FILED
United States Court of Appeals
Tenth Circuit
PUBLISH February 7, 2020
Christopher M. Wolpert
UNITED STATES COURT OF APPEALS Clerk of Court
TENTH CIRCUIT
UNITED STATES OF AMERICA, ex
rel. STACEY L. JANSSEN, as Special
Administrator of the Estate of Megen
Corin Duffy,
Plaintiff Counter
Defendant - Appellant,
v. No. 19-3011
LAWRENCE MEMORIAL
HOSPITAL,
Defendant - Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(D.C. NO. 2:14-CV-02256-SAC)
Anthony E. LaCroix, LaCroix Law Firm, LLC (Theodore J. Lickteig, Law Office
of Theodore J. Lickteig, Lenexa, Kansas, Sarah A. Brown, Brown and Curry,
LLC, Kansas City, Missouri, and Robert K. Collins, Collins Law Office, LLC,
Olathe, Kansas, with him on the briefs), Kansas City, Missouri, for Appellant.
Andrew W. Lester (Mark A. Cole, Andrew R. Ramirez, and Kathryn G. Lee, with
him on the brief), Spencer Fane LLP, Overland Park, Kansas, for Appellee.
Before TYMKOVICH, Chief Judge, MURPHY, and CARSON, Circuit Judges.
TYMKOVICH, Chief Judge.
In this False Claims Act case, Stacey Janssen alleges Lawrence Memorial
Hospital engaged in two healthcare schemes to fraudulently receive money from
the United States. Janssen first contends LMH falsified patients’ arrival times in
order to increase its Medicare reimbursement under certain pay-for-reporting and
pay-for-performance programs the Government uses to study and improve
hospitals’ quality of care. Next, Janssen contends LMH falsely certified
compliance with the Deficit Reduction Act in order to receive Medicare
reimbursements to which it was otherwise not entitled.
LMH moved for summary judgment below, arguing Janssen failed to show
her allegations satisfied the Act’s materiality requirement—that the alleged
falsehoods influenced the Government’s payment decision as required under the
FCA. The district court granted LMH summary judgment on all of Janssen’s
claims on this basis, and we AFFIRM.
I. Background
We first explain the fraud schemes alleged in the complaint and then
discuss the procedural background relevant to the legal issues on appeal.
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A. LMH’s Alleged Fraud Schemes
Janssen claims LMH engaged in two fraudulent schemes. The first
concerns LMH’s alleged falsification of patients’ arrival times. The second
centers on LMH’s false certification of compliance with the Deficit Reduction
Act.
1. Falsification of Patients’ Arrival Times
LMH contracts with the Centers for Medicare and Medicaid Services
(CMS) to provide services to Medicare patients. CMS pays LMH for services
based on pre-determined rates. These rates are affected by certain programs,
including the Inpatient Quality Reporting (IQR) program, the Outpatient Quality
Reporting (OQR) program, and the Hospital Value Based Purchasing (HVBP)
program. To varying degrees, each of these programs rely on measures that
incorporate patients’ arrival times. The arrival time data is considered because it
helps the Government analyze the timeliness of the care patients receive.
a. The IQR, OQR, and HVBP Programs
The IQR program is a pay-for-reporting program. Under this program,
hospitals report certain designated quality measures regarding inpatient care. In
exchange for timely and accurately reporting, hospitals receive an annual
increase—what is termed a “market basket index increase”—in the rate at which
they are reimbursed under Medicare. See 42 C.F.R. § 412.64. Those hospitals
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that fail to submit accurate data on a timely basis have their market basket index
increase reduced. 1 Id. at (d)(2).
The OQR program operates similarly to the IQR program, except it relates
to outpatient, as opposed to inpatient, care. Hospitals must report certain quality
measures regarding outpatient care under the program. In exchange for accurate
and timely data, hospitals protect their annual market basket index increase from
reduction.
For both the IQR and OQR programs, LMH understands that submitting
accurate and complete data was a condition of receiving its full market basket
index increase. For the IQR program, LMH also submits Data Accuracy and
Completeness Acknowledgments on an annual basis certifying that the data
submitted is “accurate and complete.” App. at 2608.
The HVBP program is a pay-for-performance program. It operates as an
incentive program based on hospitals’ relative performance on a subset of IQR
measures. Unlike the IQR and OQR programs—which reward the mere
submission of data to CMS without regard for the substantive content of that
data—the HVBP program considers how well or poorly hospitals performed
1
For fiscal years 2007 through 2014, noncompliant hospitals’ increases
were reduced by 2 percent. 42 C.F.R. § 412.64(d)(2)(i)(B). For fiscal years 2015
and later, noncompliant hospitals’ increases were reduced by one-fourth. 42
C.F.R. § 412.64(d)(2)(i)(C).
