Mar 62023

Second Circuit Leaves Open Novel Legal Theory that Flawed AI is a “Worthless Service”

Jaime L.M. Jones, Brenna E. Jenny and Joseph T. McNally
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In a decision issued last week, the Second Circuit was faced with the novel legal theory that use of flawed artificial intelligence systems can constitute a “worthless service” for purposes of FCA liability.  See Doe v. eviCore Healthcare MSI, LLC, No. 22-530-CV, 2023 WL 2249577 (2d Cir. Feb. 28, 2023).  The Second Circuit affirmed the district court’s dismissal for failure to satisfy the heightened Rule 9(b) pleading standard but did not reach the merits, leaving open the question of whether such a theory is viable under the FCA.

A group of anonymous relators sued eviCore, a company that provides prior authorization and utilization management services to health insurance companies that participate in Medicare Advantage and managed Medicaid.  Relators alleged that eviCore “deployed artificial intelligence systems to approve certain requests based on flawed criteria and without manual review,” and as a result furnished “worthless services” to its insurance company clients.  EviCore also allegedly caused those insurers to bill federal healthcare programs for medically unnecessary services.

The district court dismissed the complaint for two reasons.  First, the relators failed to meet the rigorous test for “worthless services,” i.e., services that “were the equivalent of no performance at all.”  The district court determined that eviCore’s services were not “worthless” because the automated prior authorization approvals were subject to various limits, such as automatically approving only the first three requests of a particular course of treatment or automatically approving only requests that related to specific providers, therapies, and populations.  While this did not necessarily mean the company’s approval processes were “satisfactory,” the allegations fell short of identifying “entirely worthless” services.  Second, the relators failed to plead their claims with the particularity required by Rule 9(b).

On appeal, the Second Circuit upheld the district court’s Rule 9(b) ruling but explicitly stated it would not address the “worthless services” argument.  The Second Circuit explained that the relators “failed to identify even a single instance of a medical procedure, involving any particular patient on a specific date, that was fraudulent or unnecessary but that was nevertheless approved by eviCore.”  Although the relators argued that “the volume of eviCore’s approvals made it inevitable that fraudulent claims were” submitted to federal healthcare programs, the Second Circuit, like other courts (as discussed here), found such allegations too speculative to satisfy Rule 9(b).  The Second Circuit’s decision to pass on the “worthless services” allegations leaves open the novel legal theory that flawed AI can constitute a “worthless service” under the FCA.

The court’s opinion can be found here.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.

Jaime L.M. Jones

Chicago

jaimejones@sidley.com

Brenna E. Jenny

Washington, D.C.

bjenny@sidley.com

Joseph T. McNally

Chicago

jmcnally@sidley.com

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