Court OKs Qui Tam Lawsuit against Lab for Not Following Medicare LCD

The False Claims Act (FCA) (31 U.S.C. §§ 3729 – 3733) imposes civil liability on any person who “knowingly” presents, or causes to be presented, a false claim for payment to a federal government program. It also authorizes private individuals known as relators to file qui tam whistleblower lawsuits against violators on behalf of the federal government. FCA lawsuits, whether brought by the federal government or whistleblower, often turn on what exactly “knowingly” means. This is particularly the case when the regulatory rule that a defendant knowingly violated is ambiguous, complex, or otherwise unclear.

One especially controversial aspect of the “knowingly” conundrum is whether nonbinding government guidance purporting to explain unclear regulations is relevant in determining what a defendant accused of violating the FCA knew or should have known when submitting the claim. More precisely, does going against what guidance on the particular requirement advises constitute evidence that the defendant acted knowingly? A recent federal case from Florida addresses a twist to this question: What happens if the guidance comes not from a government agency, but one of its contractors, like a Medicare Administrative Contractor (MAC)?

The Revels Case

The case began when a polysomnography technologist filed a qui tam lawsuit accusing its ex-employer, Florida hospital Putnam Community Medical Center (PCMC), and its current owner, HCA Healthcare, of falsely billing for sleep and cardiopulmonary tests that weren’t “reasonable and necessary” under Medicare coverage rules because they weren’t provided under a physician’s supervision. PCMC and HCA denied the claim and disputed the technologist’s contention that coverage rules require the tests to be supervised by a physician. They noted that the technologist’s interpretation of the physician supervision requirement was based not on actual Medicare regulations but a Local Coverage Determination (LCD) from the MAC. So, they contended that his qui tam claim was legally invalid and asked the Florida federal court to dismiss it without a trial.  

Among those opposing the motion to dismiss was the U.S. Department of Justice (DOJ). While it had decided not to intervene in the case, the DOJ did file a Statement of Interest expressing the view of the Biden administration that regulatory guidance, including LCDs, does constitute evidence of liability for acting knowingly.

The Florida court sided with the technologist, finding that the LCD was authority enough to survive PCMC and HCA’s motion to dismiss. Having won the right to take his qui tam case to court, the technologist now faces the burden of actually proving that the defendants submitted false claims for sleep and cardiopulmonary tests and did so knowingly. Based on how the court described the case, the LCD will apparently be his primary evidence for making out that case. Whether that evidence proves to be enough remains to be seen [United States ex rel. Revels v. Putnam Cmty. Med. Ctr. of N. Florida, LLC, 2022 U.S. Dist. LEXIS 195168].

However, the case may not even get to that point. Having lost their motion to dismiss without a trial, PCMC and HCA are now under increased pressure to shell out a substantial sum of money to keep the case out of court.

The Regulatory Guidance “Knowingly” Controversy

Meanwhile, the controversy over the legal authority of regulatory guidance materials that are supposed to be nonbinding continues to loom over labs and other providers. The practice of infusing guidance with legal authority violates the constitutional principal that government agencies may regulate only within the authority that Congress delegates to them. The instrument of Congressional delegation, a law called the Administrative Procedure Act, requires federal agencies to go through the notice-and-comment rulemaking process to promulgate new regulations. The guidance that agencies issue doesn’t require notice-and-comment rulemaking.

With this in mind, then U.S. Attorney General Jeffrey Sessions issued a memorandum in 2017 banning publication of guidance documents “that purport to create rights or obligations binding on persons or entities outside the Executive Branch (including state, local, and tribal governments).” The Sessions Memorandum directed the DOJ to refrain from treating guidance as being mandatory for purposes of not only the FCA, but all federal laws.¹

The so called Brand Memo (named for then-Associate Attorney General Rachel Brand), that the Trump administration issued nearly three months after the Sessions Memorandum, banned the DOJ from using “its enforcement authority to effectively convert agency guidance documents into binding rules.” Specifically, “this memorandum applies when the Department is enforcing the [FCA], alleging that a party knowingly submitted a false claim for payment by falsely certifying compliance with material statutory or regulatory requirements.”²

However, the Biden administration takes a completely different view of the issue. Thus, on July 1, 2021, Attorney General Merrick Garland issued a memorandum rescinding the Sessions and Brand memoranda.³ The Garland Memo contends that the previous administration’s directives against using guidance materials as evidence of proving defendants acted “knowingly” in FCA cases are “overly restrictive” and might discourage agencies from developing guidance in the first place. Two weeks later, the DOJ issued an interim final rule to officially implement the Garland Memo and expunge the rules effectuating the Sessions and Brand policies.

Takeaway

As of now at least, the Sessions and Brand memoranda effectively didn’t happen. The DOJ and U.S. Attorneys have returned to their pre-Trump practice of relying on Medicare Manuals, agency memoranda, advisory opinions, and other guidance documents to go after labs that don’t follow guidance advice. The Revels case takes that policy to a new extreme by extending it to LCDs issued by MACs.

References:

1. https://www.justice.gov/opa/press-release/file/1012271/download
2. https://www.justice.gov/file/1028756/download
3. https://www.justice.gov/opa/page/file/1408606/download