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compared to their peers. Under this program, CMS withholds a percentage from
the total annual Medicare payments due to all participating hospitals and
redistributes these funds according to each hospital’s performance score. A
hospital’s performance score is calculated based on four different domains. Each
domain has a number of different measures within it. Accordingly, during the
relevant time period, LMH’s performance on certain IQR measures affected its
overall HVBP performance score, which in turn impacted its Medicare
reimbursement rate.
The healthcare measures used in the IQR, OQR, and HVBP programs
change from year to year. During the relevant period some, but not all, of these
measures incorporated patients’ arrival times. For example, the only measures in
the HVBP program that incorporated arrival times were AMI-7a (fribrinolytic
therapy received within 30 minutes of hospital arrival) and AMI-8a (primary
surgical intervention received within 90 minutes of hospital arrival). In fiscal
year 2015, these constituted two out of twelve measures contributing to LMH’s
Clinical Process of Care Domain score—one of four domain scores that
contributed to LMH’s overall HVBP performance score. Similarly, of the
measures utilized by the IQR and OQR programs, only a subset include arrival
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times. 2 Moreover, for certain periods, LMH did not report any data for even those
measures that incorporate arrival times. 3
LMH reports data for the IQR and OQR programs to CMS either through
automatically generated reports or by “abstracting” the data from patient charts.
Abstraction is performed using Specifications Manuals promulgated by CMS.
Abstractors do not, and cannot, alter data or patient records, nor do they
investigate the accuracy of the data. Thus, for both forms of reporting, any
inaccuracies in patients’ records are simply carried over to the data reported to
CMS.
b. Reporting False Patient Arrival Times
Under the IQR and OQR programs, LMH must report a patient’s arrival
time as the earliest time shown among a variety of documentation, including the
2
At oral argument, counsel for Janssen responded to a question regarding
the extent each program utilized arrival times:
Q: How many other of the metrics employ the arrival time?
A: I don’t have a dispositive number for you there, your honor. . . .
Q: Is it like two of three employed arrival time or is it two of twenty?
A: I think it’s probably, on the inpatient side, it may be two or three of
eighteen . . . and on the outpatient side there are a few more.
Oral Argument Recording, 32:02–33:00, Nov. 11, 2019.
3
For example, for fiscal year 2015, LMH did not report any data with
respect to AMI-7a because it had no relevant cases. App. at 3435.
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patient’s triage record or emergency department fact sheets. 4 As the district court
notes in its order granting summary judgment, numerous pieces of evidence in the
record support the contention that “LMH knowingly falsified patient records with
the intent of causing abstracted ‘arrival times’ to be later than they would have
been absent the falsification.” App. at 3641.
For example, the former director of LMH’s Emergency Department testified
that LMH used “interim forms” and “triage sheets” to record patient arrival times
but later discarded these forms so that the recorded arrival times did not enter the
patient’s hospital record. App. at 814–16. A former registration clerk in LMH’s
Emergency Department also declared that she was trained and instructed to delay
registration of patients until after the administration of electrocardiograms
(EKGs) so that the arrival time on the patient’s record was synonymous with their
EKG time. She also declared that LMH altered patients’ arrival times to match
EKG times in order to obtain Medicare compensation. Id. at 1369.
4
According to CMS Specifications Manuals, arrival time is “the earliest
documented time the patient arrived” at the hospital emergency department or as
an outpatient. App. at 255. This may be gleaned from a number of acceptable
sources, including (1) any emergency department documentation; (2) nursing
admission assessment/admitting note; (3) observation record; (4) procedure notes;
and (5) vital sign graphics record. Id. at 265. As of July 1, 2012, CMS defined
emergency department documentation to include “any documentation from the
time period that the patient was an ED patient e.g., ED fact sheet, ED
consent/Authorization for treatment forms, ED/Outpatient Registration/sign-in
forms, ED vital sign record, triage record, ED physician orders, ECG reports,
telemetry rhythm strips, laboratory reports, x-ray reports.” Id. at 313.
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Certain statistics are consistent with these assertions. Between 2010 and
2017, LMH reported a total of 17,714 records that incorporated “arrival time” as
part of the IQR program. App. at 2606. For 15.89% of these records, the
patient’s arrival time was either the same as or later than a recorded EKG time.
Id. During the same period, LMH reported 8,672 records to CMS that
incorporated arrival time as part of the OQR program. Id. Of these, 4.09%
contained an arrival time that was either the same as or later than a recorded EKG
time. Id. Moreover, from the second quarter of 2008 through the last quarter of
2010, LMH frequently reported a median arrival-to-EKG time of more than eight
minutes and never reported a time below three minutes. Id. at 948. But
beginning in the first quarter of 2011, LMH began frequently reporting a median
arrival-to-EKG time of zero or one minute. Id.
