A Trend in 2017: Use of the False Claims Act for Malpractice Cases in Long Term Care

Multi-million dollar settlements in False Claims Act (FCA) cases against long term care (LTC) facilities made headlines several times in 2017.  I have blogged several times on the FCA and could not allow this trend to go without comment.

We all know that the purpose of the FCA is to penalize government contractors that submit false claims for reimbursement to government programs.  The penalty is triggered when anyone “knowingly presents or causes to be presented a false or fraudulent claim for payment or approval” or “knowingly makes, uses or causes to be made or used a false record or statement material to get a false or fraudulent claim paid.” For LTC facilities, the opportunity for such false claims usually arises in reimbursements from Medicare or Medicaid for care not provided or for providing an unnecessary higher level of care to receive higher reimbursements.  How the FCA is being applied in LTC cases, which appears prominently in the 2017 settlements, is through its application as a malpractice regulator, rather than as the originally intended contract fraud gatekeeper.

In October 2017, a Texas LTC facility settled a FCA case for $5 million.  In the case of U.S. v. Health Services Management (“HSM”), two of the FCA violations asserted in Count One of the Amended Complaint were denying medically necessary services to patients, and providing services that were “worthless.”  The allegations were that the services provided to residents were “representative of the absence of care or inadequate care” because the facility “failed to meet professionally recognized standards of health care.” Some of the specific facts were taking too long to conduct incontinence care, infrequent tracheostomy suctioning, residents falling, and failure to conduct two hour incontinence checks. The settlement agreement resolved claims that the services billed for were so deficient and substandard that they were worthless and harmed the residents. These assertions are essentially medical malpractice or negligence claims masquerading as FCA violations.  They are not contract fraud claims arising under the FCA because the question of whether care levels are appropriate for a resident is based on the individual resident’s medical condition.

In November 2017, a Mississippi LTC facility paid a $1.25 million settlement of FCA standard of care claims, including, infrequent hydration, inadequate staffing levels, development of pressure ulcers, and resident falls. These are negligence claims.

The U.S. Supreme Court’s Escobar decision addresses what constitutes false claims under the FCA.  The Court held that a false claim can exist when a defendant submits a reimbursement claim with specific representations about the goods or services provided and knowingly fails to disclose noncompliance with a statutory, regulatory or contractual requirement that would make those specific representations false and material misrepresentations to the government’s decision to reimburse.1  So, what statutory, regulatory or contractual requirements were violated by the Mississippi and Texas facilities?

The Department of Justice relies on the Medicaid program integrity regulations in 42 C.F.R.§455.  Specifically, the definitions identify Medicaid abuse as provider practices that are inconsistent with sound medical practices, resulting in unnecessary cost to Medicaid or failing to meet professionally recognized standards for health care.  There are no specific regulations for how often hydration should occur, how frequently residents should be checked for incontinence, how to prevent pressure ulcers and what a pressure ulcer treatment program should look like, what the best staffing levels are, how to prevent resident falls, or how tracheostomy suctioning should be performed.  Answering the question of whether those services are adequate requires a standard of care or negligence analysis.

Why does this matter?  The FCA allows for treble damages for reimbursements made under fraudulent circumstances.  If negligent LTC care is part of that damages scheme, the federal program is paid and a whistleblower can receive up to one-third of the recovery.  Typically the whistleblower is a disgruntled former employee.  None of the settlement agreements have released claims by the residents or family members for negligent care because they cannot release claims of nonparties to the settlement.  Thus, these FCA settlements may be the tip of the iceberg for LTC facilities. Stay tuned for how this trend evolves.

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

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