The False Claims Act And Healthcare Providers: Key Results From 2012 And Likely Trends For 2013

From the perspective of False Claims Act ("FCA") results, 2012 was a decidedly mixed year for healthcare providers. The bad news was quite bad—increased FCA scrutiny by the Department of Justice ("DOJ") led to $3 billion of healthcare-related FCA judgments and settlements (60% of the total 2012 amount for all industries). Yet there was still some good news: In many of the FCA cases in which courts reached the merits, healthcare providers won, including successful results at the trial and appellate levels.

If 2013 trends follow the path of 2012, healthcare providers will continue to face— and endure the expense of defending—increasing numbers of FCA claims. But they may take some (perhaps cold) comfort knowing that judicial skepticism toward the most aggressive FCA prosecutions may be growing and with it the likelihood of providers' ultimate success in those cases.

The mixed results of 2012 are seen clearly in the following key FCA cases decided last year. While the first five represent generally positive developments for healthcare providers, the latter six demonstrate the steep challenges providers continue to face.

United States of America ex rel. Julie Williams v. Renal Care Group, Inc. et al., 696 F.3d 518 (6th Cir. 2012)

In perhaps the most emphatic provider victory of 2012, the Sixth Circuit reversed the trial court's summary judgment in favor of the government and the resulting $82 million damages award. In Renal Care Group, several healthcare providers had created separate subsidiaries (with their own supplier numbers) to gather Medicare reimbursement of dialysis supplies at the higher rate for independent companies (so-called "Method II"), rather than the lower rate for the companies that also ran dialysis facilities.

In analyzing the two main counts, the Sixth Circuit rejected the government's theories and overturned the trial court's rulings. In count one, the court examined whether the claims were in fact false and whether defendants had the requisite knowledge. With respect to falsity, the court rejected the government's focus on defendants' attempt to seek better reimbursement rates as evidence of falsity, commenting that "[w]hy a business ought to be punished solely for seeking to maximize profits escapes us." With respect to knowledge, the court found that the FCA's reckless disregard standard only applied to a defendant who "buried his head in the sand," a standard not met here. Among the factors undermining reckless disregard were that Renal Care Group (1) sought legal counsel; (2) allowed its legal counsel to seek clarification on the rules from Centers for Medicare and Medicaid Studies ("CMS") officials; (3) had documentation confirming that CMS officials agreed that the arrangement was legal; (4) was aware of large dialysis providers that had wholly-owned subsidiaries filing for Method II reimbursements; (5) had its position confirmed by industry publications that openly encouraged the use of Method II reimbursements to increase profit; (6) kept the higher-reimbursement entity separately incorporated with its own Medicare supplier number; and (7) gave evidence that CMS and the Office of Inspector General ("OIG") knew of the ownership structure.

In count two, the government contended that defendants were subject to FCA liability by not complying with the durable medical equipment standards set forth in 42 U.S.C. § 1395m and the accompanying regulations. The Sixth Circuit again rejected that argument and vacated the summary judgment. In...