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To be guilty of criminal healthcare fraud under 18 U.S.C. § 1347, the defendant needs to have made a material misrepresentation. Most misrepresentations are explicit: for example, a doctor billing an insurer for a treatment never provided. But last month, in a precedential opinion in United States v. Mattia, the Third Circuit reversed the dismissal of an indictment and held that healthcare fraud misrepresentations can be implicit. The court also held that a prescription issued in bad faith could be an implicit misrepresentation — and on top of that, a claim for coverage based on a bad-faith prescription can incorporate that prescription, in which case the claim itself becomes an implicit misrepresentation. We dig into this layer cake of implicit misrepresentations below and explain what it means for actors in the healthcare sector.
The Case
According to prosecutors, Carmine Mattia worked for a marketing company as a sales representative for compounded medications. Doctors can tailor compounded medications to patient-specific needs when Food and Drug Administration-authorized drugs are not the right fit. Consequently, compounded medications can be expensive, making them a potential subject of fraud schemes. The Department of Justice has brought numerous enforcement actions concerning compounded medications over the last several years.
Mattia was paid a percentage of sales whenever a compounded medication was billed to a health plan. Prosecutors alleged that Mattia paid a coworker at another job to obtain prescriptions for compounded medicines the coworker did not need — without an examination, as arranged by Mattia — and submit them to the company's health plan for payment. Under this alleged scheme, Mattia earned commissions at the health plan's expense.
Based on these allegations, prosecutors indicted Mattia for healthcare fraud conspiracy and three counts of substantive healthcare fraud. Before the district court, Mattia argued that the indictment should be dismissed because it did not allege any misrepresentations by him or caused by him, thereby failing to satisfy the pleading standard of Federal Rule of Criminal Procedure 7(c). The district court agreed, finding no alleged false statements in the prescriptions themselves or in the health plan claims. The district court further concluded that Mattia was "[n]otably missing" from both the written prescriptions and the claims for payment, suggesting that Mattia could not be responsible for the representations in those documents. The court dismissed the indictment, and the government appealed to the Third Circuit.
The Opinion
The Third Circuit reversed. The Circuit first recognized "that implicit misrepresentations can give rise to valid charges" for healthcare fraud, joining the Fifth and Eleventh Circuits. The court explained that it had "long recognized that implicit misrepresentations are cognizable in other fraud contexts" and there was "no justification in the text of Section 1347(a) to stray from this approach." Instead, to decide whether the allegations against Mattia constituted a valid charge of healthcare fraud, the court had to assess the presence and nature of any "implicit misrepresentations." In Mattia's case, the appeals court identified alleged misrepresentations through two layers of "implication": (1) the implicit incorporation of a doctor's prescription into the claims submitted to the health plan, and (2) the implicit misrepresentations by the prescriptions themselves.
First, the court held that a claim to a payer may implicitly "incorporate" the prescriptions for drugs because, to submit a claim for payment from a healthcare benefits program, you need a valid prescription. Whether the claim is fraudulent then, turns on whether the incorporated prescription contains a misrepresentation.
Second, the court held that prescriptions themselves can be implicit misrepresentations. Invoking "a common-sense definition" of "prescription," the Third Circuit wrote that a prescription "suggests a level of validity based on a doctor's determination that a particular drug is needed by a patient." Thus, a prescription that was allegedly issued without the signer (1) having a bona fide doctor-patient relationship with the patient, (2) determining that the patient has a medical necessity for the prescribed drug, and (3) conducting an examination of the patient could all show sufficient implicit misrepresentation to adequately allege healthcare fraud.
From there, the Third Circuit stacked the layers of implication to satisfy the pleading standard for an indictment: "Because the Superseding Indictment sufficiently alleged that [the] prescriptions contained implicit misrepresentations, and that these implicit misrepresentations were incorporated into the claims submitted to [the health plan]," the indictment sufficiently alleged a misrepresentation amounting to healthcare fraud. Pointing to the allegations that Mattia paid his co-worker to obtain the prescriptions, the court also rejected Mattia's arguments that the indictment failed to sufficiently allege that he joined the scheme because it did not claim that he knew there was no doctor-patient relationship or need for the medication.
The Implications
The most important implication (meaning take-away) from this ruling concerns implication (meaning implicitness). The Third Circuit — encompassing Pennsylvania, New Jersey, Delaware, and the Virgin Islands — has joined the Fifth and Eleventh Circuits in holding that prosecutors need not allege that a healthcare fraud defendant explicitly claimed a drug or treatment was medically necessary, nor that a prescription contained explicit false statements. The prescription itself may constitute a false statement if it was written without a bona fide doctor-patient relationship and was medically unnecessary. Thus, because a valid prescription is required to dispense a drug or provide a treatment and for such drugs and treatments to be reimbursed by a healthcare plan, a bogus prescription — along with any misrepresentations it may embody — can serve as the basis for healthcare fraud charges. Under this view, one can incur criminal fraud liability not just from explicit false assurances but also from implied false assurances, and multiple layers of implied statements can combine to produce a healthcare fraud violation. This holding by the Third Circuit accords with the approaches of most courts, which generally treat theories of fraud by implicit misrepresentations as noncontroversial. Providers, sales representatives, and others should take note.
Arnold & Porter continues to track courts' interpretations of fraud statutes here on Enforcement Edge. Our team of former high-level prosecutors, experienced litigators, and regulatory attorneys stands ready to counsel clients on investigative, defense, regulatory, and compliance matters.
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