A reasonable inference from this testimonial and statistical evidence is that
LMH falsified certain patient arrival times and reported some inaccuracies to
CMS through the IQR and OQR programs. But the record is silent as to the
extent LMH’s alleged falsification of arrival times affected the accuracy of its
IQR and OQR reporting or its HVBP performance score. 5
5
As Janssen concedes, “there is little evidence of the precise degree to
which each measure is off is solely a function of LMH’s scheme.” Aplt. Br. at
59.
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2. False Certification of Compliance with the Deficit Reduction
Act
As a condition of receiving more than $5 million each year from Medicare,
LMH must comply with Section 6032 of the Deficit Reduction Act. Section 6032
requires LMH to educate its employees with detailed information regarding the
False Claims Act. See 42 U.S.C. § 1396a(a)(68). Among other things, Section
6032 requires that “any employee handbook” include “specific discussion” of
“detailed information about the False Claims Act . . . administrative remedies for
false claims and statements . . . any State laws pertaining to civil or criminal
penalties for false claims and statements, and whistleblower protections under
such laws, with respect to the role of such laws in preventing and detecting fraud,
waste, and abuse in Federal health care programs . . . .” Id.
From 2007 to 2016, LMH’s New Associate Resource Handbooks lacked
detailed discussion of the FCA, although these sources were supplemented with
additional training and informational materials.
LMH also signed Attestations of Compliance for at least fiscal years ending
September 30, 2014 through 2017. Each attestation states that “as a condition for
receiving payments exceeding $5 million per federal fiscal year” the executor has
“examined” LMH’s policies and procedures and read Section 6032 of the Deficit
Reduction Act. App. at 1707, 1714. Each further certifies that LMH is in
compliance with the requirements of Section 6032.
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For the fiscal years ending September 30, 2016 and 2017, the executors of
LMH’s attestations testified that they signed the forms without engaging in the
activities to which they attested. Specifically, LMH’s Chief Financial Officer
executed the attestation for the fiscal year ending September 30, 2016, and
testified that he did so without reviewing any educational materials distributed to
employees. Id. at 1704. LMH’s Chief Operating Officer executed the attestation
for the year ending September 30, 2017, and testified that she did so without
reviewing any policies or procedures. Id. at 1722.
B. Procedural and Investigatory History
In November 2013, the original Relator in this action, Megen Duffy, 6 called
a CMS hotline to report LMH for alleged Medicare fraud. NCI AdvanceMed
(NCI), a third-party investigative service for CMS, subsequently began
investigating the allegations, including the claim that LMH committed fraud by
“manipulating their door-to-EKG times” so as to “avoid losing money as a result
of a reduced Medicare reimbursement.” App. at 2534.
On May 30, 2014, Duffy filed her initial complaint. On June 16, 2015, she
filed her second amended complaint. The Department of Justice received each,
and sought additional time to consider intervention, stating it “assembled an
investigative team and commenced an investigation.” Supp. App. at 1. The DOJ
6
On October 26, 2018, the district court ordered Stacey L. Janssen, the
Special Administrator of Duffy’s estate, substituted as the qui tam Relator.
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notified the Health and Human Services Office of Inspector General, interviewed
Duffy, and expressed interest in “thoroughly review[ing] and analyz[ing]” the
allegations. Id. at 2. Ultimately, the DOJ opted not to intervene.
Around August 2014, NCI closed the investigation, noting “CMS is aware
of quality issue.” Id. at 2542. To date, CMS has not taken any action with
respect to LMH. It has not ceased paying the Medicare claims that LMH
continues to submit or asked LMH to adjust its reporting practices under the IQR,
OQR, or HVBP programs.
After several years of litigation, LMH moved twice for summary judgment.
The district court denied the first motion, which was filed before the close of
discovery. The district court granted the second motion. With respect to both
alleged fraud schemes, the district court held Janssen failed to raise a genuine
issue of material fact with respect to the materiality of the alleged falsehoods.
This appeal followed.
II. Analysis
Janssen brings the present claims under 31 U.S.C. §§ 3729(a)(1)(A), (B),
and (G). 7 To show a false claim, Janssen must establish (1) a false statement or
7
Subsection (A) creates liability for anyone who “knowingly presents, or
causes to be presented, a false or fraudulent claim for payment or approval.” 31
U.S.C. § 3729(a)(1)(A). Subsection (B) creates liability for anyone who
“knowingly makes, uses, or causes to be made or used, a false record or statement
material to a false or fraudulent claim.” Id. at § 3729(a)(1)(B). Subsection (G),
(continued...)
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fraudulent course of conduct; (2) made with the requisite scienter; (3) that is
material; and (4) that results in a claim to the Government or conceals, decreases,
or avoids an obligation to pay the Government. See U.S. ex rel. Polukoff v. St.
Mark’s Hosp., 895 F.3d 730, 734 (10th Cir. 2018). Here, the focus is on
materiality, a required element under each of the provisions Janssen relies on.
