The federal False Claims Act (FCA) permits private persons known as “relators” to file a form of civil action against private entities in order to recover damages on behalf of the United States and to share in those recoveries. The FCA was enacted during the Civil War with the principal goal of stopping massive frauds being perpetrated on the federal government by private contractors. The purpose of the law, then and now, is to encourage private individuals who are aware of fraud being perpetrated against the government to bring such information forward.
Almost 150 years after its enactment, the government and relators are attempting to stretch the scope of the FCA to encompass quality-of-care (QoC) allegations against nursing facilities. Traditionally the domain of plaintiff's lawyers and survey teams, QoC issues in nursing homes now present the additional threat of false claim liability, although the courts have been less than eager in welcoming these expanded theories.
Cases brought against healthcare providers under the FCA have involved discreet billing issues, such as upcoding or claims made for patients or procedures that never existed. In 1996, however, the U.S. Attorney's Office for the Eastern District of Pennsylvania applied the FCA to QoC issues alleging that a nursing facility had violated the FCA by billing Medicare and Medicaid for “grossly inadequate” nutritional services and wound care.1 The government's then-novel theory was that providing bad services was the functional equivalent of providing no services and, thus, the FCA was capable of being applied to the case. The result was a $25,000 settlement agreement.
Liability under the FCA occurs when a person “knowingly presents, or causes to be presented, to an officer or employee of the United States Government…a false or fraudulent claim for payment or approval.” While the FCA does not define “false or fraudulent,” the phrase suggests an improper claim aimed at extracting money that the government otherwise would not have paid.2 Therefore, if a nursing facility billed the government for an identifiable service that it never rendered, that claim would certainly be false and properly actionable under the FCA.
In QoC cases, however, the allegations are not that the nursing facility failed to render care, but that the quality of care was low enough to make a claim for reimbursement false. This manifestation of the FCA has given courts cause for concern due to the subjective manner in which QoC issues in nursing facilities are typically handled.3
REGULATORY STRUCTURE: A ROADBLOCK FOR RELATORS
Quality of care within nursing facilities operates independently of regulatory compliance and reimbursement.4 Nursing facilities are governed by a comprehensive set of highly detailed regulations that set forth sanctions available for failure to meet those guidelines.A
Many courts have held that the participation regulations do not establish a standard of care for quality. See, e.g., Conley v. Life Care Centers of America, Inc., 236 S.W.3d 713 (Tenn. Ct. App. 2007); Brown v. Sun Healthcare Group, Inc., 476 F. Supp. 2d 848 (E.D. Tenn. 2007); Sepulveda v. Stiff, 2006 WL 3314530, *8 (E.D. Va.) (conditions for participation for hospitals do not set forth a federal standard of care); Tinder v. Lewis County Nursing Home District, 207 F. Supp. 2d 951, 957-58 (E.D. Mo. 2001) (OBRA regulations are part of a regulatory scheme designed to bring long-term care facilities into substantial compliance with federal Medicare and Medicaid requirements and were not intended to establish an independent cause of action for violations of those requirements).
In particular, relators have run up against two regulatory roadblocks: (1) regulations governing quality of care within nursing facilities are separate and distinct from payment rules; and (2) nursing facilities are paid through a per diem, Prospective Payment System (PPS).
First, in order to participate in the Medicare and Medicaid programs, a nursing facility must be certified, which requires a determination that the facility is in substantial compliance with all laws and Omnibus Budget Reconciliation Act of 1987 (OBRA) regulations. In the context of FCA cases, federal courts have held that the Medicare regulations are simply “conditions of participation” where only “substantial compliance”-not “perfect compliance”-is required, and the government's “detailed administrative mechanism for managing Medicare participation” provides the discretionary enforcement mechanism for continuing Medicare participation under this regulatory scheme.5 Thus, the requirements for participation serve as the basis for surveys that determine whether a facility may continue to participate in those programs, but in no way are they connected to payment decisions for services already provided.6