‘Objective Falsity’ and the FCA: An Ongoing Circuit Split

The False Claims Act (“FCA”) is a Federal statute originally enacted in 1863 as a response to fraud from defense contractors during the American Civil War. Under the FCA (31 U.S.C. §§ 3729 – 3733), it is a crime for any person to knowingly submit false or fraudulent claims for payment to the United States government.  Those who violate the FCA are liable for treble damages plus a per-claim monetary penalty (calculated to align with inflation).  Private citizens can file whistleblower suits on behalf of the government (“qui tam”) against those who have allegedly violated the FCA.

The FCA is relevant for government payers such as Medicare, Medicaid, and TRICARE.  On January 14, 2021, for example, the Department of Justice (“DOJ”) announced it recovered over $2.2 billion in settlements and judgments from FCA cases during fiscal year (“FY”) 2020.  Of the $2.2 billion total, over $1.8 billion was recouped from cases involving the healthcare industry, such as managed-care providers, hospitals, physicians, and drug and device manufacturers.  According to DOJ, the $1.8 billion only reflects federal losses; the DOJ also helped recover tens of millions of dollars for various state Medicaid programs.

While the FCA is certainly applicable to Medicaid—and the DOJ works to recover fraudulently paid Medicaid claims—two recent FCA cases of note primarily involve the Medicare program.  We believe these cases might be of interest to our readers because of their FCA link.  Specifically, the following cases discuss what is called the “objective falsity” standard, which requires a false claim to be based on objectively verifiable facts to establish liability under the FCA.  Presently, Circuit courts are split as to whether a difference in expert medical opinion that certain health services are medically necessary—and, therefore, payable by Medicare and/or Medicaid—is sufficient to establish that the payment claim for the service(s) provided is false or fraudulent.

On February 22, 2021, the U.S. Supreme Court rejected without comment two petitions asking to consider whether an expert medical opinion that differs from the defendant’s clinical judgment would be sufficient to establish liability under the FCA, per the objective falsity standard.  The two cases denied certiorari are Care Alternatives v. United States et al. and RollinsNelson LTC Corp. v. United States ex rel. Winters.

As stated above, Circuit courts have remained split on their treatment of objective falsity.  Last year, the Third Circuit Court of Appeals rejected the theory in United States ex rel. Druding v. Druding, which on appeal to the Supreme Court became Care Alternatives.  In Druding, the Third Circuit considered the questions of whether and when clinical judgments would be considered “false” under the FCA;[1] the judges noted the issue was one of “first impression” for the court.[2]  Former employees for hospice operator Care Alternatives (which conducts business as Ascend Hospice) brought suit against their former employer under the FCA, alleging that Care Alternatives admitted patients who were ineligible for hospice care and directed employees to alter patient records to allow for eligibility.  According to the former employees, Care Alternatives submitted false claims for hospice reimbursement to Medicare and Medicaid; a person who knowingly submits fraudulent claims for payment to the government is liable under the FCA.[3] The case focused on whether Care Alternatives’ physicians correctly assessed that Care Alternatives’ patients were terminally ill (expected to die within six months) and therefore eligible for Medicare or Medicaid to cover their hospice care; the question was whether a physician’s clinical judgment can be considered a legal falsity if it is later challenged by a medical expert with a different judgment.

To support their false claims allegations, the former employees retained an expert, who opined that patients were improperly certified for hospice care 35% of the time; this differed from Care Alternatives’ expert, who argued that a “reasonable physician” would have determined all the patients were eligible.[4]  Previously, the District Court ruled in favor of Care Alternatives by determining that a difference in expert opinion regarding patient prognosis was “insufficient to create a triable dispute of fact as to the element of falsity” and that evidence of objective falsity was mandatory.[5]  However, the Third Circuit found that the difference in opinion did create a “genuine dispute of material fact as to falsity” and ruled in favor of the former employees.[6]

