I strongly commend to you the recent case, US and State of Florida ex re Ruckh v. Salus Rehabilitation, LLC, et al, 2018 WL 375720 (1/11/2018, M.D. Fla). Applying the Supreme Court’s decision in Universal Health Services, Inc. v. Escobar, 136 S. Ct. 1989 (2016), the Court overturned a $347 million False Claims Act (FCA) trial judgment entered in favor of the Relator after a month long jury trial. The Court granted the Defendants’ motion for judgment as a matter of law and for a new trial on the grounds that the Relator failed to prove that (1) the government regarded the alleged violations of Medicaid and Medicare by a group of 53 nursing homes as material such that they would have refused to pay the Medicaid claims at issue; and that (2) the defendants submitted the Medicaid claims at issue knowing that the government would refuse to pay them if they had known about them.

Ruckh does so much more than apply a simplistic Escobar analysis of whether the government would have objected to this or that individual billing practice or paperwork errors--what I would call a retail analysis of disputed practices. Rather, acknowledging the punitive nature of the FCA’s treble damages and penalties, the Court evaluates the materiality of defendants’ disputed practices in light of “common sense” and the impact of an FCA judgment would have on the delivery of nursing home care to a large, vulnerable population. For the Court, the “controlling question” is essentially whether the government would effectively shut down 53 nursing homes on the basis of what appears to be paperwork errors–-what the court calls “traps, zaps and zingers”--about which the government “has permitted . . . to remain in place for years without complaint or inquiry.”

I won’t try to capture all of the Court’s discussion, but here are a few highlights:

  • The Court appeared to appreciate the complexity and burden of Medicare and Medicaid regulations: “Federal and state government’s regard the disputed practices with leniency or tolerance or indifference or perhaps with resignation to the colossal difficulty of precise, pervasive, ponderous, and permanent record-keeping in the pertinent clinical environment.” The evidence at trial showed that “Medicaid and Medicare consistently paid in the mine run of cases despite Medicare’s routine audits and Medicaid’s knowledge of billing documentation deficiencies.”
  • The Court explained Escobar’s meaning as follows: Escobar rejects a system of government traps, zaps, and zingers that permits the government to retain the benefit of a substantially conforming good or service but to recover the price entirely--multiplied by three--become of some immaterial contract or regulatory noncompliance. A principal mechanism to ensure fairness and to avoid traps, zaps, and zingers is a rigorous standard of materiality and scienter.
  • The Court openly questioned whether the FCA’s “punitive” treble damages and $11,000 fines can be “lawfully imposed on a supplier who delivers substantially compliant goods or services that are received and accepted by the government with knowledge of, or the indifference toward, some material, formalistic, or technical non-compliance.”
  • Acknowledging that the defendants “used qualified providers who ably provided services in accord with orders issued by qualified professional but who, for example, could not--years later--identify a ‘comprehensive care plan’ for each patient,” the Court found that “[c]ommon sense falls far, far short of depicting that . . . a reasonable purchaser would abruptly refuse to pay those providing continuing and sustaining health care to a mass of highly vulnerable and mostly elderly and frail patients.”

The Court’s key point is that evaluating the materiality of a disputed act or practice must take into account a far broader context and circumstance than simply whether the government would object to this or that individual disputed practice. Escobar, the Court instructed, “demands proof of materiality in the circumstances as they are at the time for which the proof is offered and in the place, in the industry, and in the other regnant circumstances that attend the moment for which materiality is offered.” In the case of the defendants 53 nursing homes, the Court explained:

In other words, the controlling question is not whether on a small scale — a patient or a few patients or a facility or even a few facilities or one physician, on therapy, or one pharmaceutical — but whether on a large scale, on the sale of a major statewide provider of a scarce health care resource in a large and potent state, the federal [or state] government would refuse to pay the provider because of a dispute about the method or accuracy of payment after the government has permitted a practice to remain in place for years without complaint or inquiry. . . . . If a non-compliance is found quickly and remains small, the government might likely demand perfect performance and full accounting. If compliance is larger and lingers longer and the repayment times three becomes a burden that threatens the vitality of the vendor and threatens the public interest, the government might not demand repayment times three.