---

Keywords AseraCare: Falsity and the False Claims Act, medicare, CMS, Practice Management

Date posted: Friday, January 10, 2020

Category: Practice Management

On September 9, 2019, the United States Court of Appeals for the 11th Circuit issued its decision in the case of United States v. AseraCare, Inc. et al. (938 F.3d 1278).  The case centered on the circumstances under which a claim may be deemed "false" for purposes of the federal civil False Claims Act (FCA).  In a decision favoring defendants of FCA investigations, the 11th Circuit held that a provider's clinical judgment that a beneficiary is eligible for a Medicare benefit cannot be deemed "false" for purposes of the False Claims Act, "when there is only a reasonable disagreement between medical experts as to the accuracy of that conclusion, with no other evidence to prove the falsity of the assessment" (AseraCare, 938 F.3d at 1281). 

AseraCare, Inc. (AseraCare) operates 60 hospice facilities in 19 states and admits approximately 10,000 beneficiaries each year.  The vast majority (~ 95 percent) of its revenues come from payments received for Medicare claims.  The subject lawsuit originated after three former AseraCare employees alleged that "AseraCare had a practice of knowingly submitting unsubstantiated Medicare claims under the federal [FCA]" (AseraCare, Inc., 938 F.3d at 1282).

The Medicare Hospice Benefit: Significance of Clinical Judgment
The Medicare hospice benefit is a Medicare Part A benefit option, covering multidisciplinary services addressing the physical and emotional pain associated with terminal illness through palliative (rather than curative) treatment.  See CMS Transmittal No. AB-03-040, "Hospice Care Enhances Dignity and Peace as Life Nears Its End," March 28, 2003.  Pursuant to Section 1814 (a) (7) (A) Social Security Act (Act) and 42 C.F.R. §§ 418.20, 418.22, and 418.25, when an individual elects his or her Medicare hospice benefit, both (1) the individual's treating physician, if he or she has a treating physician, and (2) the hospice medical director must certify his or her belief that the individual has a limited life expectancy of six months or less if the terminal illness were to run its normal course.  In subsequent benefit periods, only the hospice medical director must recertify his or her belief that the individual has a limited life expectancy of six months or less.  Pursuant to both Section 1814 (a) (7) (A) of the Act and 42 C.F.R. §

 
418.22 (b), a certification is "based on the physician's or medical director's clinical judgment regarding the normal course of the individual's illness." The regulations require that a hospice certification include "clinical information and other documentation that support the medical prognosis."

Importantly, the Medicare hospice benefit is not a six-month benefit.  The Medicare hospice benefit is provided to beneficiaries for specified periods of time known as "election periods." Pursuant to Section 1812 (a) (4) of the Act and 42 C.F.R § 418.21, a physician may certify a patient as eligible for hospice care coverage for an unlimited number of election periods.  However, each election period requires that the physician certify his or her belief that the beneficiary has a limited life expectancy of six months or less.  "The Medicare program recognizes that terminal illnesses do not have entirely predictable courses; therefore, the benefit is available for extended periods of time beyond six months provided that proper certification is made at the start of each coverage period" (CMS Transmittal No. AB-03-040, "Hospice Care Enhances Dignity and Peace as Life Nears Its End," March 28, 2003).
Section 1871 (a) (2) of the Act states that unless promulgated as a regulation by the Centers for Medicare and Medicaid Services (CMS), no rule, requirement, or statement of policy, other than a National Coverage Determination (NCD), can establish or change a substantive legal standard governing the scope of benefits or payment for services under the Medicare program.  However, in lieu of binding regulations with the full force and effect of law, CMS and its contractors have issued guidance that describes criteria for coverage of selected types of medical items and services in the form of manuals and local coverage determinations (LCDs).  In the subject case, the CMS contractor with oversight over AseraCare, Palmetto GBA, issued LCDs setting forth coverage guidelines for hospice services.  AseraCare physicians used such LCDs, in part, but not exclusively, in making prognostications for use in their certifications of the beneficiaries' hospice eligibility (AseraCare, Inc., 934 F.3d at 1283).

The False Claims Act imposes civil liability on "[a]ny person who… knowingly presents, or causes to be presented, a false or fraudulent claim for payment" to the Federal government or who "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim" (31 U.S.C. § 3729 (a) (1) (A)-(B)).  In addition, FCA liability also may attach where a person falsely asserts or implies that it complied with a statutory or
 
regulatory requirement, and it has not so complied.   See Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989 at 999 (2016).

The FCA defines knowingly to include "actual knowledge," "deliberate ignorance," or "reckless disregard" (31 U.S.C. § 3729 (b)).  Proof of "specific intent to defraud" is not required; however, liability does not attach to innocent mistakes or simple negligence (Urquilla-Diaz v. Kaplan University, 780 F.3d 1039 (11th Cir. 2015)).