Care Alternatives submitted a petition to the Supreme Court, claiming the Third Circuit’s determination that a different expert opinion was sufficient to establish falsity created a “sharp” circuit split and escalated “continuing confusion in the lower courts regarding when a physician’s clinical judgment can be deemed false” per the FCA.[7]  Care Alternatives cited the Eleventh Circuit’s 2019 decision in United States v. AseraCare, Inc., in which the court determined that a “difference of reasonable opinion” alone is insufficient to establish falsity under the FCA.  According to the petition, AseraCare involved “nearly identical facts” to the instant case.[8]  In AseraCare, the Eleventh Circuit upheld the Alabama District Court’s 2016 decision for the defendants, which adopted an explicit standard of objective falsity:

“[A] difference of opinion between physicians and medical experts about which reasonable minds could differ is all the Government has presented to prove falsity of the claims…the Government cannot prove the falsity element as a matter of law.”[9]

On appeal, the Eleventh Circuit affirmed the defense view:

“[A] a clinical judgment of terminal illness warranting hospice benefits under Medicare cannot be deemed false, for purposes of the False Claims Act, when there is only a reasonable disagreement between medical experts as to the accuracy of that conclusion.”[10]

The second cert petition was from RollinsNelson, a hospital-management company.[11]  In its December 3, 2020 petition, RollinsNelson appealed the Ninth Circuit’s rejection of objective falsity and reversal of the California District Court’s dismissal of the former RollinsNelson employee’s qui tam action (which alleged the hospital falsely certified patients for medically unnecessary inpatient care).[12]  The lower court held that a plaintiff had to prove that a defendant “knowingly made an objectively false representation” to prevail in a FCA claim, and therefore a statement implicating a physician’s clinical judgment is insufficient to establish an FCA violation because “subjective medical opinions . . . cannot be proven to be objectively false.”[13]  In its reversal, the Ninth Circuit ruled against the defendants, concluding that Congress did not require “objective falsity” when writing the FCA, and that a doctor’s clinical opinion must be analyzed as any other assertion; it is possible for a doctor to knowingly make a false statement, therefore a false certification of medical necessity can be material to establish liability under the FCA.[14]

In the 2016 case Universal Health Services v. United States ex rel. Escobar, the Supreme Court held that an alleged false claim must be “material” to the government’s payment decision to establish FCA liability—specifically noting that “materiality” is defined in statute and refers to language that can influence payment.[15]  The Court also held that the FCA is not “an all-purpose antifraud statute,” nor is it a “vehicle for punishing garden-variety breaches of contract or regulatory violations.”[16]  Arguably, the Supreme Court’s decisions to deny cert are consistent with the 2016 Escobar decision—and likely with a strict interpretation of objective falsity.  However, the circuit courts remain split on their approach to objective falsity.  The Fourth, Seventh, and Eleventh Circuits seem to have explicitly adopted the theory, while the Third and Ninth Circuits appear to have rejected it.  In recent years, the Tenth Circuit seems to agree with the Third and Ninth.  It remains to be seen if any subsequent actions will find their way to the High Court and to once and for all settle the question of objective falsity in FCA cases.

[1] 31 U.S.C. §§ 3729-3733 (2009).

[2] United States ex rel. Druding v. Druding, 952 F.3d 89, 91 (3d Cir. 2020).

[3] Id. at 93.

[4] Id. at 91.

[5] Id.

[6] Id.

[7] Petition for Writ of Certiorari, Care Alts. v. United States, et al. ex rel. Druding, et al., No. 20-371 (Sep. 16, 2020).

[8] Id. at 2 (citing United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019)).

[9] United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019); United States v. AseraCare Inc, 176 F. Supp. 3d 1282, 1286 (N.D. Ala. 2016).

[10] Petition for Writ of Certiorari, supra note 6 at 2 (citing 938 F.3d 1278).

[11] Petition for Writ of Certiorari, RollinsNelson LTC Corp., et al., Petitioners v. United States, ex rel. Jane Winters., No. 20-805 (Dec. 3, 2020).

[12] Winter ex rel. United States v. Gardens Reg’l Hosp. & Med. Ctr., Inc., 953 F.3d 1108, 1112-13 (9th Cir. 2020).

[13] Id. at 1113.

[14] Id.

[15] Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).

[16] Id. at 2003.

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