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Ninth Circuit Joins Several Others in Finding that Lack of Medical Necessity Claims Can Proceed Under the False Claims Act

The Ninth Circuit Court of Appeals recently allowed a False Claims Act (FCA) case based on an alleged lack of medical necessity to proceed, rejecting the lower court's decision that subjective medical opinions about the necessity of hospitalization cannot be "objectively false."  The Ninth Circuit joins several other circuits (including the Third Circuit, which recently issued the Druding decision that we posted about a few weeks ago) in reaching this decision, which has been a rapidly evolving area of FCA law.

This case, United States ex rel. Winter v. Gardens Reg'l Hosp. & Med. Ctr., Inc., No. 2:14-cv-08850 (C.D. Cal. Nov. 14, 2014), was brought by the former Director of Care Management at Gardens Regional Hospital under the qui tam provisions of the FCA.  The relator alleged that certain admissions to the hospital were not medically necessary and were in fact contraindicated by the patients’ medical records and the hospital’s admission criteria.  As a result, the hospital purportedly submitted, or caused to be submitted, Medicare claims that falsely certified that patients’ hospitalizations were medically necessary.

The government declined to intervene in this case and the district court eventually dismissed the relator’s complaint for failure to state a claim, holding that “to prevail on an FCA claim, a plaintiff must show that a defendant knowingly made an objectively false representation.”  The court found that a statement implicating the physician’s clinical judgement could never state a claim under the FCA because “subjective medical opinions…cannot be proven to be objectively false.” 

On appeal, a panel of the Ninth Circuit Court of Appeals reversed the district court and remanded the case, holding that a plaintiff does not need to allege falsity beyond the requirements of the FCA as written by Congress.  In other words, because Congress did not include “objective falsity” as an element of the statute, the Ninth Circuit panel concluded that it did not have authority to essentially rewrite the statute to include such a requirement. 

The panel also held that a physician’s clinical opinion must be judged by the same standard as any other representation, including whether the physician (1) knows the clinical opinion to be false, or (2) renders the opinion in reckless disregard of its truth or falsity. In particular, a physician’s certification that inpatient hospitalization was “medically necessary” can be false or fraudulent for the same reasons any opinion could be, such as the opinion is not honestly held or implies the existence of facts that do not exist (e.g., that inpatient hospitalization is needed to diagnose or treat a medical condition).  A false certification of medical necessity can therefore give rise to FCA liability. 

In explaining its holding, the Ninth Circuit panel cited reasoning from Sixth Circuit Court of Appeals (among other sources) that “opinions are not, and have never been, completely insulated from scrutiny.”  The use of this language is notable because it comes from United States v. Paulus, 894 F.3d 267, 275-276 (6th Cir. 2018), where the Sixth Circuit Court of Appeals reversed a trial court’s judgment of acquittal after a jury found a cardiologist guilty of health care fraud and making false statements for allegedly exaggerating the extent of blockages in his patients’ arteries and then performing and billing federal health care programs for medically unnecessary cardiac stent procedures.  After a trial and conviction, the trial court found that the cardiologist’s assessment of the degree of blockage was a subjective medical opinion, not an objectively verifiable fact, and thus the jury could not conclude beyond a reasonable doubt that the cardiologist made a false statement. The Sixth Circuit reinstated the jury’s verdict and held that a patient’s degree of blockage is a fact capable of proof or disproof (you can read some of our coverage of the Paulus case here and here).

The Ninth Circuit acknowledged the defendants’ argument that if clinical judgments can be false or fraudulent under the FCA, doctors will be exposed to liability, but found that “policy arguments cannot supersede” the clear text of the FCA and that the court’s role was “to apply, not amend, the [statute]."  The court also observed that strict enforcement of the FCA’s materiality and scienter requirements would address concerns about fair notice and open-ended liability.  For example, the FCA requires the “knowing presentation of what is known to be false” and that “‘the phrase ‘known to be false’…does not mean ‘scientifically untrue’; it means a 'lie'.”  The panel disagreed with the lower court’s finding that only objectively false statements can give rise to FCA liability and found instead that while "falsity" is a necessary, but not sufficient, requirement for FCA liability, scienter must also be established.

Finally, the Ninth Circuit observed that other circuits had found that false certifications of medical necessary could give rise to FCA liability, including the Third, Fifth, and Tenth Circuits.  (We have previously covered the Tenth Circuit Polukoff case here, here, here, and here.)  The panel also distinguished the Eleventh Circuit’s decision in the AseraCare case that “a clinical judgment of terminal illness warranting hospice benefits under Medicare cannot be deemed false, for purposes of the [FCA], when there is only a reasonable disagreement between medical experts as to the accuracy of that conclusion with no other evidence to prove the falsity of the assessment.”  (You can find our coverage of the AseraCare case here, here, and here.) 

The Ninth Circuit panel explained that its decision did not conflict with the AseraCare decision because:

(1) the Eleventh Circuit was not asked whether a medical opinion could ever be false or fraudulent, but instead whether a reasonable disagreement between physicians without more was enough to prove falsity at summary judgment, the Eleventh Circuit’s language about “objective falsehoods” did not mean that all subjective statements (e.g., medical opinions) are incapable of falsity, and the court in fact identified circumstances in which a medical opinion could be false; and

(2) the Eleventh Circuit recognized that its “objective falsehood” requirement did not necessarily apply to a physician’s certification of medical necessity, and the court, after holding that physicians’ determinations regarding hospice eligibility were entitled to deference, explained that the medical necessity requirement remained an important safeguard against concerns that its holding might "tie CMS’s hands” and "require improper reimbursements."

When different judicial circuits take opposing views of the same issue, the question often arises as to whether the issue might be decided by the U.S. Supreme Court.  While the last month has seen several developments on the question of whether medical necessity claims can be pursued under the FCA (in the AseraCare and Druding cases, in addition to this case), it may be premature to describe the views of the various federal circuits to have considered this issue as a true "split” requiring resolution by the highest court.  Nevertheless, several courts have now established precedent that may encourage more "medical necessity" FCA cases based on differences of clinical judgment.  We will continue to monitor this area of law for further developments.

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Samantha advises clients on regulatory and enforcement matters. She has deep experience handling violations of the federal ant-kickback statute and FCA investigations for clinical laboratories and hospitals.