The Eighth Circuit Court of Appeals recently concluded that False Claims Act liability does not exist where the alleged “false claim” amounts to nothing more than regulatory noncompliance that is not material to the government’s decision to disburse payment.
In United States ex rel. Ketroser v. Mayo Foundation, 729 F.3d 825 (8th Cir. 2013), the relators alleged that the defendant violated the False Claims Act by fraudulently submitting claims for Medicare payments for services that it did not provide. At issue in the case was the defendant’s “dual-slide” procedure for analyzing tissue samples taken during surgery. As stated in the court’s opinion, the defendant prepares one slide—the “frozen slide”—during surgery, which is diagnosed immediately while the patient is still in surgery. Later, it prepares a second slide— the “permanent slide”—from the remaining sample, which is diagnosed after surgery. While the defendant always prepares a written report based on the frozen slide, it often does not prepare a second report based on the permanent slide.
Relators argued that Medicare regulations require the preparation of a second, separate written report for every permanent slide for which a health care provider invoices the government for payment. They argued that the billing codes for these services include accession of the tissue, examination and reporting, and argued that by using these codes, the defendant falsely represented that it had created a written report for the permanent slides when, indeed, it had not.
The Minnesota District Court dismissed the claim, finding that the billing codes do not explicitly require written reports for surgical pathology services. Relators appealed.
On appeal, the Court of Appeals affirmed the district court’s decision. Based on its examination of the relevant regulations, the appellate court concluded that the regulations do not require a written report for each surgical pathology slide. The court therefore held that in the absence of a clear requirement, relators alleged “nothing more than regulatory noncompliance,” which fails to state a claim under the False Claims Act.
The court’s conclusion is the proper and logical extension of the rule that non-material, technical breaches of contract terms is not sufficient to create liability under the False Claims Act when the contractor receives payment in spite of the breach. In addition, it is significant to note that this court found that the analysis would not change regardless of whether it applied the old or amended version of the False Claims Act. Therefore, notwithstanding all of Congress’ efforts to broaden the scope of the False Claims Act through various amendments, the court reasoned that under both versions, to establish liability under the False Claims Act, which can result in the imposition of treble damages and substantial civil penalties, a relator or the government must demonstrate that the alleged false record or statement is “material to” a false or fraudulent request or demand for money or property from the government. See 31 U.S.C. § 3729. Where alleged violations of law or contract are not material to a claim for payment, no False Claims liability will arise.