11 October 2013

Regulatory Violations – Standing Alone – Again Rejected As Sufficient To State FCA Claim

Posted by Jaime Jones and Brenna Jenny

The Eighth Circuit Court of Appeals recently reaffirmed that mere regulatory noncompliance, standing alone, is not sufficient to establish False Claims Act liability for claims submitted to Medicare. Rather, the court held, a relator must allege facts tying a defendant’s alleged conduct to Medicare’s expectations regarding material conditions of payment. See United States ex rel. Ketroser v. Mayo Found., No. 12-3206 (8th Cir. Sept. 4, 2013).

In the Ketroser case, relators alleged that the defendant violated the FCA when it submitted one written report, rather than two, as part of a pathology analysis incorporating a two-stage testing process. According to relators, because the CPT codes for the tests were both included in a section of the Medicare Codebook that required “reporting,” Medicare expected Mayo, to create two separate written reports. Mayo responded that it created a written report of the first test, and more broadly “reported” the results of the second test through oral communications between physicians and supplemental written comments as needed.

The court affirmed the district court’s dismissal of the claim based on relators’ failure to submit any “specific evidence” that Medicare considered separate written reports to be a material condition of payment. In this regard, the court joined other Circuits, including the Second, Fifth, Sixth, Seventh, and Ninth, in holding that pleading a “claim of regulatory noncompliance” does not satisfy FCA pleading requirements.

Furthermore, the court suggested that even if Medicare had expected a separate written report as a condition of payment, the Codebook’s “reporting” requirement was ambiguous, and Mayo’s reasonable interpretation negated any inference that Mayo had “knowingly” submitted a false claim. As other courts have held (see related posts here and here), the Eighth Circuit reiterated that where a defendant’s “interpretation of the applicable law is a reasonable” one, relators fail to plead the requisite scienter under the FCA.

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