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
If a participating nursing facility fails to meet a requirement for participation, the Department of Health and Human Services (HHS) has the ability to impose a variety of sanctions, including, but not limited to, civil monetary penalties, temporary government management, denial of payment or termination of participation. However, noncompliance-even substantial noncompliance-by a nursing facility does not mean that it was ineligible for claims made during the noncompliant period. In fact, a nursing facility may be entitled to payment for claims even after it is found noncompliant as long as a corrective plan of action is undertaken.
Second, the separation between quality of care and reimbursement within nursing facilities is nowhere better reflected than in their payment structure: a per diem PPS. This payment system focuses solely on objective criteria irrespective of QoC issues. Nursing facilities do not bill for each individual service they perform for a resident. Instead, encompassed within the per diem payment are a broad array of services such as room and board, nursing services, minor medical supplies, therapies, drugs, lab services and capital costs including land, building and equipment.
THEORIES USED TO ATTACK QOC
Relators have used three FCA theories of liability to attack QoC issues: (1) express false certification; (2) implied false certification; and (3) worthless service. The false certification theories target legally false claims, which are claims for goods or services provided in violation of a regulation, statute or prescribed contractual term, despite certification to the contrary. The worthless service theory targets factually false claims, which are claims for goods or services never actually provided. Detailed explanations of these theories follow.
1. Express False Certification. The express false certification theory alleges that a defendant affirmatively, but falsely, stated compliance with a statute or regulation and the government required such certification for payment. To illustrate, pursuant to 42 U.S.C. § 1395y(a)(1)(A), no payment may be made under Medicare Part A or B unless it is certified that items or services provided are “reasonable and necessary.” Courts have found liability under this theory when defendants performed procedures solely for profit or performed an experimental procedure, yet certified that they were medically necessary.
Medical necessity, however, implicates the level of care and not the quality of that care. Accordingly, no express false certification can be found regarding medical necessity when a plaintiff challenges the quality of the procedure, but not the decision to order the procedure for a patient.2 Because the regulations that govern quality of care in nursing facilities are not directly linked to any payment decision, the express certification theory faces significant challenges whenever a plaintiff solely challenges the facility's quality of care.
2. Implied False Certification. The implied false certification theory is based on the notion that the mere act of submitting a claim for reimbursement itself implicitly certifies compliance with all governing federal rules that are a precondition to payment. To illustrate: In 1994, a court found that a defendant implicitly certified continued adherence to the eligibility requirements of a federal small business statutory program by submitting payment vouchers even though the vouchers did not contain express certification language.7
Likewise, relators have attempted to use the implied certification theory to hold nursing facilities liable under the FCA for failure to maintain perfect compliance within the conditions of participation in the Medicare and Medicaid programs. Courts, however, have been hesitant to allow FCA suits to proceed where government payment of claims is not conditioned on perfect regulatory compliance. Compliance with the conditions of participation in nursing homes is not directly tied to reimbursement, and the HHS is given the discretion to waive administrative remedies or impose a less drastic sanction than full denial of payment when noncompliance is discovered.
The FCA was not designed to reach every kind of fraud practiced on the government and the prevailing view is that the government should not be allowed to turn a discretionary denial of payment under the regulatory structure of nursing facilities into a mandatory penalty under the FCA. Furthermore, many courts have rejected the implied certification theory altogether holding that a claim under the FCA is only legally false when a party expressly certifies compliance with a statute or regulation as a condition to governmental payment.
3. The Worthless Service Theory. The worthless service theory is based on the notion that some services can be so deficient in quality that they amount to no service at all. A straightforward worthless service claim involves a specific function or test that was performed so poorly that, in effect, it was not done at all. However, as previously discussed, under the per diem PPS, nursing facilities do not bill separately for individual acts of patient care, such as feeding, changing or bathing.
