A Golden Ticket: The Effects of Long Term Care Regulations on False Claims Act Cases

On January 11, 2018, Judge Steven Merryday, United States District Court judge for the Middle District of Florida, vacated a False Claims Act (“FCA”) judgment for $350 million against 53 nursing facilities.1  The purported FCA violation was for failure to maintain comprehensive care plans and other documentation as required by Centers for Medicare and Medicaid Services (“CMS”) regulations. The whistleblower’s claim relied on the implied false certification theory endorsed by the U.S. Supreme Court in Escobar.2  What the whistleblower did not contemplate was Judge Merryday’s astute materiality and scienter analysis.  Importantly, Judge Merryday’s analysis illustrates a workaround for long term care facilities (“LTC”) facing FCA claims.

The Escobar Court held that FCA liability can attach when the LTC submits payment claims that make specific representations about services provided and fails to disclose noncompliance with statutory or regulatory standards – the implied false certification theory.  The Court stated that a false certification does not give rise to liability unless the noncompliance was material to the government’s payment decision and the LTC knew it was material to the payment decision.  These are the materiality and scienter (knowledge) requirements for false certification FCA liability that Judge Merryday enforced.

The Escobar Court stated that when the government regularly pays a type of claim in full with actual knowledge that certain requirements were violated, that conduct is strong evidence that the violation is not material to its payment decision. Judge Merryday explained that a whistleblower has no claim under the implied false certification theory if the noncompliance was disclosed to the government and payment is made.  The fact that payment is made with government knowledge requires the conclusion that the noncompliance was not material.  This also relieves the LTC of the scienter or knowledge requirement.  If payment was made, the LTC cannot interpret the noncompliance as material to the payment decision.  So, how is this opinion the golden ticket for LTC facilities?

LTC facilities are heavily regulated and are required to report to or be assessed by the governmental agencies that pay the LTC claims.  Facilities are required, by regulation, to report to the government any events that cause suspicion of or result in serious bodily injury, to establish quality assurance and performance improvement programs and submit them to federal and state agencies each year during annual surveys, and to be subjected to comprehensive annual surveys.  Throughout this extensive interaction, the government agencies are made aware of noncompliance with CMS and state regulations.  The penalties enforced for significant noncompliance include a bar on government payments under Medicare and Medicaid programs.  If the government agencies continue to pay LTC claims under Medicare and Medicaid programs, then any violations that are uncovered on survey or that are reported by the facilities are not material to the payment decision.  Further, the LTC cannot be considered to have knowledge that a reported violation or survey noncompliance finding was material.

The clear conclusion is that facilities should be very diligent with their reporting requirements.  Should a whistleblower cite a reported event or an event like the reported event as the basis for a FCA violation, the facility has proof that the government was informed, the Medicare or Medicaid claims continued to be paid and the reported event was not material.

LTC facilities should also document the information provided to the government during surveys.  Any interaction with the regulatory agencies in which care and compliance is discussed should be documented.  This documentation can be used in FCA cases as evidence of absence of materiality and scienter.

The Salus Rehabilitation opinion uncovers light at the end of a long tunnel.  LTC facilities may now be positioned to use their event reports and surveys as protection against FCA claims.


1  U.S. v. Salus Rehabilitation, LLC,____ F.2d _____, (M.D.FL 2017)

2  Universal Health Services, Inc. v. Escobar, 136 S.Ct. 1989, 1999, 2001 (2016)

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