FCA defendants were hopeful in the wake of the 2019 ruling of the Eleventh Circuit Court of Appeals in United States v. AseraCare, Inc.,1 which held that in the context of hospice reimbursement, a “reasonable difference of opinion among physicians” as to a medical provider’s judgment regarding hospice eligibility could not, on its own, satisfy the element of falsity for FCA2 purposes. The Eleventh Circuit held that so long as the clinical judgment is “properly formed and sincerely held,” a different physician disagreeing with the judgment does not make the judgment false for purposes of the FCA. Instead, additional evidence of objective falsity is required, such as proof that the certifying physician did not examine the underlying medical records or did not subjectively believe in the certification they made, or expert testimony showing that no reasonable physician could have concluded that a patient was terminally ill (and thus eligible for hospice reimbursement) given the relevant medical records.3
Defendants rightfully saw the ruling as narrowing the scope of FCA liability, and hoped it would be a bellwether indicating the path for other courts to follow. However, in 2020, both the Third and Ninth Circuits weighed in and held that differences in clinical opinions regarding medical necessity can form the basis of FCA violations. While it may be possible to reconcile the circuit court opinions, the continued upheaval over this aspect of FCA liability suggests a circuit split has developed. Not surprisingly, the Supreme Court has been asked to settle this critical question.
United States ex rel. Druding v. Care Alternatives
First, on March 4, 2020, in United States ex rel. Druding v. Care Alternatives, Inc., the Third Circuit Court of Appeals determined that a dispute between physician experts, even without additional indicia of “objective falsity,” was enough to create a triable issue of fact for the jury and defeat the defendants’ motion for summary judgment.4 In doing so, the Third Circuit expressly disagreed with the Eleventh Circuit.
Like the relators in AseraCare, the qui tam relators in Care Alternatives alleged that Care Alternatives, a hospice care provider, submitted false claims for reimbursement to Medicare and Medicaid by certifying patients as eligible for the hospice benefit when they were not. Relators, who were former employees, relied solely on testimony from a medical expert who reviewed a sample of patient records and determined that certain certifications were not adequately supported by the underlying medical records, a conclusion with which Care Alternatives’ own medical expert disagreed.
In September 2018, using reasoning parallel to the Eleventh Circuit’s in AseraCare, the district court granted the defendants’ motion for summary judgment, finding the relators had not adduced sufficient evidence to show objective falsity.5
The Third Circuit reversed, holding there are circumstances in which an opinion may be considered “false,” and that a reasonable difference of opinion among medical experts was sufficient to establish a triable issue as to falsity. The Third Circuit found that by employing the “objective falsehood” standard, the district court and the Eleventh Circuit in AseraCare conflated falsity with scienter, which, under the plain language of the FCA, is a separate and distinct element of an FCA claim.6 According to the Third Circuit, the subjectivity of a medical opinion is relevant not to falsity, but to proving scienter – i.e., that the false determination regarding the patient’s prognosis was made knowingly, which in turn “helps to limit the possibility that hospice providers would be exposed to liability under the FCA any time the Government could find an expert who disagreed with the certifying physician’s prognosis.”7
The Third Circuit, which has embraced the theory that a claim of falsity can arise either “when the facts contained within the claim are untrue” (objective falsity), or when a certification does not comply with relevant regulatory requirements (legal falsity), found that the district court (and the AseraCare court) overlooked how a disagreement between medical experts can be used as evidence of legal falsity, because it can demonstrate that the required clinical information and other documentation did not support the certification.
Winter ex rel. United States v. Gardens Regional Hospital and Medical Center
On March 23, 2020, just weeks after the Third Circuit’s Care Alternatives decision, the Ninth Circuit Court of Appeals stepped into the fray and reached a similar conclusion, albeit outside the hospice care context. In Winter ex rel. United States v. Gardens Regional Hospital and Medical Center, the Ninth Circuit held that “objective falsity” is not required for FCA claims. In Winter, the relator, a former hospital employee, contended the defendants had falsely certified that patients’ inpatient hospitalizations were medically necessary, based on statistical evidence showing a pattern of admissions of patients from a particular nursing home who did not meet admissions criteria, allegations of pressure by management to increase hospital admissions, and other circumstantial evidence. The district court granted defendants’ motion to dismiss, stating “a plaintiff must show that a defendant knowingly made an objectively false representation” because “subjective medical opinions . . . cannot be proven to be objectively false.”
The Ninth Circuit reversed, holding that Congress did not limit the FCA to “objective falsity” or carve out an exception for clinical judgments. In concluding a certification of medical necessity can be false, the court pointed to circumstances where the physician’s opinion is not honestly held or is based on false underlying facts.
The Ninth Circuit (in contrast to the Third Circuit) carefully harmonized its holding with that of the Eleventh Circuit in AseraCare. The Ninth Circuit pointed out that the AseraCare opinion was limited to physicians’ determinations regarding hospice eligibility and did not necessarily extend to certifications of medical necessity in other contexts subject to different regulatory regimes. The court further noted that the Eleventh Circuit was not asked to consider whether a medical opinion could ever be false or fraudulent, but instead answered the narrower question regarding whether reasonable disagreement between medical experts, without more, was enough to prove falsity at the summary judgment stage.