In its complaint against AseraCare, the Government alleged that AseraCare knowingly employed reckless business practices to admit, bill for, and receive reimbursement for false claims (i.e., claims for hospice services rendered to Medicare beneficiaries who were not eligible for the Medicare hospice benefit) (AseraCare, Inc., 934 F.3d at 1284).  Notably, the Government did not allege (1) that AseraCare billed for "phantom patients;" (2) that the hospice certifications and recertifications were forged; or (3) that AseraCare employees lied to or withheld critical information from certifying physicians (Id. at 1285).  Rather, the Government asserted that AseraCare's aggressive business practices (i.e., imposing monthly quotas for patient intake, resulting in rubber-stamped certifications without a review of the underlying records) resulted in AseraCare admitting beneficiaries who were not, in fact, terminally ill and therefore did not meet hospice eligibility requirements (Id.).

District Court Proceeding

In developing its case, the Government identified a sample of 2,180 beneficiaries that had received hospice services from AseraCare for at least 365 continuous days.  The Government selected a sample of 223 beneficiaries from the universe.  The Government's physician expert witness reviewed the medical records associated with the sampled beneficiaries (but had never seen or treated the patients).  Using the LCDs as his guide, the Government's witness alleged that 123 beneficiaries were ineligible for the Medicare hospice benefit.  If it prevailed on this sample, the Government intended to extrapolate those results for a "statistically valid set of additional claims within the broader universe" (Id.)1   The Government also sought to introduce 1 Note that CMS and its contractors routinely use statistical sampling for overpayment estimation in the context of post-payment audits. There is a question as to whether such "estimation" is appropriate in the context of FCA, where each finding of a "false claim" may result in treble damages as well as a penalty of approximately $11,000. See  https://www.justice.gov/civil/false-claims-act. Courts are split as to whether statistical sampling may be used to calculate FCA liability. See e.g., Vega, Milene, "Should Statistical Sampling be Used to Prove Liability under the False Claims Act in Healthcare Fraud," Southern California Law Review, Vol. 91, No. 3, March 2018.

 
evidence of AseraCare's business practices, alleging that such practices led to physicians "rubber stamping" certifications without reviewing the associated medical records, and therefore admitting non-terminal beneficiaries (Id.).

AseraCare moved for summary judgment on the basis that the Government had demonstrated neither (1) the "falsity" of any of the disputed claims; nor (2) that AseraCare had any "knowledge" of the alleged falsity (Id.). The district court denied AseraCare's motion for summary judgment, because it found that questions of fact remained (Id. at 1286).

AseraCare's moved for bifurcation of the trial.  Over the Government's vehement objection, the district court agreed to bifurcate the trial into two phases: (1) Phase One would address the falsity of the claims at issue; (2) Phase Two would address the AseraCare's knowledge (Id.).  In so ruling, the district court noted, "while ‘pattern and practice' evidence showing deficiencies in AseraCare's admission and certification procedures could help establish AseraCare's knowledge of the alleged scheme to submit false claims-the second element of the Government's case-the falsity of the claims ‘cannot be inferred by reference to AseraCare's general corporate practices unrelated to specific patients'" (Id. at 1287).

During Phase One of the trial, the district court allowed the Government to present evidence of AseraCare's business practices, but only to contextualize its allegations of falsity. Principally, the Government presented physician expert witness testimony that the medical records did not support that the beneficiaries were hospice eligible, based on a "check the box" application of the LCDs.  AseraCare next presented its physician expert witness testimony, arguing that the beneficiaries were hospice eligible based on the entirety of the beneficiaries' clinical presentations (e.g., medical histories, constellation of medical conditions), and based on the physician's personal history treating terminal patients (Id. at 1288).
At the conclusion of Phase One of the trial, the jury was instructed to determine which expert was more persuasive, with the less persuasive opinion being deemed "false."  In particular, the jury received the following instruction: "A claim is ‘false' if it is an assertion that is untrue when made or used.  Claims to Medicare may be false if the provider seeks payment, or reimbursement, for health care that is not reimbursable" (Id. at 1288-1289).  The jury largely sided with the Government, determining that 104 of the 123 beneficiaries were not hospice eligible, and therefore that the underlying claims for those 104 beneficiaries for which AseraCare received reimbursement constituted "false claims" (Id.).

 
AseraCare again moved for summary judgment.  AseraCare argued that it was entitled to summary judgment as a matter of law because the court had articulated the wrong legal standard in its instructions to the jury. The district court agreed: "As the court worked through AseraCare's challenges," it "became convinced that it had committed reversible error in the instructions it provided to the jury." The district court determined that proper jury instructions should have included: "(1) that the FCA's falsity requirement requires proof of an objective falsehood; and (2) that a mere difference of opinion between physicians, without more, is not enough to show falsity" (Id. at 1290).  The district court found that a new trial was warranted to correct this error (Id.).