See 31 U.S.C. §§ 3729(a)(1)(A), (B), and (G); Univ. Health Servs., Inc. v. U.S. ex
rel. Escobar, 136 S. Ct. 1989, 1996 (2016). 8 Materiality is a mixed question of
law and fact that can be decided as a matter of law if reasonable minds could not
differ on the question. See Long v. Ins. Co. of N. Am., 670 F.2d 930, 934 (10th
Cir. 1982). We review the district court’s grant of summary judgment de novo,
7
(...continued)
sometimes referred to as the reverse false claims section, creates liability for
anyone who “knowingly makes, uses, or causes to be made or used, a false record
or statement material to an obligation to pay or transmit money or property to the
Government, or knowingly conceals or knowingly and improperly avoids or
decreases an obligation to pay or transmit money or property to the Government.”
Id. at § 3729(a)(1)(G).
8
With respect to 31 U.S.C. §§ 3279(a)(1)(B) and (G), this requirement is
explicitly included in the text of the statute. With respect to 31 U.S.C.
§ 3729(a)(1)(A), the Supreme Court has unequivocally stated a materiality
requirement exists. See Escobar, 136 S. Ct. at 2001–02. The parties do not
advance, and we do not take, any position with respect to whether any distinctions
exist between the materiality requirements applicable to each subsection. For
purposes of this appeal, any such distinctions are irrelevant as Janssen fails to
meet any conception of materiality. See Escobar, 136 S. Ct. at 2002 (declining to
decide whether “§ 3729(a)(1)(A)’s materiality requirement is governed by
§ 3729(b)(4) or derived directly from the common law” because “[u]nder any
understanding of the concept, materiality ‘look[s] to the effect on the likely or
actual behavior of the recipient of the alleged misrepresentation.’”).
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applying the same standard as the district court. Smothers v. Solvay Chems., 740
F.3d 530, 538 (10th Cir. 2014).
A. Legal Framework
When originally enacted in 1863, the FCA aimed to stop “massive frauds
perpetrated by large contractors during the Civil War.” United States v.
Bornstein, 423 U.S. 303, 309 (1976). Today, the FCA’s focus “remains on those
who present or directly induce the submission of false or fraudulent claims” to the
Government. Escobar, 136 S. Ct. at 1996. But the FCA does not impose
liability for any and all falsehoods. Id.; see also 31 U.S.C § 3729(a)(1)(A) et seq.
Simply put, the FCA is not an “all-purpose antifraud statute or a vehicle for
punishing garden-variety breaches of contract or regulatory violations.” Escobar,
136 S. Ct. at 2003 (citations omitted); U.S. ex rel Bulbaw v. Orenduff, 548 F.3d
931, 959 (10th Cir. 2008) (“The FCA is not an appropriate vehicle for policing
technical compliance with administrative regulations.” (quoting U.S. ex rel.
Lamers v. City of Green Bay, 168 F.3d 1013, 1020 (7th Cir. 1999))). Instead,
FCA liability attaches only where the alleged misrepresentations are material to
the Government’s payment decision. See Escobar, 136 S. Ct. at 2001–02.
In the FCA context, materiality is a “rigorous” and “demanding”
requirement. Id. at 2002–03; see also U.S. ex rel. Coffman v. City of
Leavenworth, 770 F. App’x 417, 419 (10th Cir. 2019) (holding “[a]n FCA claim
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must satisfy materiality . . . which [is] ‘rigorous’ and strictly enforced”).
Assessing materiality requires analysis of the “effect on the likely or actual
behavior of the recipient of the alleged misrepresentation.” 9 See Escobar, 136 S.
Ct. at 2002; see also 31 U.S.C. § 3729(b)(4) (defining materiality as “having a
natural tendency to influence, or be capable of influencing, the payment or receipt
of money or property”). Thus, the sine qua non of materiality is some quotient of
potential influence on the decisionmaker—in this case, CMS.
Janssen dedicates much of her briefing to arguing for a “broad”
interpretation of materiality. Aplt. Br. at 31. She contends the Supreme Court in
Escobar adopted the concept of materiality familiar to contract and tort law and,
under such a view, materiality may be shown through either an objective or
subjective showing. 10 Id. at 27, 33. According to Janssen, under either an
9
Although the focus is on the Government’s likely conduct, Janssen need
not demonstrate actual reliance to survive summary judgment. Cf. United States
v. Williams, 934 F.3d 1122, 1128–30 (10th Cir. 2019). That is, a false statement
can be material even if the government’s decision to pay or not pay the claim does
not hinge on that statement alone. To erect such a bar—one requiring a showing
of actual reliance—would impermissibly go beyond the text of the statute. See,
e.g., 31 U.S.C. § 3729(a)(1)(A) (attaching liability to the presentment of a false or
fraudulent claim for payment rather than the actual payment of the claim); see
also U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 189 (5th Cir. 2009) (“The
False Claims Act . . . lacks the elements of reliance and damages.”).
