In the face of increased scrutiny, civil lawsuits and fines under the False Claims Act (“FCA”), the Sixth Circuit Court of Appeals decision in Chesbrough v. VPA was a welcome development for potential FCA qui tam defendants.  The pool of such defendants primarily includes any healthcare provider or company that submits claims to Medicare and Medicaid.  The Chesbrough decision helps protect potential defendants from frivolous False Claims qui tam actions and limits the “implied false certification” basis for such claims.

  1. Facts and Analysis behind Chesbrough v. VPA.

In Chesbrough v. VPA, the plaintiffs (or “qui tam relators"[1]) – the Chesbroughs – operated a radiology service business that interpreted images created by the Defendant, Visiting Physicians Association (“VPA”).  Chesbrough v. VPA, P.C., 655 F.3d 461, 464 (2011).  The Chesbroughs relied on the “implied certification” theory to establish fraud under the FCA.  When an individual or entity submits claims to the government for reimbursement, the individual or entity implicitly certifies that it has complied with all conditions that are prerequisites for reimbursement. 

  1. The “Implied False Certification” Theory

Under the "implied certification" theory, an individual or entity violates the FCA if it submits claims for reimbursement when the individual or entity has failed to comply with all prerequisites for reimbursement. The Chesbroughs alleged that VPA violated the FCA based on the implied false certification theory because: (1) VPA violated HIPAA regulations by not preserving patient confidentiality; (2) VPA was not owned by a person licensed to perform medical services, and (3) VPA sent images to the Chesbroughs that failed to meet objective industry standards for testing.

The Court found that compliance with HIPAA regulations is not a condition of payment from the government.  Additionally, there are no Medicare or Medicaid regulations that condition payment on whether the claimant company was owned by a person licensed to perform medical services.  Since neither of these were prerequisites for payment, the implied false certification theory was not a basis for liability. 

  1. Compliance with “Industry Standard” is Not a Prerequisite

Similarly, compliance with industry standards for medical care is not a pre-requisite to payment.  Consequently, VPA could not be liable under the implied certification theory even if it had failed to meet those industry standards.  The Chesbroughs submitted twenty-seven x-ray studies and ten vascular ultrasound studies as exhibits to the complaint.  Most of the studies were of poor quality and could have failed to meet industry standards, but the Sixth Circuit found that courts were not the appropriate enforcers of medical standards. 

  1. Qui Tam Relators Must Identify Specific Claims for Reimbursement that Defendant Actually Submitted in Violation of the FCA

Interestingly, five of the studies submitted were described as non-diagnostic.  Because non-diagnostic images were considered to have no medical value, the Court found that submitting claims for payment for the non-diagnostic images would amount to submitting claims for services not actually rendered and would be fraudulent under the FCA.  Nonetheless, the alleged FCA violation as to the non-diagnostic studies was dismissed because the Chesbroughs could not tie the non-diagnostic tests to specific claims for reimbursement that VPA actually filed with Medicaid or Medicare.  The non-diagnostic images alone were insufficient.  The fact that the information as to what claims VPA submitted to the government were “exclusively within VPA’s control” did not ease the requirement placed on relators to identify specific claims actually filed for reimbursement.

The Court left open the possibility that in certain cases, a qui tam relator would not be required to identify specific false claims actually filed with the government, but Chesbrough was not one of those cases.  A relator may not be required to identify specific false claims actually filed when, “even though the relator is unable to produce an actual billing or invoice, he or she has pled facts which support a strong inference that a claim [for reimbursement] was submitted.”  Such an inference arises when the relator has personal knowledge that the claims were filed, for example, if the relator worked in the defendant’s billing department.

  1. FCA Actions in the Sixth Circuit Post-Chesbrough.

For implied false certification liability under the FCA, the qui tam relator must identify a violation of a condition that was a prerequisite for payment.  Chesbrough clarifies that meeting industry standards for the services performed is not a prerequisite for payment of claims submitted to Medicare or Medicaid.  As a result, submitting claims for services performed despite failure to meet industry standards would not constitute fraud under the FCA.  Similarly, failure to comply with federal regulations that are not conditions of payment would not amount to fraud under the FCA.

After Chesbrough,the Sixth Circuit clearly requires that qui tam relators identify specific false claims that were actually filed, even if the information as to claims filed is exclusively within the defendant’s control.  The specific false claims that the relator identifies must be “representative” of the other alleged false claims.  If the relator fails to identify specific false claims that were actually filed, then the lawsuit should be dismissed early in the litigation proceedings.  However, in limited instances a relaxed requirement as to identification of actual false claims could apply.  The relaxed standard is appropriate only when a strong inference can be made that the false claims were submitted, for example, if the qui tam relator has personal knowledge that the false claims were submitted.