Medicare Fraud Claims Fail When Courts Read the Rules Closely: U.S. ex rel. Parker v. Space Coast Medical Associates, L.L.P.

As Medicare fraud allegations increasingly target the healthcare community, radiation oncology practices have faced recent legal challenges regarding the provision of proper physician supervision of radiation therapy services.  These cases, typically brought under the federal False Claims Act (FCA), have alleged that supervision was provided by professionals lacking appropriate credentials, that purported supervisors were not on site as required, or simply that no supervision was provided at all.  All of these cases were triggered by whistleblowers employed by the practice or by other health professionals familiar with the supervision provided.  Often, these cases have resulted in costly settlements for the practice.¹

In a recent case in the U.S. District Court for the Middle District of Florida, however, an oncology practice successfully defended against a former employee's FCA allegations that the practice failed to provide the proper level of supervision as required by Medicare guidelines.  Specifically, in U.S. ex rel. Parker v. Space Coast Medical Associates, L.L.P.,² Chief Judge Anne C. Conway dismissed the case against Space Coast Cancer Center (Space Coast), confirming that Medicare providers may be held accountable to comply with standards only when clearly articulated in regulation or published policy.  The Court also held that where a provider adopts a reasonable interpretation of an ambiguous Medicare rule or policy, even if that interpretation is incorrect, the provider cannot be liable under the False Claims Act.

Background

In Space Coast, the relators were Robert Parker, a former radiation therapist at the oncology practice, and Thomas Scheer, a locum tenens physician who had worked there for a week.  The original complaint, unsealed in March 2014 after the government declined to intervene, was subsequently amended several times.  The Second Amended Complaint alleged that Space Coast violated the federal and Florida FCAs by submitting false claims for radiation therapy treatments to Medicare Part B (as well as Medicaid and TRICARE).  The relators accused Space Coast of falsely certifying compliance with Medicare requirements for physician supervision, as well as for therapy planning and preparation activities.³ 

Space Coast moved to dismiss the complaint, arguing primarily that the alleged facts did not state any violations of Medicare payment conditions, as prescribed by the applicable Local Coverage Determinations (LCDs).  Instead, Space Coast argued, the relators had misstated or invented payment conditions that were not found anywhere in the LCDs or related regulations.

The Court granted Space Coast's motion and dismissed the complaint, but gave the relators one final chance to salvage their case by further amending their allegations to remedy the deficiencies identified.  When they failed to do so, the Court dismissed their complaint with prejudice on March 3, 2015.

The Ruling

Failure to Allege "Falsity"

The Court reviewed critically the relators' theory that Space Coast's claims seeking Medicare payment for providing radiation therapy were "legally false," supposedly because those therapies were falsely certified as compliant with regulatory requirements.⁴  Because there was no allegation that Space Coast submitted express certifications of regulatory compliance, however, the relators had to proceed under the FCA theory of "implied false certification."⁵ This theory, the Court concluded, required a showing that the submitted claims violated "federal rules that were a precondition of payment," because only violations of "conditions of payment, rather than conditions of participation in a particular program," are actionable under the FCA.⁶  Although the Eleventh Circuit has not yet fully articulated this position, Chief Judge Conway's ruling reflects the emerging consensus in the Middle District and among courts elsewhere.⁷

To determine whether Space Coast allegedly "submitted an implied false certification of a claim," the Court observed the need to analyze "the government programs' statutory and regulatory schemes and the requirements imposed on providers.⁸  The Court looked not only to statutes and regulations, but also to LCDs, which are "issued by private local entities contracting with the government," because they "set forth and govern the conditions of coverage and reimbursement under Medicare."⁹ Analyzing the relators' arguments about inadequate supervision, the Court methodically parsed each legal authority allegedly violated, and concluded that none required that radiation oncologists be the physicians who supervised the radiation therapies at issue. 

