A recent decision by the United States Court of Appeals for the Sixth Circuit reaffirms that health care companies cannot be punished simply for attempting to make a profit. In United States v. Renal Care Group, No. 11-5779 (6th Cir. Oct. 5, 2012), the court reversed a False Claims Act ruling in favor of the government relating to a kidney dialysis provider. Renal Care Group, Inc., a dialysis service provider, had formed a subsidiary, Renal Care Group Supply Company, to take advantage of higher Medicare reimbursement (Method II) rates provided to entities that only supplied dialysis equipment to home dialysis patients. The Medicare reimbursement scheme in this area is structured this way to encourage relatively less costly home dialysis. The trial court granted judgment in favor of the government, finding that defendants acted in reckless disregard of Medicare statutes and regulations.

After analyzing the relevant statutes and regulations, the appellate court reversed, explaining that the establishment of the subsidiary to take advantage of enhanced reimbursement “is not obviously inconsistent with Congress’s goals for the payment scheme.” The court also found that defendants did not act with reckless disregard, as they made repeated attempts to seek clarification of the governing rules and regulations, which were ambiguous.

Importantly, in making its ruling, the court noted that “the United States focus[ed], somewhat obsessively, on evidence demonstrating that [defendants] sought Method II reimbursements for the sole purpose of increasing its profit margins.” The court concluded: “Why a business ought to be punished solely for seeking to maximize profits escapes us.”

This decision should give some comfort to health care companies. In bringing enforcement actions against health care entities, the government can at times focus solely on a company’s efforts to increase revenue or enhance its profit margins. But these efforts in themselves are obviously not illegal, as the Sixth Circuit emphasized. Without evidence of violations of a statute or regulation, the government’s enforcement action must fail.