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6th Circuit Reverses False Claims Act Judgment for Medicare Rule Violations

This week, in United States ex rel. Hobbs v. MedQuest Associates, Inc., No. 11-6520, 2013 WL 1285590 (6th Cir. Apr. 1, 2013), the Sixth Circuit Court of Appeals reversed an $11 million judgment as untenable under the False Claims Act. The claims against MedQuest, an “independent diagnostic testing facility,” were premised on its failure to comply with physician supervision and enrollment regulations. The trial court held that MedQuest violated the FCA in two ways: first, by using supervising physicians in its facilities who had not been approved by Medicare to supervise the tests offered in those facilities; and second, by failing to enroll certain facilities in Medicare and, instead, using the former owner’s ID number to submit claims.

On appeal, MedQuest argued that it could not be held liable, as the two rules it allegedly violated were conditions of participation in Medicare, not conditions of payment. The Sixth Circuit acknowledged that a false certification of compliance with Medicare rules may give rise to FCA liability, but only when it relates to a condition of payment from Medicare funds, rather than a condition of participation in the Medicare program. In this case, the appeals court found no violation of a condition of payment.

With respect to the unapproved supervising physician claims, the court explained that MedQuest’s certification in its Enrollment Application that it would “abide by the Medicare laws, regulations and program instructions” would not make MedQuest liable, because the “falsity of a claim is determined at the time of submission” and “the certification does not contain language conditioning participation on compliance with any particular law.”

Likewise, the court found that MedQuest did not make an “implied” false certification of compliance with a payment condition. Under 42 C.F.R. § 410.32, a diagnostic test is “reasonable and necessary” only when it is “furnished under the appropriate level of supervision by a physician.” This is a condition of payment. Another regulation, 42 C.F.R. § 410.33, requires diagnostic testing facilities to employ supervising physicians who are approved by Medicare, but the language of the regulation does not condition payment on the provider’s compliance with this rule. After reviewing all of the regulations, the court concluded that these provisions do not “mean that services lose ‘reasonable and necessary’ status when furnished by a physician who is not a supervising physician.”

As for the second issue, MedQuest’s non-enrollment of one of its facilities, the court explained that “[e]nrollment and approval are not required for an entity to be” an independent diagnostic testing facility. At most, the court held that MedQuest failed “to updated enrollment information, which we have held is not a violation of a condition of payment.” The court stated that “providers should, in good faith, endeavor to be as responsive as possible to the known goals of the Medicare program,” but providers will not be liable for “failure to anticipate needs of the program” that have not been put into the regulations conditioning payment on compliance.

In sum, the court reiterated its prior decisions (and those of other circuits) that “the False Claims Act is not a vehicle to police technical compliance with complex federal regulations.” Medicare has a complex administrative scheme in place to police compliance with its highly technical rules and regulations. Liability under the FCA is appropriate only where violations of Medicare regulations would “naturally tend to influence” Medicare’s decision to pay on the claims.

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