Ninth Circuit Reboots FCA Suit Based on Radiologist Use of Certain Computer Monitors

A panel of the Ninth Circuit recently issued a 2-1 opinion reversing, in part, a district court’s dismissal of a False Claims Act case premised on a radiology facility’s use of non-medical grade computer monitors for diagnostic readings.  In reviving the case, the majority concluded that the relator sufficiently pled a false certification theory of fraud from which the court drew a “strong inference” that the radiology facility’s use of the computer monitors did not meet Medicare’s “reasonable and necessary” requirement because the allegedly technologically inferior monitors the radiologists used undermined the efficacy of their diagnostic readings.  The decision is notable because the majority relied on tenuous inferences to establish falsity, as detailed by the dissent, and a watered-down materiality analysis to establish materiality.

In his complaint, the relator alleged three different theories of false certification fraud stemming from the radiology facility’s use of the computer monitors: (1) the radiology facility falsely certified that the computer monitors had FDA approval; (2) the radiology facility used billing codes that impliedly, and falsely, certified the computer monitors it was using were more sophisticated than they were; and (3) the radiology facility falsely certified that the computer monitors it was using met Medicare’s “reasonable and necessary” requirement.  The district court dismissed the relator’s complaint with prejudice, finding that he did not sufficiently plead falsity and materiality under the FCA and that amendment would be futile.

On appeal, the Ninth Circuit reversed the district court on the “reasonable and necessary” theory.  First, the majority found falsity was adequately pled, even though it conceded that “CMS has no policies regarding the kinds of monitors” radiologists use, because (1) the computer monitors were not approved by the FDA and the use of non-FDA approved computer monitors impacted the quality of the radiology facility’s readings; (2) the Arizona Medical Board had issued a warning to one of the radiology facility’s physicians for “failing to identify a 6mm mass in a patient’s kidney”; and (3) the manufacturer of the computer monitors did not endorse them for use in medical facilities unless they were equipped with certain software that the radiology facility did not use.  From these allegations, the majority drew a “strong inference” that the radiology services were so poor that they failed to satisfy Medicare’s “reasonable and necessary” criterion for reimbursement.  Second, the majority found materiality was adequately pled because if the computer monitors were “as inadequate as [the relator] alleges, it seems likely that CMS would deny [the radiology facility’s] claims for at least some diagnostic readings.”

The dissent argued that the “strong inference” drawn by the majority was not adequately supported for two reasons.  First, the relator did not adequately allege that the lack of FDA approval and failure to use manufacturer-approved software necessarily meant that the computer monitors used by the radiology facility were insufficient to perform quality diagnostic readings.  Second, the relator’s allegations about the Arizona Medical Board warning to one of the radiology facility’s physicians did not clearly establish that the warning was related to the quality of the computer monitors used.  Thus the dissent concluded that the relator’s allegations were “simply too vague” and “speculative” to support a “strong inference” that false claims were actually submitted.

Though unaddressed by the dissent, the majority’s conclusion on materiality is equally questionable.  Despite acknowledging that the materiality standard is “demanding” the majority found that standard was met based solely on its conclusion that CMS likely would have denied claims for “at least some diagnostic readings” if it had known about the computer monitors used by the radiology facility—with no evidence that CMS routinely denies payment for radiology services furnished using similar monitors.

A copy of the opinion can be accessed here.

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