United States: What makes a false claim “false?” It depends. Supreme Court declines to address objective falsity standard to determine False Claims Act liability

In brief

Last week, the US Supreme Court rejected two petitions, Care Alternatives v. United States, 2021 U.S. LEXIS 915 (Feb. 22, 2021) and RollinsNelson LTC Corp. v. United States ex. rel. Winters, 2021 U.S. LEXIS 1045 (Feb. 22, 2021) that could have helped resolve a circuit split involving the US. False Claims Act, 31 U.S.C. §§ 3729 - 3733 (“FCA” or “Act”). The petitions sought to determine whether the FCA requires evidence of “objective falsity” in order to establish a violation of the Act.

Refresher on the False Claims Act

The US government relies on the FCA to uncover and punish fraud in virtually every program that utilizes public funds. Offenses under the FCA include, among others: (i) knowingly presenting, or causing to be presented, a false or fraudulent claim for payment (31 USC § 3729(a)(1)(A)); and (ii) knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim (31 USC § 3729(a)(1)(B)).

Enforcement of the False Claims Act has substantially impacted multiple industries with a nexus to US government contracts and funding but none more prominently than the healthcare industry. A critical component to sustaining an FCA violation is the existence of facts demonstrating one knew that he or she was submitting or caused to be submitted a "false" claim. But what is the standard to prove falsity?  This has been a critical question that has nagged FCA jurisprudence, particularly when it comes to evaluating the judgments and opinions of experts.

The objective falsity standard

Several circuits have grappled with this question, and at issue before the Supreme Court was whether the FCA requires pleading and proof of an objectively false statement. In the healthcare context, the question most often arises in connection with the review of determinations by healthcare providers that services are medically necessary. Indeed, a false claim can arise where a practitioner bills federal programs such as Medicare or Medicaid for services that are not medically necessary.

Under the objective falsity standard, for a claim to be false, there must be objectively verifiable facts that contradict a provider’s judgment that a service is medically necessary. As the Sixth Circuit held in Persaud, "[o]rdinarily, facts are the only item that fits in [the false statement] category; opinions—when given honestly—are almost never false ....There is no such thing as a false idea." (United States v. Persaud, 866 F.3d 371 (6th Cir. 2017)) Thus, under this standard, whether an opinion “trigger[s] liability for fraud” turns on whether the views are “not honestly held by their maker, or when the speaker knows of facts that are fundamentally incompatible with his opinion." (Id.) It will not be enough for an expert to merely opine that the medical decision was erroneous; s/he must provide testimony that the opinion was based/relied on an objective falsehood. This is the standard adopted by the Eleventh Circuit in United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019). The Fourth and Seventh Circuits have adopted this approach as well.

The two petitions: RollinsNelson and Care Alternatives

In contrast to the Eleventh Circuit, the Third Circuit determined in United States ex rel. Druding v. Care Alternatives, 952 F.3d 89 (3d Cir. 2020) that expert testimony challenging a physician’s medical opinion can be adequate evidence of falsity and is sufficient to create a triable dispute of fact. That case concerned whether a hospice care claim was eligible for Medicare coverage based on doctors' decision that a patient was terminally ill, i.e., that the patient’s life expectancy was six months or less. The only evidence offered by the relators (private parties acting on behalf of the US government) was that of an expert who disagreed with the terminally ill diagnosis. The District Court applied the objective falsity standard and granted summary judgment for the defendant. The Third Circuit reversed and remanded, finding a triable issue of fact with regard to the expert testimony challenging the terminally ill diagnosis. According to the Third Circuit, the objective falsity standard conflates scienter and falsity, and improperly adds a scienter requirement that is not in the statute. The hospice care provider, Care Alternatives, filed a petition for a writ of certiorari and asked the Supreme Court to provide guidance about when opinions are false for the purpose of the FCA. Care Alternatives took the position that a reasonable difference among experts could not render a physician's honestly held clinical judgment "false" under the Act.

In Winter ex rel. United States v. Gardens Reg'l Hosp. & Med. Ctr., Inc., 953 F.3d 1108 (9th Cir. 2020), the issue centered on a post hoc review of medical records that differed from the admitting physician’s medical opinion, which recommended inpatient hospital care for a particular Medicare beneficiary. The District Court dismissed the relators' complaint, applying an objective falsehood standard. However, the Ninth Circuit reversed and remanded on the grounds that a party need not plead an objective falsehood to state a claim under the FCA. In its petition for the writ of certiorari, RollinsNelson, the hospital management company that oversaw operations at the relevant facility, asked the Court to determine whether the FCA "requires pleading and proof of an objectively false statement." RollinsNelson argued that a difference of opinion over clinical judgment is not actionable.

The Supreme Court rejected both petitions without comment.  

The circuit split remains

In the Third and Ninth Circuits, the law remains that medical opinions may be “false” and an expert’s testimony challenging a physician’s reasonable medical opinion can be sufficient to create a triable issue of fact regarding FCA liability. However, in the Fourth, Seventh, and Eleventh Circuits, an opinion can only be deemed “false” if the statements represent an “objective falsehood.” This means these Circuits reject allegations that turn only on differences between the judgment of the expert and the defendant.

The unresolved split will continue to exacerbate the drastically different risks and results depending on what circuit a company finds itself in and will likely lead to increased forum shopping by qui tam relators. Until such decisions are conclusively determined, litigations should consider both the falsity of the statement but also whether there are facts demonstrating that the statements are objectively false.

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