Prior Settlement Knocks Out Lawsuit Against Pediatric Providers

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By Eric Topor

Two pediatric health-care providers Sept. 6 bested Medicare and Medicaid fraud charges that were the subject of a $6.9 million settlement in 2015 ( United States ex rel. Payton v. Pediatric Servs. of Am., Inc. , 2017 BL 313370, S.D. Ga., No. 16-cv-102, 9/6/17 ).

The U.S. District Court for the Southern District of Georgia dismissed charges brought under the False Claims Act by whistle-blower Tracy Payton against her former employers, Pediatric Services of America Inc. and Pediatric Home Nursing Services. The court said Payton’s allegations that the defendants knowingly failed to return more than $600,000 in overpayments to state Medicaid programs and TRICARE were already publicly disclosed through the prior settlement, necessitating the dismissal of those claims.

The court also said Payton’s allegations regarding missing nurse documentation for Medicare and Medicaid claims fell short of the False Claims Act’s materiality requirement, which the U.S. Supreme Court strengthened in a 2016 ruling. Requiring an FCA whistle-blower to show that a regulatory violation was actually material to the government’s decision to pay a Medicare or Medicaid claim has become a make-or-break factor in FCA litigation.

Materiality Requirement ‘Has Teeth’

Scott B. McBride, a partner at Lowenstein Sandler LLP in Roseland, N.J., told Bloomberg BNA Sept. 7 that the Supreme Court’s materiality standard from its Universal Health Services decision “clearly has teeth.” McBride, who represents defendants in white-collar investigations, said the materality requirement “may indeed be the toughest hurdle for relators to overcome, as courts are holding that a plaintiff needs to allege why an implied misrepresentation was material.”

Judge William T. Moore Jr. said as much, noting that while the materiality requirement is “holistic,” Payton “must do something more than simply state that compliance is material.” Materiality, Moore said, is demonstrated in showing that a misrepresentation, in this case certification that required nursing documentation was included with the defendants’ claims, affected the government’s decision to pay a claim.

J.D. Thomas, a partner with Waller Lansden Dortch & Davis LLP in Nashville, Tenn., and a former federal prosecutor, said the “opinion shows a need for a more technical showing of the requirements related to particular regulation which a relator may allege was violated and is material to the government’s payment decision.”

Brian J. Markovitz, with Joseph Greenwald & Laake PA in Greenbelt, Md., told Bloomberg BNA Sept. 7 that Moore outlined a narrower scope of FCA liability than the Supreme Court intended, though, when Moore said a whistle-blower “must allege that Defendants certified compliance with regulations when submitting claims.” The Universal Health Services decision said FCA liabilty can result from “misleading half-truths,” which Markovitz said was incompatible with Moore’s view on requiring evidence of certified compliance.

Payton also alleged the providers, who provide pediatric services to chronically ill children, conducted a bait-and-switch scheme to bill Medicare and private insurance to obtain claim denials and later bill Medicaid for the same services, but using different billing codes.

Moore granted the defendants’ motion to dismiss the bait-and-switch scheme allegations as well because Payton didn’t specify which billing codes were switched, or enough details about how the scheme actually operated. Moore allowed Payton two weeks to refile her complaint with allegation and facts sufficient to correct its deficiencies before the dismissal would be final.

Counsel for neither party returned Bloomberg BNA’s request for comment on the decision.

‘Follow On’ Lawsuit

Thomas said Payton’s lawsuit could be a “ ‘follow on’ qui tam that was the result of a whistle-blower knowing about the settlement and assuming the same conduct was going on.”

The court noted that Payton only worked for the defendants as an accounts receivable collector for a few months, and filed her lawsuit in September 2015 after two months of employment. The defendants’ prior FCA settlement on similar allegations was announced by the government in August 2015.

McBride said the financial incentive for whistle-blowers to file FCA lawsuits is immense, and recommended that companies defend themselves with a robust compliance program. Whistle-blowers typically are entitled to 15 percent to 25 percent of any recoveries resulting from an FCA lawsuit, which can result in a whistle-blower award of millions or even tens of millions of dollars in large FCA cases.

Markovitz, though, said the court’s dismissal of Payton’s argument that the fraud outlined in the settlement was continuing was troubling. Markovitz said it insulates defendants from FCA liability for continuing fraud unless the government decides to intervene in the lawsuit.

Pope McGlamry Kilpatrick Morrison & Norwood PC and Moss & Gilmore LLP represented Payton. Jones Day represented the defendants.

To contact the reporter on this story: Eric Topor in Washington at

To contact the editor responsible for this story: Peyton Sturges at

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