Summary Judgment Reversed In Qui Tam Lawsuit: In its opinion filed on August 9, 2022, the United States Court of Appeals for the Ninth Circuit (“Federal Appellate Court”) held that the district court erred in granting summary judgment in favor of the defendants in a qui tam action brought under the False Claims Act.
Plaintiff and relator Stephen J. Hartpence alleged that defendants Kinetic Concepts, Inc., and its indirect subsidiary KCI USA, Inc. (collectively, “KCI”) submitted claims to Medicare in which KCI falsely certified compliance with certain criteria governing Medicare payment for the use of KCI’s medical device for treating wounds. The district court granted summary judgment to KCI, concluding that Hartpence had failed to establish a genuine issue of material fact as to the False Claims Act elements of materiality and scienter.
The Federal Appellate Court stated in order to establish a cause of action alleging liability for a false claim under 31 U.S.C. § 3729(a)(1)(A), the United States or the relator must prove the following elements: (1) a false or fraudulent claim (2) that was material to the decision-making process (3) which defendant presented, or caused to be presented, to the United States for payment or approval (4) with knowledge that the claim was false or fraudulent.
Although § 3729(a)(1)(A) does not itself use the term “material,” its reference to a “false or fraudulent claim” must be understood in light of the common-law understanding of fraud, which included a materiality requirement. In the context of a false certification of compliance with a regulatory or statutory requirement for payment, the certification is material if the requirement is so central to the claims that the government would not have paid these claims had it known that the requirement was not satisfied.
The Federal Appellate Court held that there was a genuine issue of material fact as to whether KCI’s use of a “KX” modifier was material to KCI’s reimbursement claims submitted to Medicare. This modifier indicated compliance with the requirements of Local Coverage Determinations (“LCD”) issued by Durable Medical Equipment Medicare Administrative Contractors, which processed claims on behalf of the Centers for Medicare and Medicaid Services. The Federal Appellate Court concluded that the fact that the KX modifier was not accepted at face value in case-specific auditing did not mean that compliance with the LCD criteria (which is what use of the modifier was supposed to signify) was not material to most payment decisions on “stalled-cycle” claims, where KCI’s device was used but there was no wound improvement.
The Federal Appellate Court agreed that compliance with the specific LCD criterion that there be no stalled cycle would not be material if, upon case-specific review, the Government routinely paid stalled-cycle claims. In other words, if stalled-cycle claims were consistently paid when subject to case-specific scrutiny, then a false statement that avoided that scrutiny and instead resulted in automatic payment would not be material to the payment decision. The Federal Appellate Court panel concluded, however, that the record did not show this to be the case. The Federal Appellate Court considered administrative rulings concerning claims that were initially denied, post-payment and pre-payment audits of particular claims, and a 2007 report by the Office of Inspector General of the U.S. Department of Health and Human Services. The Federal Appellate Court concluded that none of these forms of evidence supported the district court’s summary judgment ruling.
The Federal Appellate Court held that the district court further erred in ruling that there was insufficient evidence that KCI acted with the requisite scienter. The district court ruled that, because the use of the KX modifier on stalled-cycle claims was not material, evidence that KCI knew that it was wrongly using the KX modifier was insufficient to establish scienter. Because the district court’s premise concerning materiality was wrong, the resulting conclusion that it drew as to scienter was necessarily vitiated. Assuming without deciding that scienter requires knowledge of materiality as well as knowledge of falsity, the Federal Appellate Court concluded that the record in this case established a triable issue regarding KCI’s knowledge of the materiality of its misuse of the KX modifier.
The Federal Appellate Court concluded that there was ample evidence to permit a rational trier of fact to conclude that KCI knew that it was a false statement to attach the KX modifier to a claim that did not satisfy the LCD and that KCI did so knowing that it might thereby escape case-specific scrutiny that, in many cases, it would lose.
Source United States of America ex rel v. Kinetic Concepts, Inc., No. 19-55823.
If you have information regarding false claims having been submitted to Medicare, Medicaid, TRICARE, other federal health care programs, or to other federal agencies/programs, and the information is not publicly known and no actions have been taken by the government with regard to recovering the false claims, you should promptly consult with a False Claims Act attorney (also known as qui tam attorneys) in your U.S. state who may investigate the basis of your False Claims Act allegations and who may also assist you in bringing a qui tam lawsuit on behalf of the United States, if appropriate, for which you may be entitled to receive a portion of the recovery received by the U.S. government.
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