In the ever-expanding area of the federal False Claims Act, the recent decision by the 7th Circuit in Absher v. Momence Meadows Nursing Center Inc., limited pursuing a False Claims Act violation under the worthless services theory but potentially expanded what administrative reports do not trigger the public disclosure bar of the False Claims Act.
Former nurses of the nursing home brought a qui tam suit against Momence Meadows Nursing Center, Inc. (“Momence”), an Illinois nursing home, alleging that Momence had submitted “‘thousands of false claims to the Medicare and Medicaid program”. U.S. ex rel. Absher v. Momence Meadows Nursing Center, Inc., 2014 WL 4092258, *3 (7th Cir. 2014). The case went to trial and earlier in February 2014, a jury found that Momence had violated the False Claims Act and provided worthless services, with the court entering a verdict of $9 million. Momence appealed to the 7th Circuit, which issued its ruling on August 20, 2014. The 7th Circuit addressed several issues including public disclosure, the scope of the worthless services theory, and scope of false certification under the False Claims Act. The 7th Circuit ultimately vacated the decision and remanded.
Importantly, the 7th Circuit first found that the relators were not barred by the public disclosure bar despite many of the allegations being contained in citations of government surveys. In so ruling, the 7th Circuit found that “because the surveys did not disclose facts establishing that Momence misrepresented the standard of care in submitting claims for payment to the government” it was not barred by public disclosure. Absher v. Momence, supra at *6. In deciding this issue this way, the 7th Circuit distinguished prior cases that held that administrative audits, reports, etc. that disclosed essential elements of fraud triggered the public disclosure bar. Here, the 7th Circuit reasoned that the disclosures in the administrative reports did not disclose the essential elements of fraud. Id.
The 7th Circuit also explored and limited the scope of the worthless services theory. The worthless services theory has become more prominent over recent years, with relators (whistleblowers) alleging that a provider has billed Medicaid and Medicare for services that have little to no value. Momentum on this theory was articulated in a prior case in the Eastern District of Kentucky, where the Court found that the relators could proceed under a theory of worthless services against a nursing home that failed to provide the minimum standard of care, and the District Court found that the relators did not need to show the services were completely lacking. U.S. v. Villaspring Health Care Center Inc., 2011 WL 6337455 (E.D. KY 2011). The relators in Momence attempted this same theory; however, the 7th Circuit articulated a higher standard than the one articulated by the court in Villaspring. The 7th Circuit in Momence found that the District Court had improperly instructed the jury on the worthless services theory when it gave the following example during jury instructions: “‘if Uncle Sam paid Momence 200 bucks and they only got $120 worth of value, [then] Momence defrauded them of $80 worth of services.’” Id. at *9. The Court found that this instruction was incorrect, reasoning that it exemplified a theory of “diminished value” and evidence showing that services are “worth some amount less than the services paid for” is not sufficient to show that the services were truly worthless. The Court rather articulated that a theory of worthless services must demonstrate that no or effectively no care was provided to the residents.
The 7th Circuit decision provides a mixed result in the False Claims Act arena for providers. In articulating its decision on the worthless services theory, the 7th Circuit has adopted a higher standard that relators must meet to proceed, holding that it is not sufficient to demonstrate that a minimum standard of care was not met, but rather that effectively no care was provided to residents. This will help providers who are sued under the False Claims Act win a motion to dismiss. However, the 7th Circuit has also opened the door for allowing relators to use administrative citations of nursing homes to bolster their False Claims Act case. In the landscape that often requires relators to plead with sufficient particularity to meet federal pleading standards, allowing the use of government citations may help relators at least survive a motion to dismiss.
For more information, please contact the author, Danielle Holley. She can be reached at (518) 462 – 5601 or via email at firstname.lastname@example.org