First, the Court rejected the relators' argument that Space Coast violated the Medicare Benefit Policy Manual's requirement of "direct personal supervision" by an on-site "physician" who could assist and direct the procedure; as the Court noted, the relators "allege[d] only an absence of a radiation oncologist present in the facility - not the absence of any physician."¹⁰  Second, the Court rejected the relators' reliance on the LCDs for the IMRT and SBRT therapies, because they "fail[ed] to direct the Court to any requirement in the LCDs that a radiation oncologist be present at the time of treatment."¹¹ Although relators had cited a separate LCD provision that did expressly require a radiation oncologist's direct supervision of a fifth type of therapy not at issue in the case, Image Guided Radiation Therapy (IGRT), the Court declined to extend this requirement to other therapies.¹²  Third, the Court rejected the applicability of Medicare guidance that "a supervising physician should be able to 'take over performance of a procedure,'" because this agency commentary "applies to hospital outpatient programs," and Space Coast was not alleged to "fall into that category."¹³  Although the Court acknowledged that "similar requirements may apply to practices like" Space Coast's, it required the relators to "direct the Court to any such regulations," which they failed to do.¹⁴

The Court undertook similarly precise reviews of the LCDs and other authorities when rejecting the relators' arguments that Space Coast violated other supposed requirements for planning various radiation therapies.¹⁵  In the end, the Court held that, because there were no allegations "that any other regulation may constitute a condition payment for lack of supervision," the Court held that the relators "fail[ed] to sufficiently allege that any claims submitted by [Space Coast] were false."¹⁶

Failure to Allege "Knowledge"

The FCA imposes liability only for "knowingly" submitting false claims.¹⁷  In Space Coast, the Court explained that "a person must have 'actual knowledge of the information' in question or act in 'deliberate ignorance' or 'reckless disregard' of the truth or falsity of the information."¹⁸  The Court relied on FCA cases where courts have held "that even if a defendant submits a false claim, if the defendant's interpretation of a statute or regulation was reasonable, and if there is no authoritative contrary interpretation of the rule, the relator cannot satisfy the knowledge requirement."¹⁹  Notably, the cases that the Space Coast Court cited were, in turn, applying the Supreme Court's decision in Safeco Insurance Co. v. Burr, 551 U.S. 47 (2007), which held that "reckless disregard" is an objective standard, such that an objectively reasonable, plausible interpretation of ambiguous language will insulate an actor from liability under that standard.²⁰  Chief Judge Conway held that, not only did the complaint "fail to state knowledge for the same reasons that the claims fail to state falsity," but "[e]ven if the claims [Space Coast] submitted were false," the relators failed to allege "that [Space Coast's] interpretations of the regulations were unreasonable," and therefore failed to satisfy the FCA's knowledge requirement.²¹

Implications

The Court's strict construction of the LCDs and related guidance drew a line in the sand for claims alleging violation of Medicare's payment conditions.  Essentially, if a payment precondition is not clearly and strictly articulated in the LCD, then it is not a "condition of payment" whose violation could make a claim knowingly "false."  Moreover, requirements cannot be established by extrapolation and analogy.  Even if an LCD lists a payment precondition for one service (such as the express radiation oncologist supervision requirement for IGRT), if the LCD does not repeat that condition when discussing a different service (such as IMRT), then the condition should not be considered a requirement for payment of claims for that second service.  Similarly, when Medicare publishes standards for a specific healthcare setting (e.g., hospital outpatient procedures), those standards do not automatically extend to another healthcare setting (e.g., procedures by non-hospital-based physician practices), absent clear regulatory intent to do so. 

The Space Coast opinion's careful analysis of the legal framework governing the alleged procedures reflected an appreciation for the technically complex regulatory landscape in which healthcare providers must operate.  By requiring precision and clarity in the payment conditions imposed on providers, the Court showed great deference to the agency's expertise on these complicated issues of medical and social policy.  After all, the agency is presumably better situated to prescribe specific requirements for a variety of factual and professional circumstances, and when it decides to impose different requirements for different situations, those variations presumably have legal significance.  As a result, the Court rejected the relators' efforts to interpolate requirements where the responsible authorities had not created them.

Space Coast Medical Associates, L.L.P was represented by Arnold & Porter LLP.