On August, 20, 2014, in the case of U.S. ex rel. Absher v. Momence Meadows Nursing Center, Inc., the Seventh Circuit rejected a broad interpretation of what could constitute “worthless services,” instead setting a high bar to for False Claims Act (“FCA”) relators succeed under such a theory of liability. The court also made clear that relators proceeding under a “false certification” theory of FCA liability must specify and quantify the specific claims that they allege were false.
In Absher, the Court was presented with an appeal of a multi-million dollar jury verdict against Momence Meadows Nursing Care Center (“Momence”). The suit had been brought by two qui tam relators, who were nurses formerly employed by Momence. The United States had declined to intervene in the case before the District Court.
The relators alleged several theories of FCA liability, which the Seventh Circuit dealt with in turn. First, the relators claimed that Momence submitted “thousands” of claims for payment to Medicare and Medicaid, which were false because they were based on care that was non-compliant with Medicare and Medicaid regulations. The allegations included that the facility was understaffed and dirty, that residents experienced accidents such as falls, that there were infection and pest control issues at the facility, that employees were that the instructed not to chart pressure sores and symptoms of scabies, and that at least one resident had died due to poor care. State regulators visited the facility over 100 times during the period at issue and issued thousands of dollars in fines for noncompliance with regulatory requirements, but according to the relators, Momence did not comply with approved plans of correction. According to the relators, these and other violations rendered the care a “worthless service,” and hence it was false of Momence to seek payment from the government for this care.
The district court, upon hearing this evidence, instructed the jury that “services can be worthless, and the claims for those services can, for that reason, be false, even if the nursing facility in fact provided some services to the patient.” The jury, so instructed, found for the relators, and awarded $9 million compensatory verdict for plaintiffs ($3 million trebled), and a $19 million fine ($11,000 per claim, which was vacated by the District Court as violating the Eighth Amendment’s Excessive Fines clause).
The Seventh Circuit vacated the judgment on the basis that the trial court’s jury instruction was in error. While the court acknowledged that other circuits had recognized that FCA claims could arise where the products or services provided were actually worthless, it held that such cases required that the service be “so deficient that for all practical purposes it is the equivalent of no services at all” (quoting Mikes v. Straus, 274 F.3d 687, 703 (2d Cir. 2001); also citing Chesbrough v. VPA, P.C., 655 F.3d 461, 468-69 (6th Cir. 2011) and U.S. ex. rel. Roop v. Hypoguard USA, Inc., 559 F.3d 818, 824 (8th Cir. 2009)). The fact that Momence’s services were of “diminished value” did not mean they were “of no value at all.” The court quipped, “‘Worth less’ is not the same as ‘worthless.’”
Second, the relators also asserted that Momence had impliedly certified compliance with Medicare and Medicaid regulations by submitting claims for payment and accepting per diem payments from Medicare, when in fact it knew it was not in compliance. According to relators, these implied certifications were conditions of payment “because government regulators could have immediately suspended payments to Momence if the regulators have suspected the facility of fraud.” The court did not address the merits of this theory, holding that relators had failed to raise this argument at trial. But, in dicta, the court indicated that relators’ theory that “even a single regulatory violation would be a condition of any and all payments subsequently received by the facility inasmuch as the regulators could terminate the facility for practically any deficiency” was “absurd.”
Third, relators asserted an “express certification theory,” which claimed, among other arguments, that by failing to document all of the care it provided on the Minimum Data Set (MDS) forms used to generate reimbursement, Momence had submitted thousands of false claims. The district court had based its verdict on relators’ assertion that Momence had made 1,729 false certifications in this manner. The Seventh Circuit held otherwise, finding that the relators had failed to present sufficient evidence “establishing that even a roughly approximate number of forms contained false certifications” (emphasis in original). The court determined that absent some evidence regarding the number of MDSs that were submitted with false information, the relators had failed to meet the burden of proof required to establish liability under an express false certification theory.
Even as courts raise the bar for establishing that inadequate services are truly “worthless” for purposes of the FCA, providers can nevertheless expect that such claims will continue to increase. Federal prosecutors have recently indicated in public comments that they intend to continue to pursue, and to aggressively intervene in, worthless services cases. Skilled nursing facilities can guard against these risks, however, by establishing and maintaining robust compliance programs, by taking both patient and employee complaints seriously, and by working amicably with state regulators to resolve any problems that may arise on survey.