The court next considered, sua sponte, "whether the Government, under the correct legal standard, has sufficient admissible evidence of more than just a difference of opinion to show that the claims at issue are objectively false as a matter of law" (Id.).  Following briefing and a hearing, the district court found that the Government had not introduced enough evidence of the falsity of the claims.  In particular, the court found that the "Government has failed to point the court to any admissible evidence to prove falsity other than Dr. Liao's opinion…" (Id.). "The Government… presented no evidence of an objective falsehood for any of the patients at issue" (Id.). Therefore, the district court found that the Government could not prove falsity as a matter of law and issued summary judgment in favor of AseraCare (Id.). The Government's appeal to the 11th Circuit followed.

"Medicare claims may be false if they claim reimbursement for services or costs that either are [1] not reimbursable or [2] were not rendered as claimed"  (Id. at 1291 citing United States ex rel. Walker v. R&F Props. of Lake Cty., Inc., 433 F.3d 1349 at 1356 (11th Cir. 2005)).  In AseraCare, there was no question that the hospice services were rendered.  Therefore, the sole question for the 11th Circuit to decide was whether the claims were reimbursable (i.e., "whether AseraCare's certifications that patients were terminally ill satisfied Medicare's statutory and regulatory requirements for reimbursement.  If not, the claims are capable of being "false" for FCA purposes") (Id.).

After describing the statutory and regulatory framework for hospice eligibility, the 11th Circuit found that, "[t]he relevant regulation requires only that ‘clinical information and other

 
documentation that support the medical prognosis... accompany the certification' and ‘be filed in the medical record'" (42 C.F.R. § 418.22).
In this context, the 11th Circuit found that there are two separate representations embedded in each claim for hospice reimbursement:  "[1] A representation by a physician to AseraCare that the patient is terminally ill in the physician's clinical judgment, and [2] a representation by AseraCare to Medicare that such clinical judgment has been obtained and that the patient is therefore eligible"  (AseraCare, Inc., 938 F.3d at 1295-1296).

In the case at hand, the Government alleged that AseraCare "‘submitted documentation that falsely represented that certain Medicare recipients were ‘terminally ill,' when in the Government's view, they were not."  However, the Government did not allege that AseraCare submitted claims when the physicians had not formed a clinical judgement as to the terminality of the beneficiaries, or that AseraCare violated claim submission requirements.  The Government's allegations that the claims were "false" were based entirely on the accuracy of the physicians' clinical judgments.  Noting that, "physicians applying their clinical judgment about a patient's projected life expectancy could disagree, and neither physician… be wrong," the 11th Circuit held that a claim cannot be "false" triggering FCA liability "if the underlying clinical judgment does not reflect an objective falsehood (Id. at 1296-1297).

The court noted that examples of an "objective falsehood" could include situations in which: (1) the certifying physician did not review the patient's medical records; (2) the physician did not subjectively believe a beneficiary was terminally ill, but nonetheless certified the beneficiary as eligible for the Medicare hospice benefit; or (3) no reasonable physician would believe a beneficiary's condition was terminal based on the underlying medical records (Id. at 1297).

[I]n order to properly state a claim under the FCA in the context of hospice reimbursement, a plaintiff alleging that a patient was falsely certified for hospice care must identify facts and circumstances surrounding the patient's certification that are inconsistent with the proper exercise of a physician's clinical judgment. Where no such facts or circumstances are shown, the FCA claim fails as a matter of law (Id.).
 
As the Government was precluded from introducing evidence surrounding AseraCare's business practices surrounding certification in Phase One of the district court's proceeding, the 11th Circuit remanded the case back to the district court for consideration of all of the evidence submitted below.  However, the 11th Circuit also cautioned that such evidence must be linked to the specific 123 claims at issue.  "The linkage is necessary to demonstrate both falsehood and knowledge" (Id. at 1304).

Although AseraCare's holding is specific to hospice claims, this case will likely have implications for providers and suppliers subject to FCA investigations outside of the hospice context.  If the Government's alleges that a provider or supplier's clinical judgment is unjustified, and on this basis alleges the FCA has been violated, AseraCare's analysis may be used to demonstrate that the Government's allegation, without a correlated allegation of objective falsehood, must fail as a matter of law.

Jessica L. Gustafson, Esq. is a founding shareholder with The Health Law Partners, P.C.  Ms. Gustafson represents hospitals, health systems, hospices, home health agencies, physicians, and other healthcare providers and suppliers in an array of healthcare legal matters.  Ms. Gustafson devotes a substantial portion of her practice to representing providers in the Recovery Audit ("RAC") and Medicare audit appeals process.  

Abby Pendleton, Esq. is a founding shareholder of The Health Law Partners, P.C. Ms. Pendleton has been practicing healthcare law since 1996. She regularly provides counsel to healthcare providers and organizations in a number of areas, including but not limited to: compliance, Recovery Audit Contractors ("RAC"), Medicare and other payor audits, fraud and abuse, reimbursement matters, and HIPAA Privacy and Security, and physician staff privilege and licensure matters.