10
Janssen also cites numerous cases in support of her argument in favor of
a purely objective or subjective understanding of materiality. We find these
unpersuasive. Long v. Insurance Co. of North America involved allegations of
insurance fraud between two private parties. 670 F.2d at 934. Gilbert v. Nixon
(continued...)
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objective or subjective showing, the focus need not be on the recipient of the
misrepresentation. See Aplt. Br. at 34 (stating that “absent from both the
objective and subjective tests is any requirement of proof of what the recipient of
a misrepresentation actually thought or did in response to it”).
But contrary to Janssen’s argument, the Supreme Court in Escobar did not
adopt the formulation of materiality contained in the Restatement (Second) of
Torts § 538 and the Restatement (Second) of Contracts § 162(2). Instead, the
Court cited these formulations in support of the statement that “under any
understanding of the concept, materiality ‘look[s] to the effect on the likely or
actual behavior of the recipient of the alleged misrepresentation.’” Escobar, 136
S. Ct. at 2002 (emphasis added). Thus, rather than directing courts to focus
exclusively on a reasonable person—as they would under a purely objective
(...continued)
involved allegations of fraud connected to investments in certain oil and gas
leases executed between two private parties. 429 F.2d 348, 351–54 (10th Cir.
1970). Neither case offers an analogy to the present FCA allegations, much less a
persuasive reason to distinguish and attempt to depart from the controlling
directive of Escobar. United States v. Brookdale Senior Living Communities,
Inc., 892 F.3d 822 (6th Cir. 2018), and United States v. Triple Canopy, Inc., 857
F.3d 174 (4th Cir. 2017), involve FCA allegations, but neither control nor support
Janssen’s conceptualization of materiality. First, both cases concerned the
sufficiency of pleadings to withstand a motion to dismiss under Federal Rule of
Civil Procedure 12(b)(6). See Brookdale, 892 F.3d at 825–26; Triple Canopy,
857 F.3d at 175. Second, each explicitly considered the likely or actual effect of
the alleged misrepresentations on the Government in its analysis, consistent with
the approach adopted here. Brookdale, 892 F.3d at 832–38. Triple Canopy, 857
F.3d at 178–79.
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analysis—or exclusively on the mindset of the misrepresenter—as they would
under a purely subjective analysis—Escobar focuses the materiality inquiry on the
likely reaction of the recipient. 11
This inquiry is holistic. In cases such as this one, where the allegations
base FCA liability on noncompliance with regulatory or contractual provisions,
relevant factors include, but are not limited to (1) whether the Government
consistently refuses to pay similar claims based on noncompliance with the
provision at issue, or whether the Government continues to pay claims despite
knowledge of the noncompliance; (2) whether the noncompliance goes to the
“very essence of the bargain” or is only “minor or insubstantial;” and (3) whether
the Government has expressly identified a provision as a condition of payment.
Escobar, 136 S. Ct. at 2003 & n.5. None of these factors alone are dispositive.
See United States v. Brookdale Senior Living Cmtys., Inc., 892 F.3d 822, 831 (6th
Cir. 2018).
Applying this standard of materiality, we turn first to LMH’s alleged
falsification of arrival times before addressing LMH’s alleged false certifications
of compliance with the Deficit Reduction Act.
11
Evidence of objective or subjective materiality are not irrelevant. Such
evidence may be probative in the materiality analysis. U.S. ex rel. Escobar v.
Univ. Health Servs., Inc., 842 F.3d 103, 109 (1st Cir. 2016). But it is relevant
primarily because it casts light on the likely reaction of the recipient, not because
it holds any isolated independent importance.
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B. Patient Arrival Times
Assessing the factors discussed above, we conclude Janssen has failed to
present sufficient evidence to raise a fact issue with respect to whether the alleged
falsification of arrival times was material to the Government’s payment decision.
1. Government’s Prior Conduct
The Government’s prior conduct weighs in favor of immateriality. Where
the “Government consistently refuses to pay claims in the mine run of cases based
on noncompliance with the particular statutory, regulatory, or contractual
requirement,” this demonstrates materiality. Escobar, 136 S. Ct. at 2003–04.
Conversely, if the “Government pays a particular claim in full despite its actual
knowledge that certain requirements were violated, that is very strong evidence
that those requirements are not material.” Id.
Neither party presents other cases concerning CMS reimbursement under
the IQR, OQR, or HVBP programs, and we are aware of none. But the
Government’s actual behavior in this case suggests Janssen’s allegations are
immaterial. 12 See U.S. ex rel. McBride v. Halliburton Co., 848 F.3d 1027, 1034
(D.C. Cir. 2017) (“[W]e have the benefit of hindsight and should not ignore what
12
We focus here on CMS’s inaction despite knowledge of the allegations.
