United States: Sixth Circuit Reverses $11.1 Million FCA Judgment Against Medquest

Last Updated: April 5 2013
Article by Kim Looney, Jennifer L. Weaver and Kevin Page

In a significant victory for healthcare providers, the Sixth Circuit Court of Appeals on Monday overturned an $11.1 million False Claims Act (FCA) judgment against Atlanta-based medical imaging company MedQuest Associates, Inc. and three of its Nashville, Tennessee-area imaging facilities. The Court held that the company did not violate the FCA by failing to comply with Medicare supervising-physician regulations or Medicare enrollment regulations following a change of ownership. Significantly, the Sixth Circuit's opinion reaffirms its view that "[t]he False Claims Act is not a vehicle to police technical compliance with complex federal regulations" that do not clearly constitute "conditions of payment."

The MedQuest decision marks the third time the Sixth Circuit has overturned an FCA judgment in recent months on similar grounds. The Sixth Circuit reversed an $82.6 million award in U.S. v. Renal Care Group, Inc. et al. in October 2012.  In September 2012, the Sixth Circuit partially overturned a $1.5 million FCA judgment against Circle C Construction, LLC, affirming the lower court's decision on liability but reversing it on damages. These three cases represent over $95 million in awards overturned.

The Sixth Circuit's MedQuest decision reverses a 2011 decision by the lower district court, which held that MedQuest violated the FCA in two significant respects. First, the district court held that MedQuest filed claims that were false under both "express" and "implied" false certification theories when it used physician supervisors who had not been approved by the Medicare program and the local Medicare carrier to supervise contrast procedures at two of its imaging facilities, as is required by applicable IDTF regulations. The district court held that by submitting Medicare claims for contrast tests that were supervised by non-approved physicians, MedQuest violated its first express certification that only those physicians listed in its enrollment application would supervise such testing and later, in submitting bills implicitly certified that those tests were provided in accordance with applicable Medicare regulations and by physicians approved by Medicare. 

The Sixth Circuit rejected these arguments, holding that neither the "express" or "implied" theory supports FCA liability in this case because "[a] false-certification theory only applies where the underlying regulation is a 'condition of payment,'" and, according to the Sixth Circuit, the supervising-physician requirements are not conditions of payment. Furthermore, the Government's express certification theory fails, the Sixth Circuit argued, because the Government could not point to an express certification made by MedQuest, on any enrollment application or claims forms, that it was in compliance with the supervising-physician requirements.

The Sixth Circuit also rejected the Government's argument that the contrast tests were not "reasonable and necessary" (and thus not payable under Medicare) because they were not supervised by physicians approved by Medicare. Rather, the Sixth Circuit argued that contrast testing is not reasonable and necessary only if it is not performed under direct supervision by a physician. In this situation, the claims at issue were supervised directly by physicians, and therefore, the claims satisfy the conditions for payment even though MedQuest was not in complete regulatory compliance. The additional rules specifying supervisory procedures specific to IDTFs, the Sixth Circuit argued, are mere conditions of participation, which do not mandate the extraordinary remedies of the FCA, but are punishable only by administrative remedies, including suspension and expulsion from the Medicare program.

The district court's second reason for assessing FCA liability against MedQuest was that its claims were false because they were submitted by an IDTF that was not properly enrolled in the Medicare program. After MedQuest's acquisition, it continued to file claims using the former owner's Medicare provider number. The Sixth Circuit rejected this argument, holding that, at most, this case represents a failure to update enrollment information. Without a regulation  conditioning payment on an accurate, updated enrollment form that includes current ownership of an entity, and without support for the proposition that a purchaser of a corporate practice is not legally entitled to continue to use that corporation's billing number after the acquisition, MedQuest cannot be held liable under the FCA. Although failure to report or update enrollment information to reflect a change of ownership may not itself constitute a violation of the FCA, the submission of Medicare claims following any administrative action (e.g., revocation of billing privileges or exclusion from the Medicare program) may give rise to FCA liability.

The Sixth Circuit rulings signify that enforcement under the FCA is not appropriate for situations where compliance with the federal regulations deals with conditions of participation and does not deal with conditions of payment – not every Medicare regulation is a condition of payment and not every regulatory infraction should lead to a FCA violation.

Information contained in this bulletin was originally distributed to members of the American Health Lawyers Association Physician Organizations and Hospitals and Health Systems Practice Groups.

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