Medicare regulations are often complex, ambiguous (especially when applied), and bereft of any guidance by the Centers for Medicare and Medicaid Services (CMS) or the local Medicare administrative contractor. As the 4th Circuit aptly observed, Medicare statutes and regulations "are among the most completely impenetrable texts within human experience." Rehabilitation Ass'n of Va., Inc. v. Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994). As a result of the complexity of these regulations, qui tam relators are increasingly exploiting the ambiguities of Medicare billing regulations in order to bring qui tam actions alleging Medicare providers submitted false claims when they failed to follow the relator's interpretation of billing regulations.

In US ex rel Donegan v. Anesthesia Associates of Kansas City, 2015 WL 3616640 (W.D. Mo., June 9, 2015), the Western District of Missouri recently addressed whether False Claims Act (FCA) liability can be based on an ambiguous Medicare regulation for which there was no authoritative interpretation prohibiting the defendant's billing practice. The Court found as a matter of law that the relator could not establish that the defendant knowingly submitted a false claim because the relator could not "show that there is no reasonable interpretation of the law that would make the [defendant's] allegedly false statement true."

In this qui tam case, the relator sued an anesthesiologist group practice alleging that it had fraudulently billed for anesthesiology services that its anesthesiologists did not "direct" but only "supervised." The case turned on whether the anesthesiologists complied with a Medicare billing regulation, referred to as the "Seven Steps" regulation, and the question of whether the anesthesiologists "personally participated in the most demanding aspects of the anesthesia plan including . . . emergence." 

The issue facing the Court was that there was no authoritative interpretation of "emergence." In its regulation, CMS did not define "emergence," when it began or when it ended. Moreover, no Medicare billing contractor had provided a Local Coverage Determination that defined "emergence" either. The Court noted further that there was "no guidance from any national or state anesthesiology organization defining 'emergence' because emergence is a process, and each patient is different."  

Fortified with the testimony of two experts, the relator argued that emergence excluded time in the recovery room after an operation: to personally participate in the patient's "emergence" from anesthesia that had been administered by a certified registered nurse anesthetist (CRNA) under the physician's "direction" meant the physician had to examine the patient in the operating room. In fact, one expert even referenced "a nationwide medicare carrier for railroad retirees" which defined "emergence" as the period between when anesthesia is no longer administered to the patient and before the patient is turned over to the recovery room. Citing its own evidence, the defendant, however, argued that emergence included a patient's time in the recovery room, which is where its physicians most often checked in on patients who had been administered anesthesia by CRNAs.  

The Court granted summary judgment in favor of the defendant on the relator's only remaining theory left from the amended complaint: that the defendant's anesthesiologists did not personally participate in patient's emergence from anesthesia because emergence did not extend to the recovery room.  

First, the Court rejected the relator's attempt to assert another theory of liability that was not contained in the amended complaint. Acknowledging that this unpled theory "may be meritorious," the Court nevertheless held that the relator may not assert new theories of FCA liability that were not contained in the amended complaint and which were "based on information learned during discovery." "A relator," the Court stated, "cannot plead an FCA violation generally and then fill in the blanks following discovery." Because the relator described a "distinct, independent scheme" and had not pled this theory of liability or provided a representative example in the complaint, the Court "cannot consider this theory of liability." 

Second, observing that the "Seven Steps" regulation is ambiguous because there is no authoritative interpretation in the regulation or otherwise as to when emergence ends, the Court found that the defendant reasonably interpreted the regulation's reference to emergence to include a patient's recovery in the recovery room. The Court acknowledged that the defendant's interpretation is "opportunistic because it has a financial motive to interpret the regulation that way." Yet, in the "absence of an authoritative contrary interpretation of the regulation . . . a defendant does not act with the requisite deliberate ignorance or reckless disregard by taking advantage of a disputed legal question." Moreover, the Court conceded that "the relator has arguably put forth a more reasonable interpretation of the regulation," but "this is not enough" because the relator "must carry its burden of showing that there is no reasonable interpretation of the law that would make the allegedly false claim valid."

Donegan is a real step forward in preventing relators from exploiting ambiguities in Medicare regulations to bring a qui tam action against Medicare providers and hold them hostage if they do not settle. Of course, the Court is not saying a defendant's mistaken or opportunistic interpretation can never give rise to other civil remedies by Medicare -- the government has numerous avenues other than the FCA to enforce its regulatory interpretations. Yet, civil remedies are one thing, but subjecting a defendant to harsh FCA sanctions for violating an ambiguous regulation is a whole different order of magnitude. This is especially true for Medicare providers, like the defendant in this case, who easily can bill and submit thousands of small Medicare claims and for whom the $5,500 - $11,000 penalty per Medicare claim can quickly lead to exposure for catastrophic damages if they lose. Essentially, the Court's ruling has brought common sense back to the analysis of when a false claim arises when dealing with ambiguous regulations. Now, at least in the 8th Circuit, a defendant who reasonably interprets an ambiguous regulation in the absence of a contrary authoritative regulation cannot know that its interpretation is false and thus cannot be found guilty of violating the False Claims Act.