Materiality Defense Based on Reimbursement Context

Materiality Defense Based on Reimbursement Context.

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  In FCA cases alleging false claims to Medicare, Medicaid, TRICARE/CHAMPUS, or the Veterans Administration, it is important to develop a detailed understanding of how each program reimburses claims for payment. Reimbursement decisions often turn on details such as the location of service (hospital inpatient department, hospital outpatient department, ambulatory surgery center, skilled nursing facility, physician office), the provider of care (hospital, physician, nursing staff), and product (pharmaceutical, durable medical equipment, implantable device, or professional services).
  
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  One trend worth noting is cases finding that claims for individual products listed on claim forms submitted to Medicare/Medicaid, such as drugs, implantable devices, and disposable supplies for inpatient treatments are not material to a government payment decision because the government reimburses general, acute care hospitals a fixed amount based on the particular Diagnosis Related Group (“DRG”) assigned to the patient’s hospital stay according to the patient’s particular illness.
  

1. United States ex rel. Stephens v. Tissue Sci. Labs., Inc., 664 F. Supp. 2d 1310 (N.D. Ga. 2009).

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  Former contract sales representatives alleged off-label promotion of TSL’s hernia repair device Permacol. The court found under Federal Rule of Civil Procedure 12(b)(6) that Relators could not establish the FCA’s materiality requirement as to Medicare/Medicaid claims because the government pays a predetermined amount for each admission based on the DRG assigned to the patient’s illness.
  

1. United States ex rel. Digiovanni v. St. Joseph’s/Candler Health Sys., Inc., No. CV404-190, 2008 WL 395012 (S.D. Ga. Feb. 8, 2008).

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  Dismissing complaint alleging submission of false claims to Medicare that included “impermissible charges for supplies and reusable equipment,” the court stated that “[b]ecause the PPS system pays a standard rate based on a patient diagnosis and the DRG code, the itemized charges on the patient’s bill are immaterial to the amount of reimbursement a provider receives from Medicare Part A,” and thus, cannot establish a viable claim under the FCA. Id. at *6.
  

1. United States ex rel. Kennedy v. Aventis Pharm., Inc., No. 03 C 2750, 2008 WL 5211021 (N.D. Ill. Dec. 10, 2008).

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  The court dismissed FCA allegations based on off-label promotion of a drug, Lovenox. The court recognized that “the government paid the hospitals according to the previously determined [D]RG rate, which has nothing to do with the particular drugs prescribed or used in the patient’s treatment. . . . Because relators cannot show that individual patient bills were material to the government’s decision to pay, they cannot prove an essential element of their claim.” Id. at *3.
  
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  The court has since permitted relators to survive a motion to dismiss with a later-amended complaint based on claims regarding outlier payments. See United States ex rel. Kennedy v. Aventis Pharm., Inc., 610 F. Supp. 2d 938, 944 (N.D. Ill. 2009).
  

1. United States ex rel. Magid v. Wilderman, No. 96-CV-4346, 2004 WL 945153, at *8-9 (E.D. Pa. Apr. 29, 2004).

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  Granting summary judgment, in part, on FCA claims because Medicare did not specifically reimburse for certain lab tests due to use of DRGs.
  

1. United States ex rel. Schell v. Battle Creek Health Sys., No. 1:00-CV-143, 2004 WL 784978, at *4 (W.D. Mich. Feb. 25, 2004), rev’d on other grounds, 419 F.3d 535, 537 n.1 (6th Cir. 2005) (DRG materiality ruling regarding inpatients not at issue on appeal).

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  Granting summary judgment because, under DRG payment system, claims of overcharges for medication provided to inpatients would not have affected payment.
  

3. Defense—Intent.

(1) has actual knowledge of the information;

(2) acts in deliberate ignorance of the truth or falsity of the information; or

(3) acts in reckless disregard of the truth or falsity of the information.

1. Objective Intent of Recklessness Required.

   1. Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 68-71(2007).

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  In Safeco, the Court interpreted the requirements for a finding of “recklessness” sufficient to violate the Fair Credit Reporting Act.
  
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  The defendant did not believe the provision at issue applied to its conduct, which belief the Court determined was incorrect as a matter of law. Nevertheless, the Court found the defendant had not acted recklessly. Id. at 71.
  
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  The court explained that “recklessness” is understood as “conduct violating an objective standard: action entailing ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’” Id. at 68. In this case, there was no court of appeals decision on the statute and no authoritative guidance from the FTC. The Court concluded, “[g]iven this dearth of guidance and the less-than-pellucid statutory text, Safeco’s reading was not objectively unreasonable, and so falls well short of raising the ‘unjustifiably high risk’ of violating the statute necessary for reckless liability.” Id. at 70.
  

1. United States ex rel. K&R Ltd. P’ship v. Mass. Hous. Fin. Agency, 530 F.3d 980, 983-84 (D.C. Cir. 2008).

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  Applied the Safeco analysis of recklessness to the FCA.
  
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  An FCA qui tam action against the Massachusetts Housing Finance Agency (“MassHousing”) alleged that the MassHousing knowingly submitted excessive subsidy payment claims to the HUD under a mortgage assistance program. Id. at 981.
  
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  The dispute involved differing interpretations of ambiguous contract language, with the court applying the Safeco analysis of recklessness to the FCA. The court held that because there was nothing “‘that might have warned [MassHousing] away from the view it took,’ . . . there [was] no genuine issue as to whether MassHousing knowingly presented false claims to HUD.” Id. at 984 (quoting Safeco, 551 U.S. at 70).
  
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  See also United States v. Sodexho, Inc., No. 03-6003, 2009 WL 579380, at *16 n.7 (E.D. Pa. Mar. 6, 2009) (citing K&R Ltd. approvingly and granting MTD), aff’d, 364 F. App’x 787 (3d Cir. 2010).
  
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  See also United States ex rel. Thomas v. Siemens AG, 991 F. Supp. 2d 540, 568 (E.D. Pa. 2014) (“Without more than a relator's subjective interpretation of an imprecise contractual provision, a defendant's reasonable interpretation of its legal obligation precludes a finding that the defendant had knowledge of its falsity.”) (citing K&R Ltd.).
  

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