November 01, 2015 Health Law

The FCA and Fraudulent Opinions of Medical Necessity

The courts have recognized False Claims Act (FCA) liability for submitting medically unnecessary claims under Medicare or Medicaid in certain situations, including where it can be proven that the defendant submitted a claim for a medically unnecessary item or service when the defendant knew those items and services were not medically necessary or where the defendant knowingly falsified medical records to make a medically unnecessary item or service appear medically necessary. However, the courts have generally concluded that claims based on nothing more than mere disagreement or second-guessing of a physician’s good faith and reasonable determination of medical necessity is not actionable. These courts reason that because the FCA requires a knowingly false statement of an objectively verifiable fact, a medical opinion on which physicians may reasonably disagree cannot give rise to liability. However, the pleading and proof requirements for these actions are not entirely settled, and the case law is not entirely consistent. This article examines key court decisions in this area.

A person or entity violates the FCA if, among other things, the person or entity (1) “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” to the U.S. government, or (2) “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A) & (B). The term “knowingly” means that a person has actual knowledge of the falsity of the information or acts in deliberate ignorance or reckless disregard of the truth or falsity of the information. No proof of specific intent to defraud is required.

Courts generally categorize false claims as either “factually false” or “legally false.” “A claim is factually false when the claimant misrepresents what good or services . . . it provided to the Government.” United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir. 2011). By contrast, a claim can be legally false in several situations, including when the defendant knowingly submits a false certification that it has complied with a statute or regulation that is material to payment. Such actionable conduct is referred to as “false certification.”

Under the Social Security Act, the Medicare and Medicaid programs only provide payment for those health care services that are “reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” 42 U.S.C. § 1395y(a)(1)(A); 42 C.F.R. § 440.230(d). Additionally, health care providers are required to certify in claim forms submitted to the government that the health care items or services are medically necessary and proper.

Even the government recognizes that the “medical necessity” standard is undefined and is open to subjective interpretation. However, the Centers for Medicare & Medicaid Services (CMS) has instructed Medicare Administrative Contractors, the entities that adjudicate Medicare claims on behalf of CMS, that: (1) a service shall be considered reasonable and necessary, if, among other things, it falls within accepted standards of medical practice, and (2) in determining necessity, they are to consider, among other things, the standard of practice within the community and the scientific or research data.

The issue of whether a service is reasonable and necessary for a particular patient often involves subjective judgment on which medical experts may, in many cases, reasonably disagree. Moreover, whether a specific service or treatment for a particular patient falls within accepted or community standards of medical practice is often debatable. In recognition of this fact, most courts have acknowledged that “liability under the FCA . . . must be predicated on an objectively verifiable fact.” Morton v. A Plus Benefits, Inc., 139 Fed. Appx. 980, 983 (10th Cir. 2005). In other words, for a claim to be false under the FCA, the government or the relator must prove that “the statement or conduct alleged . . . represented an objective falsehood.” United States ex rel. Jamison v. McKesson Corp., 2011 WL 1158945.

The FCA’s requirement of a knowing “objective falsehood” presents courts with the difficult questions of under what circumstances is a statement or certification by a physician or other practitioner that a service or item is medically necessary objectively false, and what must the government or the relator allege and prove to establish a knowingly false certification or statement. The difficulty in proving that a certification or statement of medical necessity is an objectively verifiable falsehood has not dissuaded whistle-blowers from filing or the government from vigorously prosecuting FCA actions for alleged fraudulent certification of medical necessity under the FCA. If these actions survive a motion to dismiss, they almost always settle before trial because of the large potential damages and penalties.

Courts have recognized that mere differences of scientific or medical opinions are not actionable under the FCA. Falsity under the FCA doesn’t mean “scientifically untrue.” It means “a lie.” At a minimum, the FCA requires proof of an objective falsehood.

Courts are also in agreement that mistaken or negligent certifications or statements regarding the medical necessity of an item or service, even if false, are not actionable under the FCA. “The requisite intent [under the FCA] is the knowing presentation of what is known to be false, as opposed to innocent mistake or mere negligence.” Luckey v. Baxter Healthcare Corp., 2 F. Supp. 2d 1047 (N.D. Ill. 1998) (quoting United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1420 (9th Cir. 1991)). As courts have acknowledged, proof of mistakes is not evidence that one is a cheat, and the common failings of scientists or medical experts are not culpable under the FCA. Therefore, the courts have held that an innocent mistake or mere negligence is not actionable under the FCA and “[n]egligence and innocent mistake are insufficient to meet the intent requirement under the FCA.” United States ex rel. Ali v. Daniel, Mann, Johnson & Mendenhall, 355 F.3d 1140, 1150 (9th Cir. 2004).

Courts have recognized that knowingly supplying false information regarding the patient’s condition on which the opinion of medical necessity is based may violate the FCA. This is because a proper and independent medical judgment cannot be made when the defendant has knowingly misrepresented the patient’s medical condition. Knowingly misrepresenting a patient’s medical condition may constitute an “objective falsehood.”

This is an evolving area of the law. It is the authors’ view that there should be no FCA liability for certification of medical necessity when medical experts may reasonably disagree about the medical necessity of an item or service. Although the issue has not been settled by the courts and the decisions are inconsistent as to certain issues, if a hospital or other health care provider submits a claim in reliance on a treating physician’s opinion that a service is medically necessary, and knows of no clear evidence to the contrary, there should be no liability under the FCA. “The decision on medical necessity is made by individual physicians exercising independent professional judgment based on their examination of the knowledge of their particular patients.” United States ex rel. Bennett v. Medtronic, Inc., 747 F. Supp. 2d 745, 777 (S.D. Tex. 2010). Put simply, providers should be entitled to rely on the physician’s opinion without risking damages and penalties under the FCA.

ABA Health Law Section

This article is an abridged and edited version of one that originally appeared on page 36 of The Health Lawyer, April 2015 (27:4).

For more information or to obtain a copy of the periodical in which the full article appears, please call the ABA Service Center at 800/285-2221.


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