A recent decision by the U.S. District Court for the Middle District of Tennessee has significant implications on provider arrangements structured in reliance on the knowledge and approval of the Centers for Medicare and Medicaid Services (CMS).
In U.S. ex rel. Williams v. Renal Care Group, the court analyzed the corporate structure between RCG Supply Company (RCGSC), a dialysis equipment supplier, and its parent corporation, Renal Care Group (RCG), a dialysis facility (collectively the Defendants). The court concluded that RCG controlled RCGSC because RCG’s president managed RCGSC; that it provided RCGSC’s payroll, insurance, and email services; that the two companies shared office space without a lease between them; that RCGSC’s funds were deposited daily in RCG’s account; that RCG paid RCGSC’s supply vendors; and that RCGSC supplied only RCG patients.
Based on these facts, the court held the Defendants were liable for False Claims Act (FCA) violations because RCG actually controlled RCGSC, and, as a dialysis facility, RCG was statutorily prohibited from receiving the higher Medicare payment in connection with the sale of home dialysis equipment.
The Defendants argued that the corporate structure was based on “industry practice” and that Medicare officials were aware of and approved their corporate structure and paid their claims for more than six years. The court held that CMS’s knowledge and approval does not automatically exonerate a party from FCA liability since the statute specifically precluded the higher payments for sales of such equipment by inpatient treatment facilities, and therefore, the Defendants acted in reckless disregard of the Medicare laws and regulations by failing to maintain RCGSC as a separate entity.
The court imposed $43,769,000 in FCA penalties plus $12,957,864 in damages, which was trebled to $38,873,592, for a total award to the government of $82,642,592.
The court’s entire decision is available here.
This post was contributed by Charles Dunham.