In the Care Alternatives False Claims Act (FCA) appeal, a panel of the US Court of Appeals for the Third Circuit on March 4 reversed the summary judgment granted to hospice provider Care Alternatives at the district court, disagreeing with AseraCare precedent out of the US Court of Appeals for the Eleventh Circuit, and holding that clinical disagreement alone may comprise legal falsity and is sufficient to create a triable issue of fact for the jury.

The opinion sets up a potentially significant circuit split, worthy of eventual US Supreme Court review on the FCA legal standard of falsity. If en banc review before the entire Third Circuit Court of Appeals is not sought, the case is remanded back to the US District in New Jersey for trial consistent with the opinion.

The Third Circuit’s decision raises a few noteworthy points:

  • The case originates from a qui tam filed by four former employees more than seven years ago. The US Department of Justice (DOJ) declined to intervene in the proceeding. The allegations asserted that Care Alternatives admitted patients who were ineligible for hospice care and directed its employees to improperly alter those patients’ Medicare physician certifications to reflect eligibility. The opinion had no discussion of any record evidence of altering physician certifications, which effectively means that the case was only about hospice patient eligibility.
  • The plaintiffs’ expert reviewed only 47 patient records and opined that patients were improperly certified (or, ineligible for the Medicare hospice benefit) for hospice services 35% of the time (16 patients). The Care Alternatives expert opined that a reasonable physician would agree with all of the certifications of eligibility. Thus, a mere difference of opinion between two medical experts was the only disputed evidence of falsity.
  • In rejecting significant precedent at the district court and circuit court levels, the Third Circuit panel decision found that proof of falsity does not require an objective falsehood that the physician’s prognosis of terminal illness was incorrect to show the falsity element. In other words, clinical disagreement alone, without an indicia of a lie or kickback, may comprise subjective and actionable falsity under the FCA.
  • The court made an interesting distinction between FCA falsity and the FCA knowledge and materiality elements, reasoning that each concept serves separate elements under the FCA and scienter potentially limits the possibility that hospice providers may be liable under the FCA any time an expert disagrees with a certifying physician’s medical prognosis of terminal illness. It rejected, however, that mere clinical disagreement without more could not be false under the FCA. Falsity may be established “based upon non-compliance with regulatory instructions and not just objectively verifiable facts.” Slip op. at 14. Here, under the Medicare hospice benefit regulatory scheme, claims may be legally false if there is a false certification that the provider has complied with a statute or regulation that is a condition for payment. Slip op. at 14-15.

The court explained that “[t]he FCA falsity test asks only whether the claim submitted to the government was reimbursable based on the conditions of payment set by the government.” Slip op. at 16. Under legal falsity, a relator or DOJ only needs to show that a hospice provider failed to meet at least one of two regulatory requirements: (1) Physicians certified a patient as terminally ill, and (2) the certification’s medical prognosis was reasonably supported by the clinical information and documentation requirements of 42 CFR 418.22. Slip op. at 16.

The reasoning in the opinion begs even more questions for providers that work hard to manage risk and have good compliance programs. The falsity test proposed does not seem to be the right question to prove fraud liability. If a claim does not meet a condition of payment, is that better viewed as a potential overpayment by mistake or error or other noncompliance? The court’s reasoning in Care Alternatives seems to suggest that the defect in the claim per se meets the falsity test as opposed to whether there is a credible assertion of a lie or other indicia of fraud. This is not a reasonable statutory approach for a highly punitive statute.

If all errors meet a falsity element, then the Medicare adjudication process, including arguably the 60-day rule to return overpayments, is defeated. If falsity is simply a question of whether a claim is reimbursable and compliant with Medicare reimbursement instructions, then what evidentiary role do the knowledge and materiality elements really play in assessing punitive fraud liability? The opinion, although broadly positing such an idea, does not explain how the knowledge and materiality elements would limit potential FCA exposure for mere clinical disagreement.

What is clear is that this area of the law remains a legal muddle and that a healthcare provider’s risk stemming from qui tam lawsuits when providing hospice and other services to a community remains unreasonably high.