Winter ex rel. United States v. Gardens Regional Hosp. & Me. Ctr., Inc., __ F.3d __, 2020 WL 1329661 (9th Cir. Mar. 23, 2020)

As reported by the California Society of Health Care Attorneys, Jane Winter was responsible for reviewing patient medical records at Gardens Regional Hospital and Medical Center to determine whether admission orders met the Hospital’s medical necessity admission criteria. Shortly after a nursing home acquired ownership in the management company that oversaw operations at the Hospital, Winter alleges she noticed a spike in the number of emergency room patients transported from the nursing home—an overwhelming majority of whom were admitted for inpatient treatment. Believing this to be improper, Winter repeatedly tried to raise her concerns with hospital management, without success. Instead, she was instructed not to question the admissions, and then she was fired.

Winter brought a qui tam action under the False Claims Act alleging that the Hospital and affiliated persons submitted Medicare claims falsely certifying that patients’ inpatient hospitalizations were medically necessary. The district court dismissed Winter’s complaint for failure to plead a plausible claim, ruling that “to prevail on an FCA claim, a plaintiff must show that a defendant knowingly made an objectively false representation” and claims involving a doctor’s clinical judgment can never state a claim under the FCA because “subjective medical opinions . . . cannot be proven to be objectively false.” Winter appealed.

The Ninth Circuit reversed, explaining that “a plaintiff need not allege falsity beyond the requirements adopted by Congress” in the FCA, and Congress did not impose a requirement of proving “objective falsity.” The FCA imposes liability for all “false or fraudulent claims” and does not distinguish between “objective” and “subjective” falsity, nor does it carve out an exception for clinical judgments and opinions. The Ninth Circuit further held that “a false certification of medical necessity can give rise to FCA liability” and can be “material because medical necessity is a statutory prerequisite to Medicare reimbursement.” A doctor’s certification that inpatient hospitalization was “medically necessary” can be false or fraudulent for the same reasons any opinion can be false or fraudulent. Thus, a medical necessity certification is actionable under the FCA if the opinion is not honestly held, or if it implies the existence of facts—namely, that inpatient hospitalization is needed to diagnose or treat a medical condition, in accordance with accepted standards of medical practice—that do not exist.

Congress has set aside $500 billion in the CARES Act to help certain hard-hit businesses during the coronavirus pandemic, but those funds come with a special inspector general whose oversight may result in civil and criminal enforcement actions similar to that seen in the aftermath of TARP and the 2008 financial crisis.

In light of the many requirements that come with the loans, employers will be required to make a host of certifications and provide financial statements during the application process and after funding, giving rise to potential False Claims Act violations and triggering other government enforcement actions.  The special inspector general will have subpoena power to investigate the veracity and accuracy of applicants’ submission materials and subsequent expenditure of the funds.  In addition, the special inspector general will participate in a joint committee with numerous federal agencies to conduct investigations into False Claims Act violations.

Accordingly, applicants must take caution about what information and documents they submit to the government and to use the funds consistent with the representations made to the government, because an applicant’s submission materials likely amount to material statements for purposes of the False Claims Act, and false statements upon which the government relies to approve and disburse funds can expose an applicant to liability, including treble damages.

By its holding in United States v. Salman, 792 F.3d 1087 (9th Cir. 2015), the Ninth Circuit rejected the Second Circuit’s requirement of a meaningful close personal relationship between the insider (tipper) and the tippee that represents at least a potential pecuniary gain or something similarly valuable.  United States v. Newman, 773 F.3d 438, 452 (2d. Cir. 2014).   In rejecting Mr. Salman’s argument that he lacked knowledge of the tipper’s personal gain, the Ninth Circuit relied on Dirks v. S.E.C.’s holding that the test is whether the insider personally will benefit, directly or indirectly, from his disclosure, and the tippee (Mr. Salman) knows or should know of this personal benefit, which can include the gift of confidential information to a relative who trades on it.   See 443 U.S. 646, 660 (1983).

In an opinion on June 16, 2016, the United States Supreme Court took the False Claims Act in yet another direction, imposing a “materiality” requirement on the providers who submit bills to federally funded healthcare programs.  Specifically, the nation’s highest court held that providers must “know” that a condition of payment is “material” to the Government’s payment decision.  Although a provider may be held liable for both express and implied certifications with laws, False Claims Act enforcement should be limited to compliance with laws that have a “natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”  In other words, a provider may be liable (1) if a reasonable person would attach importance to the billing requirement in determining his or choice of action in the transaction or (2) if the provider knew or had reason to know that the Government attaches importance to the specific matter in determining his or her choice of action.  Of course, only time will tell how the lower circuits will apply “materiality” to the cases at hand.

September 23, 2016:  Following a two-day preliminary hearing, a Kern County Superior Court Judge dismissed all charges against a physician accused by the California Attorney General of Medi-Cal and Medicare fraud and related theft and tax offenses.  Led by Steven Goldsobel, the firm fought a more than two-year long battle to establish that there was no support for the Attorney General’s accusation that the firm’s client intended to defraud state and federally funded payors of health care services.  During the litigation, the Attorney General’s Office unsuccessfully attempted to thwart the firm’s efforts to obtain exculpatory information from the California Medical Board which the court subsequently ordered to be produced.  At the preliminary hearing, the firm convinced the court that the Attorney General would be unable to prove any of its allegations at trial and dismissed the case in its entirety.