Eighth Circuit Holds That Reasonable Interpretations of Ambiguous Regulations Undercut FCA Liability

The Eighth Circuit recently affirmed a district court’s grant of summary judgment because the “defendant’s reasonable interpretation of an ambiguous regulation ‘belies the scienter necessary to establish a claim of fraud under the FCA.’”  The opinion further reinforces a similar ruling the Eighth Circuit released last week (as reported here) and rejects objections from DOJ that such a holding “absolves defendants of liability whenever they can justify their conduct with a plausible post-hoc interpretation of an ambiguous law.”  United States ex rel. Donegan v. Anesthesia Assoc. of Kansas City, No. 15-2420 (8th Cir. Aug. 12, 2016).

The relator, a former Certified Registered Nurse Anesthetist (“CRNA”) with defendant Anesthesia Associates of Kansas City (“AAKC”) filed a qui tam suit alleging that AAKC violated a Medicare regulation permitting anesthesiologists to bill for CRNA services at a higher, “Medical Direction” rate, but only if several criteria are met.  One such requirement is that anesthesiologists personally participate in a patient’s “emergence” from anesthesia.  AAKC anesthesiologists commonly visited patients after they were transferred to the Post-Anesthesia Care Unit (“PACU”), a stage of care the relator claimed was subsequent to emergence from anesthesia.

The district court ruled that the term emergence was ambiguous and AAKC’s interpretation of emergence as extending to the PACU was reasonable, which precluded a finding that AAKC knowingly submitted false claims.  DOJ submitted an amicus brief arguing that the district court’s holding was mistaken, and that even if a defendant points to an objectively reasonable but incorrect interpretation, the court must also evaluate whether the defendant “recklessly disregarded” the correct interpretation.  The panel agreed with the government that a plaintiff might be able to establish reckless disregard if he could produce government guidance that “warn[ed] a regulated defendant away from an otherwise reasonable interpretation.”  However, all the relator in this case could point to was “a report prepared nearly two decades ago by a former agency official for use in another case,” which fell short of supporting reckless disregard.

The court also rejected the relator’s contention that AAKC acted with reckless disregard because it did not affirmatively ask CMS or a Medicare Administrative Contractor whether its interpretation of emergence was reasonable – an argument commonly made by plaintiffs.  The court concluded that “[a]s the agency had not clarified an obvious ambiguity in its [ ] regulation for decades, AAKC’s ‘failure to obtain a legal opinion or prior [CMS] approval cannot support a finding of recklessness.’”

A copy of the court’s opinion and DOJ’s amicus brief can be found here and here.