Some courts have been unwilling to find that a factually false theory is applicable to a per diem bundled billing practice. In a case from the Northern District of Oklahoma, a plaintiff tried to use the worthless service theory to hold a defendant liable for not complying with minimum weekly therapy requirements.8 The plaintiff, however, failed to demonstrate that the services received were worthless or even grossly negligent. For example, one patient identified did not receive all of the required weekly therapy hours, but even during the most egregious week the patient still received nine of the twenty-one required therapy hours. Because the patient received at least some of the care for which the defendant billed, the court was unwilling to find that the defendant submitted a false claim.
If nursing facilities billed for each individual act of care, then application of the worthless service theory would be relatively straightforward-courts could simply compare the acts billed for to the acts actually performed. Instead, relators have the burden of proving that the nursing facility did not provide the minimum level of care necessary under its obligation to the federal government. This standard has proven difficult, with courts commonly finding that what amounts to a mere dispute over the proper standard of care does not give rise to liability under the FCA.
Fortunately, courts have not casually swept QoC issues under the umbrella of the FCA. Instead, they have generally refused to supplant regulatory oversight and discretion with an iron fist.B
See e.g., United States v. Unadilla Health Care Center, Inc., 2010 WL 146877, *5 (M.D. Ga., Jan. 11, 2010) (FCA is only violated if payment of federal funds was explicitly conditioned on compliance with a certain regulation); United States ex rel. Landers v. Baptist Mem. Health Care Corp., 525 F.Supp.2d 972 (W.D. Tenn. 2007) (regulatory noncompliance that is irrelevant to reimbursement cannot be basis for FCA claim); Sweeney v. ManorCare Health Services, Inc., 2005 WL 4030950 (W.D. Wash. 2005) (FCA does not apply when full regulatory compliance is not a requirement for federal funding); Mikes, 274 F.3d at 699 (“the False Claims Act was not designed for use as a blunt instrument to enforce compliance with all medical regulations”).
While the government has been eager to use the FCA to attack fraud within the healthcare industry, it has not proven to be the best tool for advancing claims based on alleged QoC deficiencies. The prevailing view among courts is that a claim for reimbursement made to the government is not false simply because the service rendered failed to comply with a statute, regulation or contractual term that is merely tangential to the service for which reimbursement is sought. Nevertheless, relators and the government continue to search for creative ways to expand the FCA beyond its roots to encompass QoC allegations, and some courts have and will continue to give audience to these theories. Providers should therefore be diligent in their continued efforts to deliver high-quality care, which will offer the best defense against these claims being brought in the first place.
Disclaimer: This article is not legal advice. Consultation with licensed and experienced legal counsel is advised.
Jason Bring, Esq.; and Erin Kendall, Esq., are members of the Healthcare Group of Arnall Golden Gregory LLP. Bring and Kendall defend nursing facilities in medical liability and False Claims Act cases, as well as assist them in regulatory and reimbursement issues. They can be reached at (404) 873-8162 or by email at
- United States v. GMS Mgmt.-Tucker, Inc., No. 96-1271 (E.D. Pa. Mar. 6, 1996).
- Mikes v. Straus, 274 F.3d 687, 695 (2d Cir. 2001).
- United States v. NHC Healthcare Corp., 115 F. Supp. 2d 1149, 1153 (W.D. Missouri 2000).
- Hillsborough Countyv. Automated Med. Labs., Inc., 471 U.S. 707, 719 (1985).
- United States ex rel. Conner v. Salina Regional Health Center Inc., 543 F.3d 1211, 1218-1220 (10th Cir. 2008).
- Medicare Program Integrity Manual, (CMS-Pub. 100-08) at § 184.108.40.206.
- Ab-Tech Construction, Inc. v. United States, 31 Fed. Cl. 429 (Fed. Cl. 1994), aff'd, 57 F.3d 1084 (Fed. Cir. 1995).
- United States ex rel. Sanchez-Smithv. AHS Tulsa Regional Medical Center, LLC, 2010 WL 4702270 (N.D. Okla. Nov. 10, 2010).
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