The healthcare industry has continued to face heightened enforcement efforts by federal and state regulators in recent years, and few sectors of the industry have been affected more than long-term care providers. Whether hospice, home health or skilled nursing facilities, long-term care providers have been involved in numerous closely-watched, high-profile legal battles involving government regulators and whistleblowers. These cases often put years worth of claims at issue under the False Claims Act, the government’s primary civil enforcement statute in cases involving allegations of fraud in the submission of claims to government healthcare programs.

From the perspective of providers, these cases also involve significant debates about the viability of certain enforcement theories and threaten to stretch the bounds of laws such as the FCA beyond recognition. At the same time, recent civil settlements and a rare jury verdict in a whistleblower action have demonstrated the risk faced by long-term care providers that become the focus of a government investigation or whistleblower lawsuit.  

Challenging medical necessity

Perhaps no issue has occupied the forefront of recent cases involving long-term care providers as much as the medical necessity of hospice, home health and therapy services provided to Medicare beneficiaries. Because Medicare typically only will pay for care that is reasonable and necessary, whistleblowers and government regulators have pursued theories that challenge the validity of claims for reimbursement by alleging that the underlying care provided was medically unnecessary.

Long-term care providers rightly attack these cases as falling short of the sort of fraudulent conduct typically prohibited by the FCA, particularly when the facts and legal theories pursued by whistleblowers or the government merely call into question the clinical judgment of the healthcare providers involved in the care of a particular patient. The defense of such cases often turns on the argument that liability under the FCA requires the conduct at issue to amount to an objective falsehood, and not a subjective difference of opinion. Liability based on a dispute among experts or clinicians with respect to the necessity of the care provided, without more, falls short of the sort of fraudulent conduct required to establish a violation of the FCA.  

A significant and growing body of legal precedent suggests that providers are making considerable headway in pushing back on cases challenging medical necessity. Federal district courts in at least two cases calling into question the medical necessity of hospice services entered summary judgment in favor of the providers after concluding that the government in one case (U.S. ex rel. Paradies v. AseraCare, Inc., No. 2:12-cv-00245 (N.D. Ala.)) and the whistleblower in the other case (U.S. ex rel. Wall v. Vista Hospice Care Inc., No. 3:07-cv-00604 (N.D. Tex.)) failed to produce evidence that went beyond a disagreement among clinicians regarding the medical necessity of the care at issue. Appeals of the district court decisions are pending in both cases.

High stakes litigation

Juxtaposed against the victories garnered by providers in those cases, however, has been a series of high-dollar FCA settlements in actions challenging the medical necessity of services provided by skilled nursing facilities. Two such settlements announced last year involved settlements of well over $100 million and included five-year Corporate Integrity Agreements with HHS-OIG. (U.S. ex rel. Halpin v. Kindred Healthcare, Inc., No. 1:11-cv-12139 (D. Mass.); U.S. ex rel. Martin v. LifeCare Centers of America, Inc., No. 1:08-cv-251 (E.D. Tenn.).) Both settlements involved allegations that unnecessary therapy resulted from corporate pressure in the form of unrealistic financial goals and the scheduling of therapy to achieve the highest reimbursement level regardless of the clinical needs of patients.      

In addition to those settlements, the operators of more than 50 skilled-nursing facilities in Florida were on the losing end of a jury verdict of liability under the FCA in favor of a whistleblower (a nurse formerly employed at one of the facilities at issue), arising from the whistleblower’s allegations that the operators provided medically unnecessary therapy. (U.S. ex rel. Ruckh v. CMC II LLC, No. 8:11-cv-01303 (M.D. Fla.).) The jury verdict resulted in an award of $347 million against the operators, which represents one of the largest FCA awards following a jury trial. The operators’ appeal remains pending in this action.      

In addition to the possibility of sizable awards and settlements, these cases are significant because whistleblowers and the government often seek to offer proof of liability over a broad universe of claims through statistical sampling and extrapolation. This has been a hot-button issue in FCA litigation in cases in which the government and/or whistleblowers have argued that the number of alleged false claims at issue is too large to allow for a claim-by-claim determination of whether false claims have been submitted for reimbursement. Given that the FCA requires proof of actual false claims, the use of statistical sampling to establish liability has come under intense scrutiny. Until a consensus emerges among federal appellate courts on the permissibility of such statistical proof, this issue will continue to be litigated vigorously in FCA cases involving medical necessity issues.    

Continued emphasis on individual liability

Since the U.S. Department of Justice issued the Yates Memorandum in September 2015, much has been written on the impact that the Memo would have on DOJ’s healthcare fraud enforcement efforts. The Yates Memo’s focus on individual accountability should be of particular note for long-term care providers. Two sizable settlements last year involving long-term care providers were noteworthy not only for their dollar amounts — which both involved eight-figure settlement payments — but also because the settlements specifically involved individual accountability with respect to the underlying conduct.  

The first settlement involved a home health provider and its owners as named defendants, whereby the defendants stipulated to violating the FCA by submitting false billings for patients who were neither homebound, nor home limited, and otherwise by billing for medically unnecessary services. The case also involved allegations that the provider used an electronic medical records system that permitted clinicians to easily clone electronic notes from prior visits.

The second settlement resolved allegations that a skilled nursing facility operator, its chairman of the board and its senior vice-president of reimbursement violated the FCA by causing medically unnecessary therapy to be provided to facility residents. Of the $30 million settlement, the two named company executives agreed individually to pay $1 million and $500,000 respectively.

No healthcare provider is immune from the possibility of facing an enforcement action by government regulators or a whistleblower lawsuit alleging FCA violations. Long-term care providers face particular risk due to recent headline-grabbing settlements and theories of liability that second-guess care provided, often times years after the fact. By closely tracking the allegations in the enforcement actions brought against this sector of the healthcare industry, long-term care providers can take significant steps toward identifying risk areas and appropriately evaluating and addressing potential compliance issues when those issues arise.  

Matt Curley is a partner at Bass Berry & Sims PLC, in Nashville, Tennessee, and a member of the firm’s Healthcare Fraud Task Force. The cases discussed in this article are explored in more detail in “2016 Healthcare Fraud and Abuse Review,” an annual publication of Bass, Berry & Sims’ Healthcare Fraud Task Force.