Quality-of-care issues can create False Claims Act exposure

A provider that knowingly delivers care that falls short of professional standards may not just be committing an ethical breach. For such a "failure of care," a provider could be successfully prosecuted under the civil False Claims Act (FCA), with the prospect of substantial monetary penalties (amounting

to treble damages) and suspension or exclusion from Medicare and other Federal healthcare programs. Moreover, the simple act of billing Medicare for care delivered by an individual who lacks appropriate credentials or by an institution with inadequate staffing, with full knowledge of these deficiencies, can expose a healthcare organization to the risk of prosecution under the FCA.

Until recently, only a few U.S. district courts had rendered decisions regarding whether providers have obligations under the FCA with respect to quality of care, and the courts' opinions did little more than raise questions as to the appropriate scope of the FCA in this context. Thus, providers remained in the dark as to their exposure. In 2001, two Federal Courts of Appeals finally provided meaningful guidance on this issue in the form of two insightful and consistent rulings.(a)

Regulatory Context

Since the early 1990s, the Department of Justice (DOJ) has used the FCA from time-to-time to address situations in which providers knowingly have billed the government for the delivery of deficient care. With the help of whistleblowers who have received monetary rewards for bringing information forward, the DOJ has pursued gross inattention to patients by psychiatric hospitals and nursing homes and the delivery of defective products or tests by pharmaceutical companies and clinical laboratories.

To the extent that deficient care often is accompanied by a violation of standards incorporated in law or regulation, the legislative history of the FCA appeared to support the DOJ's use of the act in this context. The Senate Judiciary Committee had stated that a false claim may take many forms, the most common being a claim for goods or services provided "in violation of contract terms, specification, statute, or regulation."(b)

However, application of this general principle proved difficult. District courts often used different standards in FCA cases involving quality of care, and the questions raised by these rulings left providers unaware of the extent of their potential liability for deficient services and goods.

New Guidance

The two rulings issued by Federal Courts of Appeals in 2001 introduced the concept that a claim can be false either because the service delivered was so grossly inadequate as to be essentially worthless or because the provider did not comply with a quality-of-care standard that the healthcare program has made as a prerequisite for payment.

Worthless services. The worthless-services standard came as a result of a suit brought against Pennsylvaniabased SmithKline Beecham, Inc. by Insoon Lee, a former supervisor at one of the company's testing facilities.c Lee had alleged that the company falsified test results of control samples when they fell outside the acceptable standard of error and then reported the incorrect test results to Medicare patients. The Court of Appeals for the Ninth Circuit ruled that the United States had a cause of action under the FCA because the quality problems were so serious as to render medical tests paid for by Medicare worthless. The court also reaffirmed its holding from an earlier case that violation of a legal standard creates FCA liability when certification of compliance with the legal standard is a prerequisite to obtaining a government benefit.(d)

Implicit certification. Following this decision, the Court of Appeals for the Second Circuit ruled on a case in which a physician accused a provider of billing Medicare for tests that measured lung functioning when the equipment used for the tests had not been calibrated in accordance with professional standards.(e) The Court agreed with the Ninth Circuit that the violation of a quality-of-care standard can create FCA liability when the defendant has certified compliance as a condition to payment. The Court went on to hold that, in healthcare cases, if the healthcare provider does not expressly certify compliance, the provider should be found implicitly to have certified compliance "when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid."

Importantly, under the Second Circuit's holding, even violation of a quality standard that is a condition of participation in a Federal program does not create a false claim unless the program specifies that meeting the standard is necessary for payment. In this instance, the physician's case ultimately was dismissed because Medicare payment was not conditioned on compliance with the calibration standards. The Court of Appeals also accepted the validity of the Ninth Circuit's worthless-services theory, explaining, "In a worthless services claim, the performance of the service is so deficient that for all practical purposes it is the equivalent of no performance at all."

Implications for Providers

These decisions hold significant implications for healthcare providers. They validate the government's theory that particularly egregious lapses in care can make a claim false on the ground that the service or good identified on the claim was not provided. Also, they show that healthcare providers may be held liable for lesser lapses in care whenever payment by a Federal healthcare program is conditioned on care meeting certain quality standards.

Because the FCA applies only to knowing conduct, the government is likely to prosecute only cases in which the lapse in care is so flagrant or widespread that the provider's awareness of it is clear. However, the following examples from Medicare's credentialing and staffing rules provide an example of a provider's potential exposure.

