A recent trend among defendants in False Claims Act cases is to argue that their violations are not "material"--in other words, that even though they may be breaking the rules, the government doesn't care. This trend was spawned by a Supreme Court case typically referred to as "Escobar": Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2001, 195 L. Ed. 2d 348 (2016).
In cases of upcoding and misbilling, defendants' emphasis on the Escobar materiality test is misplaced. The Escobar test was formulated to apply in “implied certification” cases, as explained by the Supreme Court:
Accordingly, we hold that the implied certification theory can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant's failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.
As detailed in our prior blog posts, upcoding and misbilling schemes do not give rise to cases of “implied certification” or “legal falsity.” See United States ex rel. Ruscher v. Omnicare, Inc., 663 F. App'x 368, 373 (5th Cir. 2016). Instead, they give rise to factual falsity, and billing for the wrong service, or services not rendered, is always “material” for purposes of the FCA. See, e.g., U.S. ex rel. Sharp v. E. Oklahoma Orthopedic Ctr., No. 05-CV-572-TCK-TLW, 2009 WL 499375, at *6 (N.D. Okla. Feb. 27, 2009) (“[W]here the allegation is a factually false claim, any ‘materiality’ requirement would seem to be easily met in that the government paid a claim in a factually wrong amount, paid for a service that was not actually provided, or paid an amount greater than it should have based on the service actually provided.”).
Moreover, even if analyzed under the framework of Escobar, a healthcare provider's submissions on the CMS-1500 forms meet the Escobar test. As recently explained by the Eleventh Circuit in a healthcare fraud FCA case dealing with skilled nursing facilities (“SNFs”):
SNFs receive money from Medicare based on the services they provide. In this case, the SNFs indicated they had provided more services—in quantity and quality—than they, in fact, provided. Therefore, Medicare paid the SNFs higher amounts than they were truly owed. This plain and obvious materiality went to the heart of the SNFs’ ability to obtain reimbursement from Medicare.
Ruckh v. Salus Rehab., LLC, 963 F.3d 1089, 1105 (11th Cir. 2020).
Even post-Escobar, most court require only “proof only that the defendant’s false statements could have influenced the government’s pay decision or had the potential to influence the government’s decision, not that the false statements actually did so.” U.S. ex rel. Harman v. Trinity Industries Inc., 872 F.3d 645, 661 (5th Cir. 2017). In upcoding and misbilling cases, this standard is easily met. Medicare reimburses for services rendered based on charges submitted by providers on the CMS-1500 form, using CPT codes. The CPT codes determine the amount of money that Medicare reimburses the provider. There is no other mechanism or documentation that triggers Medicare’s reimbursement. Accordingly, there can be no dispute that the CPT codes submitted by a healthcare provider “could have influenced the government’s pay decision.” See id.
Moreover, Medicare makes clear in various publications that it considers billing for services not rendered to be quintessential example of fraud and abuse. For example, CMS publishes a manual for providers entitled “Medicare Fraud & Abuse: Prevent, Detect, Report,” which reminds providers, among other things:
- “When you submit a claim for services provided to a Medicare beneficiary, you are filing a bill with the Federal Government and certifying you earned the payment requested and complied with the billing requirements.”
- “Examples of improper claims include: . . . Billing codes that reflect  a more expensive treatment than was provided. . . . Billing services not provided. . . . Billing separately for services already included in a global fee, like billing an evaluation and management service the day after surgery.”
- “‘If you didn’t document it, it’s the same as if you didn’t do it.’ The same can be said for Medicare billing.”
The Medicare Program Program Integrity Manual, Chapter 4 – Program Integrity, similarly provides a detailed list of “Examples of Medicare Fraud,” including those at issue in typical FCA cases:
- “Incorrect reporting of diagnoses or procedures to maximize payments;”
- “Billing for services not furnished and/or supplies not provided.”
- “Misrepresenting dates and descriptions of services furnished or the identity of the beneficiary or the individual who furnished the services;”
§ 4.2.1. These publications confirm the materiality to Medicare of these practices.
If you are aware of potential upcoding or misbilling by a healthcare provider, please contact one of the attorneys on our whistleblower team.