Although stressed in LMH’s briefing, we put little weight on the fact that the DOJ
was aware of the allegations and declined intervention. To infer much, if
anything, from such a declination would undermine the purposes of the FCA,
which is explicitly designed to permit private persons to litigate suits in lieu of
the Government. Brookdale, 892 F.3d at 836; see also 31 U.S.C. § 3730(d)(2).
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actually occurred.”). The record shows that in 2014 NCI conducted an
investigation over several months into the central allegations presently at issue
and made CMS aware of the quality issues complained of. To this day, CMS has
done nothing in response and continues to pay LMH’s Medicare claims. Although
CMS may not have independently verified LMH’s noncompliance—and thus may
not have obtained “actual knowledge” of the alleged infractions—its inaction in
the face of detailed allegations from a former employee suggests immateriality.
See U.S. ex rel. Berg v. Honeywell Int’l, Inc., 740 F. App’x 535, 538 (9th Cir.
2018) (upholding summary judgment where the Government continued to pay
claims “up to at least 2008, despite being aware of Relators’ fraud allegations
since 2002 [and] the results of its own audit since 2003”); see also D’Agostino v.
Ev3, Inc., 845 F.3d 1, 7 (1st Cir. 2016) (“The fact that CMS has not denied
reimbursement for Onyx in the wake of D’Agostino’s allegations casts serious
doubt on the materiality of the fraudulent representations.”).
Janssen claims that NCI did not engage in an “actual investigation.” Aplt.
Br. at 61. But NCI’s report undermines this claim, and an affidavit from the NCI
custodian of record avers that “NCI AdvanceMed investigated Megen Duffy’s
claim against Lawrence Memorial Hospital that is the subject of this lawsuit.”
App. at 2530. Janssen also contends the scope of the investigation was confined
to whether or not “door-to-EKG” was, at the time, an HVBP measure. Aplt. Br.
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at 61. This too is belied by the record. Although the NCI documents fail to
precisely detail the scope of the investigation, they indicate that NCI was focused
on the central complaint at issue here. For example, the cover sheet for the CMS
hotline states that “Ms. Duffy claims that the employees of LMH are falsifying
patients’ charts . . . in order to get higher reimbursements.” App. at 2532. The
NCI closing investigative summary further describes the allegations under review
as involving LMH “manipulating their door-to-EKG times . . . so that Lawrence
Memorial Hospital can receive the highest reimbursement possible.” App. at
2537. Although the evidence with respect to NCI’s investigation is not
overwhelming, the NCI summary details identification of a “quality issue” with
respect to the precise allegations at issue and notes that CMS was made aware of
the matter. This constitutes some evidence in favor of immateriality. 13
13
Janssen cites to the First Circuit’s decision on remand in Escobar,
arguing that nothing should be drawn from the CMS’s continued payment of
claims where it had only knowledge of allegations, as opposed to actual
violations. U.S. ex rel. Escobar v. Univ. Health Servs., Inc., 842 F.3d 103, 112
(1st Cir. 2016) (“[A]wareness of allegations concerning noncompliance with
regulations is different from knowledge of actual noncompliance.”) While the
distinction between allegations and actual knowledge is relevant, we find the First
Circuit’s decision distinguishable. In Escobar the court assessed the sufficiency
of a complaint at the motion to dismiss stage, finding that potential knowledge of
allegations was insufficient to warrant dismissal where the alleged noncompliance
went to the essence of the bargain. The procedural posture here is quite different.
It is not inconsistent to state that knowledge of allegations is insufficient, alone,
to warrant dismissal under Rule 12(b)(6) and yet constitutes some evidence of
immateriality under Rule 56(a). Moreover, in Escobar the allegations only noted
that the Government continued to pay claims up to the filing of litigation. Here
(continued...)
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2. Essence of the Bargain
The minimal aspects of LMH’s alleged misconduct similarly suggest
immateriality. Where noncompliance with a regulatory requirement is “minor or
insubstantial,” it indicates immateriality. Escobar, 136 S. Ct. at 2003.
Conversely, where noncompliance goes to the “essence of the bargain,” it
suggests materiality. Id. at 2003 n.5.
Janssen emphasizes the importance of accurate reporting to the effective
operation of the IQR, OQR, and HVBP programs as justification for the
importance and centrality of LMH’s misconduct. Aplt. Br. at 45. The need for
accurate reporting is at least arguably enshrined in the statutory and regulatory
requirements for the programs, and was understood, at least at a general level, by
LMH staff. But in the complex matrix of Medicare reporting and reimbursement,
such broad appeals to the importance of accurate reporting cannot clear the
rigorous materiality hurdle. See U.S. ex rel. Conner v. Salina Regional Health
Ctr., Inc., 543 F.3d 1211, 1221 (10th Cir. 2008) (holding a hospital’s failure to
comply perfectly with Medicare regulations does not automatically generate FCA
liability). As we noted in Conner, the Government has an “administrative scheme
for ensuring that hospitals remain in compliance and for bringing them back into
13
(...continued)
CMS has continued to pay claims—and has requested no changes in LMH’s data
reporting or Emergency Room practices—for years despite ongoing litigation.
