Worth Less or Worthless? Navigating FCA Liability

A landmark Supreme Court decision is a game-changer in this area.

After my last segment on Monitor Mondays, several colleagues contacted me about a comment I slipped in regarding False Claims Act (FCA) liability when payers or auditors seek to equate care that is “worth less” with care that is “worthless.”

“Worthless” is a charge employed in a wide range of settlements with the government. In these cases, the government obtains a settlement based on “quality of care” or “failure of care” theories of FCA liability. But the federal courts have, in general, taken a more circumscribed view of FCA liability.

There are two types of “worthless” we need to consider to understand this risk. The first involves “substandard care.” The second relates to a much more complicated and controversial concept called implied certification.

In the case of substandard care, typical allegations by payors and the government include:

• “Materially substandard and/or worthless” medical services; and
• Care that did not meet “federal standards of care and federal statutory and regulatory requirements.”

The Circuit courts have also had variable interpretations of FCA liability based on worthless services, but they fall into two categories:

• Services “so deficient that for all practical purposes it is the equivalent of no performance at all.” This definition excluded a “diminished value of services” from the definition of “worthless” for the purposes of establishing liability under the FCA.
• Services that had absolutely no value – in this case, services with “limited” value – would not support FCA liability. This definition coincidentally could include medically unnecessary services.

Implied certification is both more controversial and complicated. It is based on the premise that submission of a claim constitutes implied certification of compliance with all statutes, regulations, and contractual arrangements that govern the program being billed. This is a very broad and powerful tool for auditors and prosecutors.

The multiple Circuit court decisions have included the following assertions:

• First an implied but false certification of compliance only invokes FCA liability if such certification is an explicit condition of payment. Further submission of a claim does not imply such certification.

• Second, and closely related, a violation of the conditions of participation would generally not be sufficient to impose FCA liability. In fact, some courts have held that agency’s regulations – not the FCA – provide the government adequate enforcement of program compliance.
• Third, violation of a single regulation would generally not impose FCA liability.

In June 2022, the U.S. Supreme Court, in a case captioned Universal Health Services, Inc. v. United States ex rel. Escobar, added some clarity to the issue of FCA liability for implied certification. I emphasize “some.” The essential component of the decision is that FCA liability may arise under implied certification when two conditions are satisfied:

• First, the claim also makes specific representations about the goods or services provided; and
• Second, the failure to disclose noncompliance with material requirements makes the specific representations into misleading half-truths.

The Court clarified that the misrepresentation must be “material to the Government’s payment decision” to be actionable. The Court also noted that a condition of payment is relevant, but not automatically dispositive, in determining FCA liability.

What this means for providers is the following:

• We need to carefully examine that subtle and complex distinction between a utilization management (UM) question and quality. It’s no longer OK to say “that’s a quality question” and ignore the impact of quality on the effectiveness of a service. Services that immediately come to mind are spurious off-label uses of drugs and devices. Also in this category are imaging that falls outside of recognized indications.
• Second, we need to aggressively address and be scrupulous about screening claims to eliminate objectively unreasonable care.
• Finally, we need to ensure that all conditions of payment are met for every claim.

The Supreme Court has given the government a whole new toolbox to use for potential FCA violations. We need to be vigilant so that it finds limited use.