Perhaps the most important distinction between Winter and AseraCare is that the Winter disposition came at the pleading stage, and the relator at least alleged more than a mere disagreement in medical judgment, including that the defendants were manipulating hospital admission decisions (facts which would indeed be capable of objective proof).
Finally, the Ninth Circuit emphasized that “after alleging a false statement, a plaintiff must still establish scienter” in order to succeed in establishing a claim under the FCA. The court reminded the district court, however, that scienter need not be pleaded with particularity under Rule 9(b) of the Federal Rules of Civil Procedure.
Will the Supreme Court get involved?
On September 16, 2020, Care Alternatives filed a petition for writ of certiorari in the U.S. Supreme Court, seeking review of the Third Circuit’s decision, and in particular “[w]hether a physician’s honestly held clinical judgment regarding hospice certification can be ‘false’ under the [FCA] based solely on a reasonable difference of opinion among physicians.”13 The petition argued that the split between the Third and Eleventh Circuits is “stark” and “outcome-determinative,” and “exacerbates the broader disarray among the courts of appeals regarding when an opinion, including physicians’ clinical judgments, can be ‘false’ under the FCA.”
Given the division between the Third and Eleventh Circuits in near-identical cases, and the importance of the question raised, there is a reasonable chance that the Supreme Court could grant certiorari in Care Alternatives. The Supreme Court has requested a response to the petition in Care Alternatives, and will likely decide whether to grant the petition sometime in early 2021. If the Supreme Court takes up the case and ultimately sides with the Third Circuit, it could make it easier for the government or a relator to survive summary judgment in FCA cases involving clinical opinions. Conversely, if the Supreme Court adopts the Eleventh Circuit’s approach, it could make it easier for defendants to obtain summary judgment in FCA actions. For further analysis of these issues, the Chamber of Commerce’s amicus brief in Care Alternatives provides an in-depth look at the circuit split and policy concerns.
Looking ahead
The decisions by the Third and Ninth Circuits in Care Alternatives and Winter may lead defendants to focus or reframe arguments on the scienter element of the FCA in cases premised on allegations regarding a lack of medical necessity underlying submitted claims. Unfortunately, because scienter may be alleged generally at the pleading stage and can also be difficult to disprove indisputably at summary judgment, these cases may further limit FCA defendants’ chances of obtaining dismissal prior to trial and result in an unwelcome choice between litigating through discovery or even a trial, or settling.
At a higher level, the issue of whether subjective opinions can create FCA liability is not limited to the health care setting. It can arise in many other professions and industries. With approximately $4 trillion in government assistance being disbursed in 2020 to combat the effects of the COVID-19 pandemic, the stakes for potential exposure under the FCA could not be higher.
As the pandemic continues to disrupt business operations around the world, a decision in Care Alternatives could have significant ramifications for any business that availed itself of government assistance. Specifically, as discussed in detail in The CARES Act serves up COVID-19 relief funds along with potential risks and defenses, businesses that received forgivable loans through the Paycheck Protection Program (PPP) were required to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations” of their business. If the Supreme Court affirms the Third Circuit’s decision in Care Alternatives, businesses facing FCA claims that allege they falsely certified necessity may find it more difficult to obtain an early disposition. With more than 5.2 million businesses having received PPP loans and more than $525 billion in loan disbursements, it is clear why the Supreme Court’s handling of the certiorari petition in Care Alternatives will continue to draw significant interest.
References
1. 938 F.3d 1278 (11th Cir. 2019).
2. Id. at 1297.
3. Id.
4. United States ex rel. Druding v. Care Alts., 952 F.3d 89, 96 (3d Cir. 2020).
5. Druding v. Care Alts., Inc., 346 F. Supp. 3d 669, 685 (D.N.J. 2018).
6. United States ex rel. Druding v. Care Alts., 952 F.3d 89, 96 (3d Cir. 2020).
7. Id. (citing United States ex rel. Polukoff v. St. Mark’s Hosp., 895 F.3d 730, 743 (10th Cir. 2018)).
8. Winter ex rel. United States v. Gardens Reg’l Hosp. & Med. Ctr., Inc., 953 F.3d 1108 (9th Cir. 2020).
9. Id. at 1113.
10. Id. at 1118-19.
11. Id. at 1118.
12. Id. at 1122.
13. Petition for Writ of Certiorari, Care Alts. v. United S 13 tates, et al. ex rel. Druding, et al., No. 20-371 (Sept. 16, 2020).
14. Small Business Administration, SBA Form 2483, Paycheck Protection Program Borrower Application Form (Apr. 2020), available at https://www.sba.gov/sites/default/files/2020-04/PPP-Borrower-Application-Form-Fillable.pdf.