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compliance when they fall short of what the Medicare regulations and statutes
require.” Id. at 1220.
Here, that scheme envisions administrative procedures designed to address
noncompliance with requirements of the IQR and OQR programs, including
inaccurate reporting. See 42 C.F.R. §§ 412.140, 419.46. Substituting FCA
liability for every failure to achieve perfect compliance with Medicare regulations
would not only undermine the Government’s administrative program, but would
render the FCA a general antifraud statute and tool for policing minor regulatory
compliance issues, contrary to the Court’s directive in Escobar. See Conner, 543
F.3d at 1221; see also Escobar, 136 S. Ct. at 2003.
Accordingly, we must look not to simply whether Janssen has shown some
inaccuracies in LMH’s reporting, but to whether Janssen has demonstrated
sufficiently widespread deficiencies that they would likely affect the
Government’s payment decision. We conclude she has failed to do so.
As Janssen concedes, there is “little evidence” demonstrating the extent to
which inaccurate arrival times affected the accuracy of LMH’s reporting. Aplt.
Br. at 59. In the IQR and OQR programs, arrival time is only incorporated into a
subset of measures for which LMH reports data. Moreover, not all the patient
records relating to each affected measure were falsified. Even taking all
reasonable inferences in Janssen’s favor, we can at most conclude that relatively
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few records reported false arrival times. See App. at 2606 (averring that only
15.99% of inpatient records and 4.09% of outpatient records incorporating arrival
time had an EKG time identical to or earlier than the patient’s arrival time).
Thus, at most, LMH’s alleged misconduct affected only a subset of a subset of the
data reported under the IQR and OQR programs.
The effect of LMH’s alleged misconduct is similarly limited with respect to
the HVBP program. Only two measures in one of the four domains that affect
LMH’s performance score under the program incorporated arrival times. Within
these measures, the degree to which LMH’s alleged misconduct affected its
performance is not ascertainable. At most, Janssen has shown uncertain effects
on a factor of a factor of LMH’s performance score. This evidence is insufficient
to raise a fact issue with respect to materiality. See Conner, 543 F.3d at 1220–21;
Escobar, 136 S. Ct. at 2003–04.
Nor has Jassen put forward evidence of a cover-up, which might signal
materiality despite the minor effects of the alleged misconduct. See United States
v. Triple Canopy, Inc., 775 F.3d 628, 638 (4th Cir. 2015) judgment vacated by
Triple Canopy, Inc. v. U.S. ex rel. Badr, 136 S. Ct. 2504 (2016), but reaffirmed in
Triple Canopy, Inc., 857 F.3d 174 (4th Cir. 2017). In Triple Canopy, the Fourth
Circuit inferred materiality, in part, from a “scheme” the defendant orchestrated
to cover up the deficiencies of guards contracted to provide security services on
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U.S. military bases overseas. There, after learning of the guards’ deficient
training, defendant’s supervisors falsified scorecards so that its guards would
meet the marksmanship requirements in its contract with the Government.
Supervisors signed and post-dated the guards’ false marksmanship scorecards
despite knowing the guards could not zero their rifles or shoot straight.
Here, no analogous cover-up is evident. Janssen points to Medicare claim
forms and Data Accuracy and Completeness Acknowledgments, arguing both
constitute false certifications of accuracy regarding LMH’s reported arrival times.
But these boilerplate compliance documents are part of the complex Medicare
regulatory system and fail to elevate potentially less-than-perfect compliance to
FCA liability. See Conner, 543 F.3d at 1221 (rejecting the “sweeping” argument
that Medicare certifications give rise to FCA liability with respect to minor or
insubstantial regulatory noncompliance). Moreover, none of the deposition
testimony Janssen cites supports the assertion that LMH’s certifications were
signed despite knowledge of inaccuracies similar to the guards’ scorecards in
Triple Canopy.
In light of the, at most, minimal nature of the inaccuracies in LMH’s
reporting under the IQR, OQR, and HVBP programs, we find Janssen’s
allegations do not go to the essence of the bargain between LMH and CMS and
are therefore immaterial.
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3. Express Condition of Payment
Finally, Janssen contends that the Government has expressly required
accurate reporting as a condition of payment under the IQR, OQR, and HVBP
programs. Aplt. Br. at 41, 52 (citing 42 U.S.C. §§ 1395ww(b), 1395l(t)(17),
1395ww(o); 42 U.S.C. §§ 1395ww(b)(3)(B)(viii)(I), 1395l(t), 1395ww(o)(1); and
42 C.F.R. § 482.24). Such requirements, while relevant, are not dispositive.
Escobar, 136 S. Ct. at 2003.
