Consulate Health Care Absolved in $348M Medicare Fraud Case

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By Eric Topor

Nursing home chain Consulate Health Care prevailed Jan. 11 in its challenge to a $348 million Medicare fraud judgment based on the Supreme Court’s 2016 Escobar “materiality” decision.

A federal court granted Consulate’s request to override the jury verdict and judgment, saying there simply wasn’t evidence that Consulate’s alleged Medicare regulatory violations—failing to maintain care plans resulting in improper upcoding and unsigned paperwork—were material to the government’s decision to pay Consulate’s Medicare claims. The court focused on the government’s knowledge of the alleged defects in the long-running lawsuit, and a total lack of reimbursement pushback in the form of denied claims or other administrative actions, to determine that the alleged violations weren’t material and didn’t, therefore, constitute False Claims Act violations.

The ruling by Judge Steven D. Merryday, of the U.S. District Court for the Middle District of Florida, provides valuable guidance concerning the type of proof required under the U.S. Supreme Court’s Univ. Health Servs. Inc. v. United States ex rel. Escobar decision to satisfy the FCA’s requirement that the government and whistleblowers show the government would not have paid underlying claims if it knew of the regulatory violations alleged. Health-care providers facing FCA allegations can mount a strong defense based on Merryday’s interpretation of Escobar that any alleged deficiency in submitted claims wasn’t material to the government if they continued to receive payment without objection after the allegations were brought to the government’s attention.

Terence J. Lynam, a partner in Akin, Gump, Strauss, Hauer & Feld LLP’s white-collar criminal defense practice in Washington represented Consulate and told Bloomberg Law Jan. 12 that the decision “underscores the significance” of the Escobar ruling. Lynam said that the court’s application of Escobar to “require a showing of materiality in a specific way” tracked with how other federal appeals courts have interpreted Escobar’s materiality standard.

A spokesperson for counsel representing the whistleblower, Angela Ruckh, told Bloomberg Law Jan. 12, “We believe the jury’s verdict correctly reflected the evidence at trial and the law, and that the judge’s opinion overturning that verdict is in error. We therefore plan to appeal.” The firm is Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC.

Peter W. Chatfield, a whistleblower attorney, said the decision was “overly aggressive and overbroad” in interpreting Escobar, and applying the FCA statute itself. Chatfield, a partner with Phillips & Cohen LLP in Washington, told Bloomberg Law Jan. 12 that the FCA statute defines materiality as that which has the tenancy or could influence government payment decisions, and that Merryday erred by “focusing exclusively on whether the government continued to pay the claims.”

Brian Roark, a partner at Bass, Berry & Sims PLC in Nashville, Tenn., told Bloomberg Law Jan. 12 that the decision “and other recent decisions are beginning to restore sanity to FCA jurisprudence.” Roark said Escobar “is delivering a dose of reality to FCA analysis and changing the focus from whether the government might have denied a claim to whether that is actually happening in practice.” Roark is a Bloomberg Law advisory board member whose practice focuses on representing health-care providers and defending clients against FCA allegations,

Government Action Missing

The verdict came after a 20-day trial in a whistleblower lawsuit filed by Ruckh, a registered nurse who worked as a consultant at two Consulate-managed skilled nursing facilities. Merryday’s reasoning for vacating the jury verdict and resulting judgment was rooted in the absence of evidence of whether the government considered Consulate’s alleged deficiencies material to payment decisions.

The court cast some doubt on the general viability of FCA actions alleging “paperwork” deficiencies with health-care claims to the government in light of the fact that federal and state governments view these imperfect claims with “leniency or tolerance or indifference or perhaps with resignation to the colossal difficulty of precise, pervasive, ponderous, and permanent record-keeping in the pertinent clinical environment.” Merryday said the $348 million verdict for what amounted to a “record-keeping deficiency” was “probably unconstitutional.”

Chatfield noted that it’s important for whistleblowers bringing FCA cases to “look at the proportionality” of the alleged wrongs against their impact on payment decisions.

Gregory M. Luce, a partner with Skadden, Arps, Slate, Meagher & Flom LLP in Washington, who also represented Consulate, told Bloomberg Law Jan. 12 that Merryday’s ruling “restores the FCA to a fraud-based statute,” rather than a remedy to address regulatory and subregulatory infractions. Luce said the government “cannot simply sit back and lull providers into a sense of compliance” and later claim the providers committed fraud.

But Chatfield noted that there are public policy reasons why the government might continue to pay a claim even if there are signals of fraud or irregularities. Chatfield said the government reasonably could be wary of cutting funds that pay for patient care.

The correct materiality standard, Chatfield said, “is not whether the government is paying these claims, but whether it’s lawful for the government to be paying these claims.” Further, Chatfield said the court’s ruling relying on continuing payment as the marker for materiality could become an invitation for providers to “be sloppy with records,” and make proving fraud more difficult.

Luce also said the decision could help counsel for providers who consider self-disclosing possible claim infractions. The decision “helps counsel gauge a spectrum of risk” between mere overpayment and possible fraud liability “when some aberrant billing practice is identified.”

Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC, Delaney Kester LLP and The Barry A. Cohen Legal Team represented Ruckh. Akin, Gump, Strauss, Hauer & Feld LLP and Skadden, Arps, Slate, Meagher & Flom LLP represented the defendants.

The case is United States ex rel. Ruckh v. Salus Rehab., LLC , 2018 BL 10554, M.D. Fla., No. 8:11-cv-1303, 1/11/18 .

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