New Standard of Materiality in FCA Litigation Gives Wake to New Vigor for Defense

In the world of litigation healthcare providers can potentially fall victim to the False Claims Act (“FCA”) when they file medical claims for reimbursement from either Medicaid or Medicare. FCA claims against hospitals and other healthcare related entities usually involve allegations that the healthcare provider knowingly or recklessly filed a false claim for payment from a federally funded government program. Under the FCA qui tam provisions, private citizens, known as “relators”, can file lawsuits where they have suffered no personal injury. Instead, these relators allege the federal government was defrauded and can obtain a substantial monetary reward if they are successful in recovering a judgement from the court.

A hotly contested issue in qui tam cases is whether the violation of the regulation alleged in the case is material to the government’s obligation to pay a healthcare claim. For instance, whenever a physician or supplier of medical services completes a form 1500, it certifies the claims were medically indicated and necessary and that any “false claims, statements, or documents, or concealment of a material fact, may be prosecuted under applicable Federal or State laws.” Historically, the issue in a lot of cases involving alleged false claims is whether the claim made by the healthcare provider is either a “condition of payment” or a “condition of participation” in the governmental program. If the alleged false claim only violated a condition of participation, as opposed to a condition of payment, then there could be no false claim in violation of the FCA. Courts reasoned that conditions of payment were central to the government’s decision to pay claims as opposed to a mere violation of a condition of participation that could be handled administratively by the enforcing governmental agency.

After the United States Supreme Court’s ruling in Universal Health Servs. v. United States ex rel. Escobar 136 S. Ct. 1989 (2016), the old condition of payment or condition of participation standards for materiality were largely abandoned. Instead, the Supreme Court, adopted a new “rigorous” materiality standard. Escobar, 136 S.Ct. at 2004 n.6. Although promulgated conditions of payment in statutes or regulations are relevant in attempting to establishing materiality, they are not “automatically dispositive.” Id. at 2003. Moreover, the Supreme Court held that “A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance.” Escobar, a relator is now faced with a steeper climb to show that the violation of a particular statute or regulation is material to the government’s decision to a pay the medical claim.

Recent cases show that healthcare providers may have an opportunity to end litigation early from would be relators at the motion to dismiss stage because of a lack of materiality. A motion to dismiss can be used to show the court at the beginning of a lawsuit that a healthcare provider’s alleged regulatory violations were not material to the government’s decision to pay claims. More specifically, district courts have ruled that mere conclusory allegations that the false statement is material to the government’s payment decision is inadequate to avoid dismissal. See, e.g., United States ex rel. Payton v Pediatric Servs. of Am., Inc., No. cv416-102, 2017 WL 3910434, at *10 (S.D. Ga. Sept. 6, 2017) (holding that a complaint “must do something more than simply state that compliance is material”); United States v. Scan Health Plan, No. CV 09-5013-JFW, 2017 WL 4564722, at *6 (C.D. Cal. Oct. 5, 2017) (dismissing claim based “only [on] conclusory allegations that the [defendants’] conduct was material”). Moreover, a relator must show “how [the] misrepresentations [or false claims] were material” to the government’s decision to pay claims. United States ex rel. Mateski v. Raytheon Co., No. 2:06-cv-03614, 2017 WL 3326452, at *7 (C.D. Cal. Aug. 3, 2017).

Thus far, Escobar’s materiality standard has only been applied to implied certification cases. Implied certification means that the healthcare provider certifies that when it completes form 1500 or “certifies” the accuracy, truthfulness, and completeness of a medical claim to the government, it is implied that it did so in conformance with applicable law. Express certification, on the other hand, involves claims that specifically state the regulation or statute to be adhered to when filing claim. The question of whether The Supreme Court will apply its new materiality standard to express certification cases is due for review this year and may shed light on the scope of Escobar’s materiality standard when applied to express certification cases.

 

For more information on this topic, please contact Adrienne Dresevic, Esq. at (248) 996-8510 or by email at adresevic@thehlp.com.