Compliance Perspectives: California Case Illustrates Lab’s Liability Risks for “Causing” MDs to Submit False Claims

False Claims Act (FCA), 101: Knowingly submitting a false claim to Medicare or another federally funded health care program is a violation. But what’s lesser known is that your lab can also be liable for an FCA violation without actually submitting a claim. How? Answer: By “causing” a third party to submit a false claim. violates the False Claims Act (FCA). A new California federal court ruling offers new insight into this significant but often overlooked “cause to submit” rule. What Happened The case, United States of America v. Carolina Liquid Chemistries, was a whistleblower suit brought by a former CEO and a former corporate director of a urine drug testing (UDT) equipment manufacturer. Their contention: Specifically, the equipment the UDT company manufactured was capable of performing only “qualitative” drug testing producing a yes/no result for certain classes of drugs; but the company marketed the product as being capable of performing quantitative chromatography or mass spectrometry test that can detect and measure the quantity of specific drugs. In addition to being more complex, “quantitative” testing is reimbursed at a higher rate than qualitative testing.  for specific drugs and their quantities even though it was designed to perform only simple “qualitative” drug testing. Of course, while it may be illegal under other laws, false marketing of equipment doesn’t necessarily make a company liable for committing an FCA violation since the company doesn’t actually bill for the services the equipment is used for. And that’s where the “causing” language of the FCA came into play. The whistleblowers claimed the manufacturer “caused” its physician office to submit false claims by instructing them to “upcode” claims by using CPT codes for more complex and higher-paying UDT tests than were actually performed. What the Court Ruled In addition to denying the accusations, the company argued that the whistleblowers didn’t have a valid FCA claim for “causing to submit” because they couldn’t identify which claims the company allegedly caused to be submitted to Medicare and Medicaid. The U.S. District Court for the Northern District of California agreed and granted the company’s motion to toss the whistleblowers’ claims without a trial. In so doing, the court made two crucial rulings:

1. No Need to Point to Specific Claims

First, the company said that the whistleblowers didn’t have a valid claim because they couldn’t identify which claims it allegedly caused the physicians’ offices to bill. But the court rejected that argument. While some federal courts in other Circuits may take a different position, the Ninth Circuit (where California is located) doesn’t require whistleblowers to “identify representative examples of false claims to support every allegation.” Instead, all a whistleblower has to do is “allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” This is particularly true, the court added, where the claim is based on a “causing to submit” theory.

2. Whistleblowers Do Have to Explain How Scheme Worked

But the company had more success with its second argument, namely, that the whistleblowers didn’t specify exactly what it did to cause physicians’ offices to submit the false claims. Showing why the marketing claims were false and that upcoding took place, assuming the whistleblowers could prove those allegations, wouldn’t be enough. To prove an FCA violation, the whistleblowers had to show how the marketing scam actually worked—the “who, what, when, where and how of the alleged fraud”—and how it resulted in causing false claims to be billed. But the complaint didn’t list any of these crucial details, the court found. The good news for the whistleblowers is that it wasn’t a final defeat since the court said they could amend the complaint and fill in the missing particulars. Takeaway: Liability Risks for Causing Third Parties to Submit False Claims Recognize that the false representations you make in your marketing materials and activities can expose you to risk of FCA liability if downstream clients rely on those misrepresentations to submit false claims. For lab managers, the significance of the Carolina Liquid Chemistries case is in illustrating the parameters of “causing to submit” liability in whistleblower lawsuit. The lesson is that at least in most federal Circuits, whistleblowers don’t have to trace back allegations of false marketing to specific Medicare or Medicaid claims submitted by downstream clients or customers. As long as the whistleblowers can show that a fraudulent scheme took place and how it worked, courts will infer that the target of the scam submitted false claims as a result. The reason the whistleblowers in Carolina Liquid Chemistries lost is that they showed the marketing claims were false but not how the scam worked.