Eric Stenson, an Arizona-based information technology executive, sued Radiology Limited, LLC, a radiology facility in
Tucson, Arizona, alleging that it violated the False Claims Act (“FCA”) by submitting false claims to the Centers for Medicare and Medicaid Services (“CMS”). Stenson alleged that Radiology Limited charged CMS over six million dollars for diagnostic readings that did not qualify for Medicare reimbursement because they were conducted on non-medical grade Dell computer monitors.
The federal district court found the allegations failed to sufficiently state any of Stenson’s five FCA claims and dismissed the first amended complaint (“FAC”). The district court also denied Stenson’s motion for leave to amend the FAC with prejudice, finding amendment would be “futile.”
A successful FCA claim requires: (1) a false statement or fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due. The district court found that Stenson failed to plead the first two elements––falsity and materiality.
The United States Court of Appeals for the Ninth Circuit stated in its unpublished Memorandum filed on April 26, 2024: “to the extent the FAC alleges that Radiology Limited falsely certified its compliance with the general Medicare statute, dismissal, at least at this stage, was not warranted. CMS regulations require that all reimbursed services be “reasonable and necessary.” 42 U.S.C. § 1395y(a)(1)(A). And, in this Circuit, “a false certification of medical necessity can give rise to FCA liability.” Winter, 953 F.3d at 1118. Medicare contractors determine whether services are reasonable and necessary by assessing whether the service is “(1) safe and effective; (2) not experimental or investigational, . . . and (3) appropriate.” See Centers for Medicare & Medicaid Services, Medicare Program Integrity Manual § 13.5.1 (2015) (cleaned up) (describing protocols for local coverage determinations); see also id. § 13.3 (incorporating § 13.5.1’s standards for individual claim determinations). Even if no federal rule, regulation, or law requires radiologists to use FDA-approved devices outside of the mammography context, the general Medicare statute nevertheless requires all physicians to provide services that meet minimum efficacy standards. Stenson alleges that by using less sophisticated, non-FDA approved monitors, Radiology Limited knowingly submits claims for diagnostic readings that fall below this federally mandated minimum standard of care.”
“This argument plausibly pleads falsity under Rule 12(b)(6), and we reject the idea that the existence of CMS regulations in the mammography context means that Radiology Limited has no obligation to use appropriate technology under the general Medicare statute’s “reasonable and necessary” requirement. “CMS guidance makes clear that safety and efficacy determinations are based on ‘authoritative evidence’ or ‘general[ ] accept[ance] in the medical community.’” … The FAC specifically alleges that the Dell Monitors are far less technologically sophisticated (and, therefore, less effective) than the picture archiving and communication systems (“PACs”) typically used by radiologists.”
“Stenson’s “reasonable and necessary” theory also meets the particularity requirement under Rules 9(b) and 8(a). The FAC makes a general argument that radiologists can detect cancer in images displayed on diagnostic-grade monitors but cannot detect cancer when the same images are displayed on lower-grade displays, like the Dell Monitors. This point is supported by sufficiently credible physician testimony and, thus, gives rise to a reasonable inference that the technological quality of radiologists’ monitors has some bearing on the efficacy of their diagnostic readings. The FAC applies this inference to the instant case by suggesting that when Radiology Limited conducted diagnostic readings on the Dell Monitors, it was “not actually providing the [claimed] services at all.””
“The FAC supports this allegation with sufficient particularity by pointing to minutes from an Arizona Medical Board meeting where a Radiology Limited physician was issued an advisory warning for failing to identify a 6mm mass in a
patient’s kidney. The FAC also notes that Dell does not market the Monitors for diagnostic use, nor does it endorse their use in medical settings unless they are equipped with PerfectLum software, which Radiology Limited does not use. Discovery might produce additional evidence of improper diagnoses. Additionally, experts might testify to the Dell Monitor’s efficacy or conduct testing to establish that the Dell Monitors do not safely, effectively, or appropriately diagnose diseases. Thus, Stenson has sufficiently pleaded that Radiology Limited falsely certifies its compliance with the general Medicare statute by submitting claims for diagnostic readings conducted on the Dell Monitors. The existence of regulations in the mammography context does not impact that conclusion.”
“If the Dell Monitors are as inadequate as Stenson alleges, it seems likely that CMS would deny Radiology Limited’s claims for at least some diagnostic readings. In the context of radiological diagnostic readings, the display technology used is “so central” to the medical service provided that conducting a reading on wholly inadequate technology is effectively the same as not providing the service at all.”
“In sum, we affirm the district court’s dismissal of the FAC to the extent that it alleges that the Dell Monitors lack required FDA approval. However, we reverse its findings regarding the general Medicare statute’s “reasonable and necessary” requirement. Although Stenson did not raise his argument concerning the misleading billing codes to the district court, he has not presented a viable theory of that claim on appeal. Thus, although this theory fails for the same reason as Stenson’s FDA-approval theory, dismissal with prejudice would not be similarly proper … we affirm the district court’s denial of the motion for leave to amend in part and reverse in part. On remand, the district court should grant Stenson leave to amend the FAC to the extent that he wishes to proceed on grounds other than his FDA-approval theory.”
Source United States of America ex rel. Eric James Stenson v. Radiology Limited, LLC, No. 22-16571.
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