Sixth Circuit Applies Strict Precondition Of Payment Requirement To Reverse $11.1 Million FCA Judgment

The U.S. Court of Appeals for the Sixth Circuit, in United States ex rel. Hobbs v. MedQuest Associates, Inc., 711 F.3d 707 (6th Cir. April 1, 2013), recently reversed an $11.1 million False Claims Act ("FCA") judgment, rejecting the government's argument that MedQuest, a diagnostic testing company that operates testing facilities, violated the FCA by failing to meet certain Medicare enrollment requirements. While acknowledging that MedQuest's actions "clearly were at odds with the goals and aims of the Medicare program in several respects," the Court stressed that "the bluntness of the FCA's hefty fines and penalties make them an inappropriate tool for ensuring compliance with technical and local program requirements."

The Sixth Circuit's decision overturned the U.S. District Court for the Middle District of Tennessee's grant of summary judgment to the relator and the government, which had intervened, in 2011. The government argued that MedQuest violated the FCA in two respects: (1) MedQuest used supervising physicians who had not been approved by the Medicare program and the local Medicare carrier to supervise the range of tests offered at two testing facilities, and (2) MedQuest failed to properly re-register a facility it acquired to reflect the change in ownership and continued to use the former owner's Medicare payee ID number to file Medicare claims. The district court granted summary judgment in favor of the relator and the government on both theories on the grounds that MedQuest violated the FCA by expressly and impliedly certifying compliance with Medicare regulations that it had in fact violated. The district court reasoned that MedQuest's Medicare enrollment application "included a certification, and in effect, an agreement that the physicians listed would provide direct supervision for applicable testing." Because some of the MedQuest physicians who supervised testing were not listed, MedQuest's enrollment application constituted a false certification of compliance with Medicare regulations. Likewise, the district court concluded that MedQuest's failure to update the ownership information on its Medicare registration forms when it acquired a facility, which was also required under Medicare regulations, also constituted a false certification. These false certifications, the court held, translated into MedQuest submitting false claims.

The Sixth Circuit reversed, rejecting the district court's connection between these false...