Certain conditions for participating in Medicare are provided by 42 C.F.R.
§ 482.24. Among other things, participating hospitals such as LMH must
maintain accurate medical records. While this requirement casts some light on
the general importance of accurate reporting to the Government, it does not
directly address the IQR, OQR, and HVBP programs. More importantly, such
generic regulatory requirements fall short of establishing the materiality of perfect
compliance therewith, especially when encased in a complex regulatory system
with separate administrative remedies. Conner, 543 F.3d at 1218–22.
The remaining provisions of 42 U.S.C. §§ 1395ww(b), 1395l(t), and
1395ww(o) similarly fail to establish materiality. Even assuming these statutes
require accurate reporting as an express condition under the relevant programs,
that alone is insufficient to establish materiality. Escobar, 136 S. Ct. at 2003.
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Accordingly, we find that the statutes and regulations related to the IQR,
OQR, and HVBP programs do not overcome Janssen’s failure to establish
materiality with respect to LMH’s alleged falsification of arrival times.
C. Deficit Reduction Act
Janssen’s claims with respect to the Deficit Reduction Act similarly fail for
lack of materiality. Although the record reveals a fact issue with respect to
whether all of LMH’s employee handbooks comply with Section 6032, not all
potential compliance failures warrant FCA liability. Escobar, 136 S. Ct. at 2003
(noting the FCA is not a “vehicle for punishing garden-variety breaches of . . .
regulatory violations”).
Numerous New Associate Resource Handbooks distributed by LMH
between 2007 and 2016 lack detailed, if any, discussion of the False Claims Act
or the specific topics required to be communicated to employees under Section
6032. This may raise a jury issue with respect to whether LMH violated Section
6032. See 42 U.S.C. § 1396a(a)(68). Further, it is reasonable to infer from the
testimony of LMH’s Chief Financial Officer and Chief Operating Officer that
LMH management submitted inadequate or false attestations of compliance with
the DRA.
But while LMH’s potential failure to educate its employees in the manner
and detail required by Section 6032 and its management’s certification of
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compliance without sufficient knowledge, investigation, or review raise concerns
with respect to LMH’s regulatory compliance, these points do not translate into
FCA liability. As we have previously explained, the FCA is not a tool to police
everyday regulatory noncompliance. U.S. ex rel. Burlbaw v. Orenduff, 548 F.3d
931, 959 (10th Cir. 2008) (“The FCA is not an appropriate vehicle for policing
technical compliance with administrative regulations.”); see also Escobar, 136 S.
Ct. at 2002. This rings especially true where complex regulatory schemes are
managed by specific agencies with extensive technical experience. See Conner,
543 F.3d at 1221 (“It is therefore with good reason that the agencies of the federal
government, rather than the courts, manage Medicare participation in the first
instance . . . .”). In such scenarios, not every regulatory foot-fault will enable
Relators to avail themselves of the FCA’s potentially costly damages awards.
LMH’s potential DRA compliance failures are precisely the type of garden-
variety compliance issues that the demanding materiality standards of the FCA are
meant to forestall. First, Janssen has at most demonstrated limited compliance
issues, not a wholesale failure of LMH’s compliance function. Outside of the
new employee resource handbooks and attestations mentioned, Janssen does not
dispute that LMH provides employees information regarding FCA compliance in
line with the requirements of Section 6032. For example, LMH provides specific
compliance training to new employees, which include discussion of the FCA,
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state-based equivalents, and other fraud-related issues. Even the new employee
resource handbooks assailed by Janssen include cross-references to other
resources containing FCA information.
Second, Janssen fails to show any likely effect the DRA compliance issues
would have on the Government’s payment decision. Janssen argues DRA
compliance was an “absolute prerequisite” to LMH receiving Medicare
compensation. Aplt. Br. at 69. But as the Supreme Court made clear in Escobar,
making a certain contractual or regulatory requirement an explicit condition of
payment is insufficient to establish materiality. Escobar, 136 S. Ct. at 2003 (“A
misrepresentation cannot be deemed material merely because the Government
designates compliance with a particular statutory, regulatory, or contractual
requirement as a condition of payment.”).
Recognizing this, Janssen also cites the Kansas Medical Assistance
Program Fee-for-Service Provider (KMAP) manual. This manual, generated by
the Kansas state government, reiterates the requirements of Section 6032 of the
DRA and notes that hospitals receiving over $5 million annually in Medicare must
comply therewith. Such inclusion fails to demonstrate any peculiar importance
Section 6032 may have to the Government’s payment decision. To the contrary,
as a compliance aid, it is unsurprising the KMAP manual reiterates compliance
requirements.
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Accordingly, Janssen fails to raise a fact issue with respect to the
materiality of LMH’s alleged noncompliance with Section 6032 of the DRA.
III. Conclusion
For the foregoing reasons, we AFFIRM the decision of the district court.
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