The FCA and the "Worthless Services" Theory
Any person who "(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; [or] (C) conspires" to do so violates the FCA. 31 U.S.C. § 3729(a). The FCA permits private persons—referred to as qui tam relators or whistleblowers—to file FCA claims, essentially on behalf of the federal government. 31 U.S.C. § 3730. The qui tam relator files the case under seal and serves the United States Attorney for that jurisdiction but does not serve the defendants named in the complaint. The government has 60 days to intervene in the action and take over prosecution of the case, or it can elect not to intervene. 31 U.S.C. § 3730(b)(2). Even if the government declines intervention and the relator pursues the case on his or her own, the government may, at its election, file amicus briefs or memoranda in support of the relator on certain issues. The FCA awards a percentage of any moneys recovered to the relator, with the percentages varying depending on whether the government intervenes. Several states have analogue statutes with many of the same characteristics.
Whistleblowers—often insiders—have been relying on a "worthless services" theory to allege that healthcare providers who contract with the government to provide services and products under the Medicare and Medicaid programs are seeking reimbursement for services with no medical value in violation of the FCA. "Worthless services" claims are aimed at showing that a defendant's claim for payment was false, not based on any theory of noncompliance with regulations or other requirements, but on the grounds that the defendant charged the government for something of value that it knowingly failed to provide or that was so substandard that it equated to no value. Several circuits have adopted the theory as a possible avenue for FCA liability. See, e.g., United States ex rel. Roop v. Hypoguard USA, Inc., 559 F.3d 818, 824 (8th Cir. 2009); United States ex rel. Mikes v. Straus, 274 F.3d 687, 703 (2d Cir. 2001); United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1053 (9th Cir. 2001).
Vanessa Absher and Lynda Mitchell were nurses at Momence Meadows Nursing Center, a 140-bed long-term care facility in Kankakee County, Illinois. Between 1998 and 2006, almost all of Momence's residents were Medicare or Medicaid patients. Momence received reimbursement on a "per patient basis"—a flat per diem amount for each resident. To receive its compensation, Momence was required to provide government regulators with a detailed form, including patient information such as disease diagnoses and health conditions. Momence certified that the information was accurate and that its residents received the appropriate quality of care. As such, the form was used as the basis for reimbursement. As a Medicare/Medicaid provider, Momence was subject to inspection and enforcement by the Centers for Medicare and Medicaid Services (CMS), a federal agency, and the Illinois Department of Public Health (IDPH).
During the time period at issue, government regulators inspected Momence 117 times and found numerous deficiencies. The relators, Absher and Mitchell, alleged that Momence violated the FCA and its Illinois analog by knowingly submitting hundreds of false claims to Medicare and Medicaid and that Momence administrators subsequently retaliated against them for reporting evidence of the alleged fraud. The relators also alleged that Momence actively concealed its noncompliance from the government by directing its employees not to document symptoms of scabies or pressure ulcers and to hide existing charts containing such symptoms. Evidence at trial showed serious instances of noncompliant care and consequent harm, including evidence of problems relating to infection and pest control (such as scabies outbreaks), medication, food and water temperatures, cleanliness, and accidents. Expert witnesses also presented testimony that Momence had systematically violated Medicare and Medicaid regulations concerning the duties of personnel at the facility, standard of care, and protocols for addressing patient care issues. While still under seal, the complaint was amended multiple times through 2009. The government declined to intervene, and the district court unsealed the complaint.
The relators structured their case in part as a "worthless services" claim, submitting evidence that Momence provided inadequate care to its residents while receiving full compensation from Medicare/Medicaid. The jury found that Momence had submitted over 1,700 false claims and awarded substantial damages, including $3 million to the United States to compensate it for reimbursements (ultimately trebled to $9 million under the FCA), $19 million in fines for qui tam claims, and $412,000 in damages for retaliation. The district court vacated the statutory penalties, however, finding them excessive under the Eighth Amendment.
The Seventh Circuit vacated the judgment and remanded to the district court with instructions to enter judgment for Momence. According to the panel, while the relators argued to the jury that Momence had provided substandard services worth less than their reimbursement value, they had not alleged that Momence had provided completely worthless services. The Seventh Circuit disagreed with the district court's instruction to the jury that "[t]o find worthless services, you do not need to find that the patient received no services at all." The Seventh Circuit observed, "It is not enough to offer evidence that the defendant provided services that are worth some amount less than the services paid for. That is, a 'diminished value' of services theory does not satisfy this standard. Services that are 'worth less' are not 'worthless.'" Momence, 764 F.3d at 709–10 (footnote omitted).
The court found that it would be "absurd" to find that the services were "worthless" in light of the fact that government inspectors repeatedly allowed Momence to continue operating and noted that the government itself recognized that the services were of "some value" or it would have shut the facility down. The court also noted that Absher's own mother resided at Momence during the time period in which the alleged "worthless services" were provided.
Although the Seventh Circuit declined the opportunity to adopt the worthless services theory based on the facts before it, it did note that, under existing case law in the circuit, worthless services could be "evidence that a claim for reimbursement is false or fraudulent (under a false certification theory of liability)." Momence, 764 F.3d at 710.
On September 3, 2014, the nurses filed a motion asking the Seventh Circuit to consider en banc the panel's August 20 ruling. The motion was denied.
Observations and Practice Tips
The Seventh Circuit's decision in Momence raises some noteworthy issues for litigants and counsel in the healthcare fraud arena:
- The law of "worthless services" remains unsettled.
- Nonetheless, plaintiffs' counsel should be mindful of how they articulate their claims and ask whether they are pursuing a true "worthless services" claim or instead, are relying on some other related but distinct theory of FCA liability, such as whether the service met the adequate level of care or the services conformed to the requirements of statutes, regulations, or other program requirements.
- At least in the Seventh Circuit, it is now clear that "worthless services" do not mean services that are "grossly or woefully inadequate," "materially substandard," or "wholly deficient."
- As the Seventh Circuit has demonstrated, courts are increasingly examining the theory of FCA liability and whether the evidence supplied supports that theory. Particularly against the backdrop of surging FCA qui tam actions and annual recoveries, courts are taking a closer look to prevent a radical expansion of the FCA.
Keywords: commercial, business, litigation, healthcare fraud, worthless services, whistleblower, qui tam, Momence, False Claims Act, FCA