Hospitals. Hospitals enrolled in Medicare must certify that they understand that payment of a claim is conditioned upon the provider's compliance with all applicable conditions of participation in Medicare. Under Medicare rules, a condition of payment is that the billed services are covered services. For purposes of Medicare's coverage of inpatient hospital care services, the term "hospital" incorporates quality-of-care standards.(f) With the exception of services involving emergency care and care outside of the United States, these standards include:

* 24-hour nursing services rendered or supervised by a registered professional nurse, with a licensed practical nurse on duty at all times;

Adequate numbers of licensed registered nurses, licensed practical/vocational nurses, and other personnel to provide nursing care to all patients as needed;

Compliance with applicable Federal laws related to the health and safety of the patient; and

A procedure to ensure that required licenses are current and valid for hospital nursing personnel.

Medicare + Choice providers. These organizations are required to provide access to benefits in accordance with Medicare rules. An organization's compliance with these access requirements is a material aspect of its contractual performance, and thus is a condition of payment. Medicare's managed care organization access requirements include:

The maintenance and monitoring of a network of appropriate providers;

The provision of necessary specialty care, including specialty care outside the plan when the network provider is unable to meet the patient's medical needs; and

A documented process to confirm that the hospitals, critical access hospitals, skilled nursing facilities, home health agencies, outpatient rehabilitation facilities, and hospices used for medical care have provider agreements with CMS.

Regulations also govern the credentialing of healthcare professionals, mandating review of an initial certified application, verification that the professional is eligible for Medicare payment and not subject to disciplinary status, confirmation of licensure or certification using primary sources, and use of site visits when appropriate.

Services by healthcare professionals. As a condition of coverage, Medicare Part B imposes requirements on the credentials that healthcare professionals must possess and the way in which they must deliver services. For example, Medicare will pay for the services of a clinical nurse specialist only if the specialist is a licensed, registered nurse authorized to provide the services under state law, has a master's degree in clinical nursing from an accredited educational institution, and is certified as a clinical nurse specialist by the American Nurses Credentialing Center. In addition, the specialist must perform the services while working in collaboration with a physician, a term defined by Medicare's rules.(g) Similar credentialing and supervisory rules apply to nurse practitioners, physician assistants, physical therapists, and residents in teaching hospitals.

Conclusion

The FCA is emerging as a powerful tool for the government to use against providers that consistently deliver health care that does not meet quality-of-care standards. In light of the two FCA rulings, providers should work with their compliance officer or legal counsel to identify all significant quality-of-care standards that the government incorporates into a Federal health program's prerequisites for payment. To avoid exposure under the FCA, providers should monitor closely their delivery of health care to ensure that, except in rare, isolated instances resulting from mere error, they do not violate these conditions of payment. They also should continue to monitor their quality of care to ensure that they do not bill Medicare or other Federal health programs for services that are so inadequate that a court could conclude that the billedfor service was not provided.

SIDEBAR

ISSUES AND ACTIONS

Recent rulings have clarified the False Claims Act's role in addressing failures of care.

Claims are false if services provided are grossly inadequate. Providers can be fined triple the government's payment if they are found in violation of the False Claims Act.

Providers should be aware of knowing violations of quality standards that could lead to False Claims Act exposure.

FOOTNOTE

a. See Lee v. SmithKline Beecham, Inc., 245 F3d 1048 (9th Cir 2001), and Mikes v. Strauss, 274 F3d 687 (2nd Cir 2001).

b. S. Rep. No. 99-345, 99th Cong., 2d Sess. 9 (1986), reprinted in 1986 USCCAN pp. 5266. 5274.

FOOTNOTE

c. Lee v. SmithKline Beecham, Inc. . .

FOOTNOTE

d. Lee v. SmithKline Beecham, Inc. ... at 1053, citing Hopper v. Anton, 91 Fed 1261, 1266 (9th Cir 1996).

e. Mikes v. Strauss ...

FOOTNOTE

f. 42 USC (sec) 1395.

FOOTNOTE

g. 42 CFR (sec) 410.76.

AUTHOR_AFFILIATION

Shelley R, Slade, Esq., is a partner, Vogel & Slade, LLP, in Washington, D.C.

AUTHOR_AFFILIATION

Questions or comments regarding this article may be sent to the author at ssladeesq@aol.com.