed to have summary judgment considered based on all the evidence presented at both the summary judgment and trial stages, and we direct that this occur.”

The government had been apprehensively awaiting the AseraCare ruling and its potential impact on hospice fraud enforcement initiatives, and is no doubt relieved that the 11th Circuit revived the case. In so doing, the 11th Circuit affirmed the principle that, while a reasonable good-faith difference of medical opinion concerning a terminal diagnosis, without more, will not establish the “falsity” required for FCA liability, knowledge that a claim for hospice benefits is supported by a false or illegitimate medical opinion (e.g., an opinion not based on medical evidence, or not honestly held, or known to be incorrect, or which no reasonable physician could hold) can still trigger liability.