Ninth Circuit Holds That the FCA Does Not Require Objective Falsehoods and That False Certification of Medical Necessity May Give Rise to FCA Liability

On March 23, 2020, the Ninth Circuit revived a whistleblower suit in which Jane Winter, a registered nurse, alleged that Defendants Gardens Regional Hospital (“Gardens Regional”), S&W Health Management Services (“S&W Health”), RollinsNelson, and various physicians orchestrated medically unnecessary inpatient admissions resulting in the submission of more than $1.2 million in false claims to Medicare.  The District Court held that Winter’s allegations failed to state a claim under the FCA because “subjective medical opinions . . . cannot be proved objectively false.”  Winter appealed and the Ninth Circuit reversed, finding that the FCA did not does not require plaintiffs to plead objective falsehoods and that false certification of medical necessity may give rise to FCA liability.

In August 2014, Winter became the Director of Care Management and Emergency Room at Gardens Regional.  As Director of Care, Winter was responsible for reviewing inpatient admissions, using certain criteria adopted by Gardens Regional, to determine if the admissions were medically necessary.  In July 2014, RollinsNelson, a nursing home operator, had acquired a 50% ownership interest in S&W Health, the hospital management company that operated Gardens Regional.  In the course of her duties, Winter noticed that the acquisition correlated with a spike in admissions from nursing homes owned by RollinsNelson.  Winter repeatedly attempted to bring this spike to the attention of Gardens Regional management, but management rebuffed her.  In November 2014, Gardens Regional fired Winter.  Soon after her firing, Winter filed a qui tam complaint in which she identified 65 admissions that “failed to satisfy the hospital’s own admissions criteria” and noted that the admission rate from RollinsNelson nursing homes was over 80% during the relevant time period.

Defendants argued that Winter’s allegations were insufficient to state a claim because they were based on disagreement with subjective medical opinions, not objective falsehoods.  The Ninth Circuit rejected this argument, noting that the FCA “does not distinguish between ‘objective’ and ‘subjective’ falsity or carve out an exception for clinical judgments and opinions.”  Instead, the Court held that a clinical judgment or opinion could be false under the FCA “if it implies the existence of facts that do not exist, or if it is not honestly held.”  Based on this standard, the Court found that Winter stated a claim because she alleged “more than just a reasonable difference of opinion,” presenting statistical evidence regarding admissions and identifying 65 claims that were medically unnecessary according to Gardens Regional’s own admission criteria.

The Ninth Circuit’s decision is significant for two reasons.  First, the Court joins the Fifth, Tenth, and Third Circuits in holding that “a false certification of medical necessity can give rise to FCA liability.”  United States ex rel. Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370 (5th Cir. 2004); United States ex rel. Polukoff v. St. Mark’s Hosp., 895 F.3d 730 (10th Cir. 2018), United States ex rel. Druding v. Care Alternatives, 952 F.3d 89 (3d Cir. 2020).  Note: The Ninth Circuit distinguished the Eleventh Circuit’s decision in United States v. AseraCare, finding that “its ‘objective falsehood’ requirement did not necessarily apply to a physician’s certification of medical necessity.”  Second, the Court’s reliance, in part, on Winter’s statistical evidence to establish falsity adds to the growing body of case law on this issue, which has so far been hotly contested among lower courts but has had little weigh-in from courts of appeal or the Supreme Court.

A copy of the Ninth Circuit’s decision in Winter ex rel. United States v. Gardens Regional Hospital and Medical Center, Inc. can be found here.