Third Circuit Resurrects FCA Lawsuit Against Hospice Due to Disputed Materiality of Eligibility Documentation

A New Jersey hospice provider must continue its long fight against whistleblowers alleging it violated the False Claims Act (“FCA”) by seeking Medicare reimbursement for patients whose documentation did not support hospice eligibility. To be eligible for Medicare hospice benefits, a patient’s physician must certify the patient has a life expectancy of six months or less if the patient’s illness runs its normal course, and that certification of terminal illness must be supported by clinical information and other documentation in the medical record. To prevail on an FCA claim, a relator must prove that the defendant (1) made a false statement; (2) with scienter; (3) that was material; (4) causing the government to make a payment.

The relators, former employees of defendant Care Alternatives, first filed their complaint under seal in 2008, alleging that Care Alternatives had submitted fraudulent claims to CMS because there was inadequate clinical documentation supporting physicians’ certifications of terminal illness. According to the relators, the documentation requirement is the cornerstone of the Medicare hospice benefit. Without it, there is no way to ensure that the physician’s certification is accurate and hospice care goes to its intended beneficiaries. In 2015, the government declined to intervene, but the relators opted to proceed.

During discovery, the relators’ medical expert reviewed 47 patient records and opined that their documentation did not support eligibility in 35% of their hospice certification periods. Based on this, another of the relators’ experts calculated that Care Alternatives had improperly charged over $3.6 million to Medicare. Care Alternatives’ medical expert disagreed, opining that a physician could have reasonably determined that the prognosis for each patient the relators’ expert reviewed was six months or less.

After discovery closed, the district court granted Care Alternatives’ motion for summary judgment. Considering the dueling medical experts’ opinions, it concluded that there was no factual evidence that the certifying doctors made knowingly false certifications. The United States Court of Appeals for the Third Circuit reversed, explaining that “FCA falsity simply asks whether the claim submitted to the government as reimbursable was in fact reimbursable, based on the conditions for payment set by the government.” United States ex rel. Druding v. Care Alts., Inc., 952 F.3d 89, 97 (3d Cir. 2020).

On remand, the district court granted summary judgment based on lack of materiality and causation. It found no evidence that Care Alternatives’ insufficiently documented certifications were material to the government’s decision to pay. The district court reasoned that the government never refused any of the hospice’s claims despite its alleged missing or inadequate billing documentation. The court also noted that the government did not stop reimbursing Care Alternatives after it was made aware of the alleged false, inadequately supported physician certifications.

Once again, the Third Circuit reversed. It found that the district court erroneously gave determinative weight to the government’s actions while overlooking other factors that could support a materiality finding. Guided by Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016), the Third Circuit examined multiple factors on which “materiality” turns, such as:

1. whether the government has expressly designated the legal requirement at issue as a “condition of payment”;
2. whether the alleged violation is “minor or insubstantial” or instead goes to the “essence of the bargain” between the contractor and the government; and
3. whether the government made continued payments or does so in the “mine run of cases,” despite “actual knowledge” of the violation.

First, the Third Circuit noted that Medicare regulations require adequate clinical documentation as a condition of payment. It acknowledged that this did not, in and of itself, support a finding of materiality and preclude summary judgment, but it was probative evidence of materiality.

Second, the Third Circuit determined that compliance with the documentation requirement was not “minor or insubstantial” but rather went to “the very essence of the bargain” between the government and Care Alternatives. The documentation requirement addresses a foundational part of the Medicare hospice program and, thus, false certifications simply are not minor or insubstantial violations. Further, there was significant evidence in the record that Care Alternatives had longstanding problems with maintaining necessary and proper documentation, though Care Alternatives’ leadership understood the importance of compliance.

Finally, the Third Circuit faulted the district court’s apparent imputation of actual knowledge of Care Alternatives’ inadequate documentation to the government. Medicare regulations only require documentation supporting hospice care to be included in a patient’s medical records; payment claims need not have such information, the court explained. While acknowledging the government’s inaction in the 15 years since the realtors’ complaint was filed was evidence of immateriality, it was not dispositive. The Third Circuit concluded that the district court had erred in treating this third Escobar factor as determinative of immateriality, and a jury must be permitted to weigh the government’s inaction alongside Escobar’s other factors.

The case is United States v. Care Alternatives, No. 22-1035, 2023 WL 5494333 (3d Cir. Aug. 25, 2023).