False Claims Act Litigation—2012 Year In Review

Within the first year of CMS’ launch of a state-of-the-art predictive analytics technology, referred to as the Fraud Prevention System (FPS), the program generated leads for 536 new fraud investigations, provided new information for 511 pre-existing investigations, and triggered thousands of provider and beneficiary interviews to verify that legitimate items and services were provided to beneficiaries, according to CMS’ Report to Congress, “Fraud Prevention System–First Implementation Year.” CMS’ implementation of FPS has resulted in a shift in strategy going beyond a “pay and chase” approach to a more effective strategy that identifies fraud before payments are made, CMS said.

Even as CMS aggressively worked to minimize fraud in the Medicare and Medicaid programs, various types of health care compliance litigation relating to the False Claims Act were working their way through different courts. Below is a summary of some of the more significant decisions.

U.S. ex rel Parks v. Alpharma, 4th Cir., August 14, 2012. The trial court correctly ruled that a former sales representative for drug manufacturer Alpharma, Inc., had not made a prima facie case for retaliatory termination because the employer did not have notice that she might bring a lawsuit under the False Claims Act (FCA). The sales representative told her superiors that she was concerned that their marketing of Kadian, a morphine-based drug, might be for off-label use, but she never mentioned the possibility of FCA litigation.

Gonzalez v. Fresenius Medical Care North America, 5th Cir., July 30, 2012. A district court properly granted the motions for judgment as a matter of law filed by an end-stage renal disease (ESRD) service provider and a physician on the relator’s False Claims Act (FCA) claims. The relator’s claims that her employment was terminated because of her qui tam action were without merit since she did not produce evidence that her employer knew of the action and the employer showed good cause for her termination. The court correctly awarded attorney’s fees to the provider and physician from the relator’s counsel, who unreasonably and vexatiously multiplied proceedings.

USA ex rel Williams v. Renal Care Group, Inc., 6th Cir., October 5, 2012. The decision that a dialysis provider and its wholly owned subsidiary created their corporate structure to file false Medicare claims in order to take advantage of two separate Medicare billing structures applicable to end-stage renal disease (ESRD) patients was reversed in part and remanded in part for further consideration. The dialysis provider had sought clarification of federal laws regarding corporate structure and ESRD billing with the Health Care Financing Administration (HCFA), which was denied by the U.S. during the first two years of litigation. The district court’s ruling that the provider had violated the False Claims Act (FCA) was reversed because the U.S. did not show that the provider met all four elements of the FCA, and summary judgment was granted to the provider as the record indicated the provider did not knowingly present a false claim. The remainder of the claims against the provider were reversed and remanded for further consideration because the district court did not provide enough record on the claims at hand.

Thompson v. Quorum Health Service, LLC, 6th Cir., June 22, 2012. The jury verdict finding that Quorum Management Services (Quorum), a healthcare management company, fired an employee in retaliation for his filing a qui tam lawsuit was proper. To establish retaliatory discharge, the employee must prove that the employer took an adverse employment action with knowledge that the employee was engaged in protected activity. If the employer offers a business justification for the employment action, the employee may overcome that evidence by proving that the stated reason was a pretext. Quorum suspended Thompson shortly after learning that he had filed the qui tam action. The stated reason, Thompson’s failure to comply with Quorum’s Code of Conduct, was probably pretextual because of the timing of the adverse action and because there was no further investigation into his alleged violations, and the employer could not articulate the reason that it decided to raise the adverse action from suspension with pay to termination.

United States v. Castro-Ramirez, 6th Cir., February 13, 2012. There was sufficient evidence to support a physician’s conviction for Medicare fraud. The government submitted evidence that the physician signed Medicare forms authorizing physical and occupational therapy for many individuals who he never evaluated and gave pre-signed forms to a co-conspirator to fill out at a later date. There is also evidence that he recruited Medicare beneficiaries to join this fraud by giving them prescriptions for narcotics and other controlled substances, amounting to approximately 50,000 prescriptions to 479 “patients.” The evidence shows that the physician was involved for years in a coordinated and tiered conspiracy that enabled the physician and his co-conspirators to bilk Medicare and reduce the risk of detection. Accordingly, his conviction for conspiracy to commit health care fraud and launder money and eleven counts of health care fraud was affirmed.

U.S. ex rel. Goldberg v. Rush University Medical Center, 7th Cir., May 21, 2012. A federal district court improperly dismissed a qui tam action, which alleged that a hospital fraudulently billed Medicare because the allegations were not “substantially similar” to the disclosures in earlier government reports. A Government Accountability Office (GAO) report and physicians at teaching hospital (PATH) audits revealed that, generally, attending physicians failed to provide direct supervision of residents in teaching hospitals as required for Medicare reimbursement; however, these findings did not disclose a particular fraud by a particular hospital. The relators’ complaint described a specific kind of deception practiced by a specific hospital by highlighting the hospital’s practice of allowing teaching physicians to supervise multiple operations simultaneously. Although the general fraud had previously been disclosed, the realtors provided new and material information and qualified as the original source of the information in light of United States ex rel. Baltazar v. Warden. Accordingly, the district court’s dismissal was vacated and the case was remanded for review of the particular facts of the case.

Stop back tomorrow for a look at 2012 Affordable Care Act litigation.