New False Claims Act Developments Help Providers

By: Frank P. Fedor

The False Claims Act has long concerned healthcare providers because of the apparent ease with which any mistake or negligence can be characterized as a "false claim" under its broad definitions. Combine this with the fact that every healthcare provider makes thousands of "claims" to the federal and state governments, and that providers in California are especially fortunate to be subject to both a federal and a state False Claims Act, and one has a very high risk situation.

As healthcare providers have become the largest group of False Claims Act targets the number of published cases addressing how they do business has helpfully risen. This benefits providers as it clarifies how the broad provisions of the False Claims Act will be applied to the types of things providers do. A case decided this year by a Michigan federal court, Swafford v. Borgess Medical Center, et al., 98 F. Supp. 2d 822 (2000), clarifies in the healthcare context what is and is not a "false"statement under the False Claims Act and should reign in some of the expansive theories which counsel for qui tam relators have been advancing.

Case Background

In Swafford a vascular technologist, the qui tam relator, filed an action under the False Claims Act alleging that various physicians violated the Act by falsely charging for the professional component of venous ultrasound studies. The United States Attorney decided not to intervene and left the relator to pursue the case on his own.

Some detail helps in understanding the significance of this case. For patients who were suspected to be at risk for deep vein thrombosis, the defendant physicians would order a venous ultrasound study to be conducted at a hospital or a clinic. The ultrasound was performed by a technician. The patient's venous system was examined by ultrasound to determine the presence or absence of defined "normal characteristics" for five risk factors. The ultrasound was recorded on videotape. The technician would determine the presence of absence of the defined characteristics, and whether each of the five risk factors was "positive" or "negative", and indicate all of these determinations on a worksheet. This constituted the technical component of the venous ultrasound study. The technician was not required to grade or evaluate the results.

The physicians would then review the technician's worksheet, evaluate the results noted in comparison to a normative scale, and prepare a final report setting forth the physician's findings and conclusions. This constituted the professional component of the venous ultrasound study, for which the physicians billed Medicare, Medicaid and Champus.

The relator claimed that the physicians defrauded the government by falsely charging for "interpretation" services they did not perform. The relator's theory was that the physicians did not personally review the video tape results of the study, but only reworded or plagiarized the technician's worksheet in order to prepare the physician's ultrasound report. The physicians countered that they interpreted the objective data in the technician's report, and then visualized, or formed a mental picture of, the patients' venous condition in order to write the physician's report.

In order to establish a violation of the False Claims Act the relator had to prove three elements: (1) there was a claim, (2) it was false, and (3) the false claim was made "knowingly". There was agreement that claims were made. The focus thus turned to whether the claims were false, and whether they were made knowingly.

The issue came before the court on defendant's motion for summary judgment. This is a motion that a party may bring before trial which asks the court to dismiss the case because there are no facts which could reasonably support the plaintiff's claims. The issue was thus whether there were any facts which might reasonably support a conclusion that the relator had proven each of the last two elements of the False Claims Act.

A Carrier Manual Does Not Set A Standard For Physician Billing

The court began by examining whether there was any law which governed physician interpretations of venous ultrasounds. The physicians pointed out that HCFA's Provider Handbook contained no such instructions. The relator argued that HCFA's Carriers Manual sufficiently defined "interpretation" to establish that the physicians failed to obtain sufficient information to make a properly billable interpretation. The court rejected the Carriers Manual as a source of rules governing physician billing for two reasons. First, the Carrier's Manual was a guide for carriers in determining what claims to pay, and not a guide for how physicians should bill. Second , the court cited earlier authority that the Carrier's Manual is merely a guide, and lacks the binding effect of law or regulation.

A Claim Is Not False Just Because The Underlying Service Is Below The Standard Of Care

The relator also argued that the physicians's professional component claims were false because the service the physicians provided in "interpreting" the venous ultrasound study was below the standard of care.

The court ruled as a matter of law that even if it were true that the physicians's interpretation of the venous ultrasound study was below the standard of care, it would still not be a basis upon which the claim could be false if the standard of care was not part of the rule defining what could be billed for. The court quoted from a 1999 case which rejected a similar argument that using an inferior method of testing blood plasma samples was the same as conducting no test:

[W]hen a supplier complies with the existing regulations, it is entitled to represent to the government (and to the world) that it has done so, without facing a claim of deception . . . . Equating "imperfect tests" with "no tests" would strain language past the breaking point".

Luckey v. Baxter Healthcare Corp., 183 F.3d 730, 732 (7th Cir. 1999). Thus in the absence of any clear billing rule defining the standard of care, the claim was not false within the context of the expectations of the government.

A Legal Dispute Over The Meaning Of Undefined Terms Does Not Make A Claim False

The relator also argued that what the physicians billed for could not be an "interpretation" "in any reasonable sense or meaning of the word". The relator in effect argued that the physicians did not have enough information to have performed an "interpretation". The court also rejected this argument as a matter of law because there simply was no legal definition of "interpretation" as applied to venous ultrasounds. Because "interpretation" was not defined, it was ambiguous. The dispute between the relator and the physicians over the meaning of the undefined term "interpretation" merely highlighted this ambiguity. The court cited existing authority that a legal dispute over the applicable rule is insufficient to establish factual falsity under the False Claims Act.

Efforts To Comply Negate False Claims Act "Knowledge"

With its conclusion that the relator could not prove that the claims were "false", the relator's case was over. The court nevertheless did consider whether there was any evidence of False Claims Act knowledge on the part of the physicians. In doing so, the court created a dictum which providers will want to use in arguing that their effective compliance programs are evidence that they did not make their false claims with "knowledge".

The False Claims Act defines three types of "knowledge": (1) actual knowledge, (2) deliberate indifference to the truth, and (3) reckless disregard for the truth. The relator argued that the physicians acted with deliberate indifference to the truth because they were aware "that their claims rested upon uncertain grounds", that only one physician investigated what regulations governed the interpretation of venous ultrasounds, and that HCFA's response was that there were no published guidelines. The court rejected this argument and pointed out that the conduct of the physicians showed concern, rather than deliberate indifference, for the truth:

[T]he evidence of internal discussions plaintiff points to cuts against his argument that defendant physicians were deliberately ignorant, and instead suggests defendants evinced concern and investigated the question of what procedures were required to submit a proper claim for reimbursement.

This is a ringing endorsement for the concept that reasonable and good faith compliance efforts show the absence of deliberate indifference or reckless disregard for the truth. The physicians apparently took the initial pre-lawsuit complaints of the relator seriously and made a good faith effort to ensure that their billing for professional interpretation of venous ultrasounds was reasonable.

Conclusion

This is a good case for providers, but one should not read too much into it. False Claims Act cases are fact specific. Change the facts a little, and the result can be dramatically different. For example, although the Swafford court held that a service below the standard of care in this instance did not make the claims false, a systemic or serious failure to meet the medical community's standard of care is the basis of many successful False Claims Act cases, particularly in the long term care industry. Nevertheless, the Swafford case does illustrate how effective compliance efforts can make a False Claims Act defensible.

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