United States: Civil False Claims Act: Sixth Circuit Rejects DOJ Efforts to Equate Regulatory Non-Compliance with False Claims Act Liability

For the second time in two weeks, an appellate court has injected a dose of reality into False Claims Act ("FCA") jurisprudence. Following closely on the heels of the Seventh Circuit's blanket rejection of the Justice Department's preferred "gross trebling" methodology, which led to inflated recoveries in FCA cases (see FraudMail Alert No. 13-03-25), the Sixth Circuit issued a forceful decision greatly limiting the application of the FCA in so-called "false certification" cases based on alleged regulatory non-compliance. See United States ex rel. Hobbs v. MedQuest Assocs., No. 11-6520, 2013 WL 1285590 (6th Cir. Apr. 1, 2013). In MedQuest, the Sixth Circuit reversed the district court's entry of summary judgment and vacated the $11 million judgment that went along with it because the liability was based on regulatory non-compliance that was a "condition of participation" in Medicare, but not a "condition of payment" of Medicare claims made by MedQuest. As a result, while expressing no tolerance for the defendant's Medicare program violations—characterizing them as "clearly . . . at odds with the goals and aims of the Medicare program in several respects"—the Sixth Circuit ruled that the government cannot use the FCA to enforce or punish that type of conduct and instead should use available administrative remedies. The Sixth Circuit made clear that regulatory violations that are violations of "conditions of participation"—even if serious and intentional—are not enough to establish an FCA violation and do not "mandate the extraordinary remedies of the FCA."

The MedQuest opinion reaffirms the Sixth Circuit's recent holdings that FCA liability requires a clear violation of a condition of payment. See United States ex rel. Williams v. Renal Care Group, Inc., No. 11-5779, 2012 WL 4748104 (6th Cir. Oct. 5, 2012); United States ex rel. Chesbrough v. VPA, PC, 655 F.3d 461 (6th Cir. 2011). See also FraudMail Alert Nos. 12-10-11 and 11-08-31. The court has now clearly held that this "condition of payment" requirement must be applied in every false certification FCA case, separate and apart from any "materiality" requirement. See John T. Boese, The Past, Present, and Future of "Materiality" Under the False Claims Act, 3 ST. LOUIS U. J. OF HEALTH L. & POL'Y 291 (2010).

Background in MedQuest

The underlying case was initiated by a qui tam relator who was a former employee of MedQuest, a company that provides certain medical diagnostic testing at various facilities. The Justice Department intervened in the suit and alleged that MedQuest violated Medicare requirements by (1) allowing unapproved physicians to supervise certain testing procedures, and (2) continuing to bill under the prior owner's Independent Diagnostic Testing Facility billing number.

The district court granted summary judgment in favor of the government on both express and implied certification theories of FCA liability, and it entered judgment for over $11 million. The Sixth Circuit reversed the judgment in full.

The Sixth Circuit's Application of the Prerequisite to Payment Requirement

The government in MedQuest did not question that the diagnostic services had been provided or assert that the bills for such services were inflated. As a result, there was no allegation of a factually false claim for payment by MedQuest. Instead, the conduct that rendered the claims for Medicare reimbursement false—according to the government's theory—was that MedQuest had failed to comply with certain Medicare requirements specified in the regulations and that the claims for payment to Medicare were false on account of this regulatory non-compliance. In the FCA world, this type of theory is known as a "legally false" or "false certification" case. In these types of cases, FCA liability depends on an analysis of the regulatory provisions violated to see whether the regulation makes compliance a prerequisite to (or a condition of) payment of the claim. Rejecting the Justice Department's assertions to the contrary, the Sixth Circuit held that the regulatory violations—while clear and, in some instances, intentional—could not give rise to FCA liability because payment was not conditioned on compliance with them.

With respect to the "use of unapproved physicians" allegation, the district court had imposed FCA liability on the grounds that, in its enrollment application with Medicare, MedQuest had expressly falsely certified that it would "abide by the Medicare laws, regulations and program instructions." On review, the Sixth Circuit observed that neither this regulation—nor any other identified by the government—made compliance with the "approved physician" requirement a condition of payment. The Sixth Circuit also disagreed with the government's assertion that MedQuest implicitly falsely certified compliance with the approved physician requirement each time it submitted a claim for payment for diagnostic tests conducted under the supervision of unapproved physicians. Here, too, the appellate court held that payment of the claims was conditioned on the services being "reasonable and necessary," which required the services to be conducted under the direct supervision of a physician—approved or not. Since the government failed to identify any regulation that conditioned payment on the physician being approved, the failure to comply with that requirement could not result in FCA liability.

The appellate court observed that its determination that FCA liability does not extend to regulatory violations that are not conditions of payment is fully in accord with Sixth Circuit precedent and decisions from other circuits:

Recently, this court reaffirmed its view that "[t]he False Claims Act is not a vehicle to police technical compliance with complex federal regulations" when it determined that statements and requirements in a dialysis provider's Medicare application did not permit suit under the FCA. Williams, 696 F.3d at 532. Like our sister circuits, we recognize the need for an "active role" to be played by actors outside the federal government in the enforcement of the Medicare statute, see Mikes, 274 F.3d at 699-700, and we recognize that the FCA (through qui tam suits or otherwise) retains an important role in the Medicare context. But where, as in this case, the violations would not "natural[ly] tend[ ] to influence" CMS's decision to pay on the claims, United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Grp., Inc., 400 F.3d 428, 444-45 (6th Cir. 2005), the "blunt[ness]" of the FCA's hefty fines and penalties makes them an inappropriate tool for ensuring compliance with technical and local program requirements like the special supervision requirements at issue in this case. See Mikes, 274 F.3d at 699.

MedQuest, 2013 WL 1285590, at *9.

The Sixth Circuit applied a similar analysis and reached the same result with respect to the government's second claim—that MedQuest submitted false claims when it used the former owner's facility billing number after the transfer of ownership. At most, according to the appellate court, MedQuest failed to update its enrollment information after the transfer of stock ownership of the facility, but this failure was not a condition of payment. Although the appellate court recognized that providers should be responsive to known goals of the Medicare program, the government's failure to cite any regulation governing payment was fatal to its FCA claim because:

the FCA does not impose liability for providers' failure to anticipate needs of the program that have not been promulgated in regulations conditioning payment on compliance, in addition to providers' obligations to navigate the already-complicated scheme of regulations. In the absence of a regulation conditioning payment on an accurate, updated enrollment form reflecting current ownership, and without support for the proposition that a purchaser of a corporate practice is not legally entitled to use that corporation's billing number, MedQuest cannot be held liable under the FCA.

Id. at *10.

The Sixth Circuit's opinion in MedQuest is another attempt to restore some sanity to what has become an FCA liability free-for-all, where relators and even the government seek to use the FCA to police and punish regulatory non-compliance. The FCA—a powerful tool capable of imposing harsh sanctions and collateral consequences including suspension and debarment—was not intended to reach every instance of regulatory non-compliance. The Sixth Circuit's rationale makes clear that regulatory non-compliance can only result in FCA liability where the failure to comply with the regulation is a clear prerequisite to payment by the government.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions