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United States v. Salus Rehabilitation, LLC

United States District Court, M.D. Florida, Tampa Division

January 11, 2018

UNITED STATES OF AMERICA AND STATE OF FLORIDA ex rel. ANGELA RUCKH, Plaintiffs,
v.
SALUS REHABILITATION, LLC et al., Defendants.

          ORDER

          STEVEN D. MERRYDAY, UNITED STATES DISTRICT JUDGE.

         The Federal False Claims Act and the Florida False Claims Act permit the federal government and the state government, respectively, acting through a relator, to recover damages for a material and knowing misrepresentation to the government about a product or service sold to the government. Rather than claim that the defendants - the owners and operators of fifty-three specialized nursing facilities - billed the government for unnecessary, inadequate, or incompetent service, the relator asserts that the failure to maintain a “comprehensive care plan, ” ostensibly required by a Medicaid regulation, renders fraudulent the defendants' Medicaid claims. Also, the relator asserts that a handful of paperwork defects (for example, unsigned or undated documents) compel the decisive inference that the defendants never provided the therapy evidenced by the paperwork and billed to Medicare. In other words, the relator won judgments for almost $350 million based on the theory “that upcoding of RUG levels and failure to maintain care plans made [the defendants'] claims to Medicare and Medicaid false or fraudulent.” (Doc. 454 at 2)

         But the relator offered no meaningful and competent proof that the federal or the state government, if either or both had known of the disputed practices (assuming that either or both did not know), would have regarded the disputed practices as material to each government's decision to pay the defendants and, consequently, that each government would have refused to pay the defendants. Not only did the relator fail to prove that the governments regarded the disputed practices as material and would have refused to pay, but the relator failed to prove that the defendants submitted claims for payment despite the defendants' knowing that the governments would refuse to pay the claims if either or both governments had known about the disputed practices. In fact, both governments were - and are - aware of the defendants' disputed practices, aware of this action, aware of the allegations, aware of the evidence, and aware of the judgments for the relator - but neither government has ceased to pay or even threatened to stop paying the defendants for the services provided to patients throughout Florida continuously since long before this action began in 2011. For these and for each of the other reasons argued by the defendants, the judgments cannot stand.

         THE MATERIALITY AND SCIENTER DEFECT

         After suffering adverse judgments for $347, 864, 285, the defendants move (Docs. 452 and 455) under Rule 50 for judgment as a matter of law and move under Rule 59 for a new trial. The relator responds (Doc. 454) in opposition. The defendants' motion includes a particularized and careful “overview” of the evidence, which this order will not repeat (the record is already sorely overburdened). The balance of the defendants' forty-page motion details the reasons for entering judgment as a matter of law or for granting a new trial or remittitur.

         The defendants argue persuasively that the relator failed to offer evidence of materiality, defined unambiguously and required emphatically by Universal Health Services, Inc. v. Escobar, 136 S.Ct. 1989 (2016). In fact, the evidence and the history of this action establish that the federal and state governments regard the disputed practices with leniency or tolerance or indifference or perhaps with resignation to the colossal difficulty of precise, pervasive, ponderous, and permanent record-keeping in the pertinent clinical environment. The evidence shows not a single threat of nonpayment, not a single complaint or demand, and not a single resort to an administrative remedy or other sanction for the same practices that result in the enormous verdict at issue.

         Also, the defendants argue persuasively that the relator failed to offer competent evidence that the defendants knew that the governments regarded the disputed practices as material but, despite the defendants' guilty knowledge, the defendants requested money from the governments. Of course, with no evidence that the governments regarded the disputed practices as material, establishing the defendants' knowledge of materiality seems at least impractical, if not impossible (after all, until one proves, say, that the moon is green cheese, one cannot prove that someone else knows that the moon is green cheese). As the defendants correctly state:

Relator's evidence proves the contrary: Medicaid and Medicare consistently paid “in the mine run of cases” despite Medicare's routine audits and Medicaid's knowledge of billing and documentation deficiencies . . . .

(Doc. 452 at 21)

         Since Escobar appeared, several circuit courts have elaborated and faithfully applied Escobar's instructions. See, e.g., United States ex rel. Harman v. Trinity Indus., Inc., 872 F.3d 645 (5th Cir. 2017); United States ex rel. Petratos v. Genentech, Inc., 855 F.3d 481 (3d Cir. 2017); Abbott v. BP Expl. & Prod., Inc., 851 F.3d 384 (5th Cir. 2017); United States ex rel. Kelly v. Serco, Inc., 846 F.3d 325 (9th Cir. 2017); D'Agostino v. ev3, Inc., 845 F.3d 1 (1st Cir. 2016). Escobar is the unquestionably controlling and guiding authority on materiality and scienter under the False Claims Act.

         Escobar overtly undertakes “to clarify some of the circumstances in which the False Claims Act imposes liability” for “implied false certification.” 136 S.Ct. at 1995. Writing for the unanimous court in Escobar, Justice Thomas at the outset explicitly confirms that “implied false certification theory can be a basis for liability” (1) if a claim for payment “makes specific representations about the goods or services provided”; (2) if the defendant “knowingly fails to disclose the defendant's non-compliance with a statutory, regulatory, or contractual requirement”; and (3) if the “omission renders those representations misleading.” 136 S.Ct. at 1995. Escobar concludes that the False Claims Act transforms the defendant's material and knowing “omission” - the “failure to disclose” the non-compliance - into a compensable misrepresentation for which a relator can maintain an action. Conversely, Escobar necessarily means that if a service is non-compliant with a statute, a rule, or a contract; if the non-compliance is disclosed to, or discovered by, the United States; and if the United States pays notwithstanding the disclosed or discovered non-compliance, the False Claims Act provides a relator no claim for “implied false certification” (although some other claim, maintainable by the United States in its own name, or some regulatory authority, exercisable by the United States, might attach under other law).

         Also at the outset, Justice Thomas pointedly emphasizes Escobar's holding that liability for “implied false certification” depends not on the government's label - “condition of payment” or “condition of participation” or the like - but that “to be actionable under the False Claims Act” a “misrepresentation about compliance . . . must be material to the Government's decision to pay”:

What matters is not the label the government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government's payment decision.

136 S.Ct. at 1996. In other words, the False Claims Act requires the relator to prove both that the non-compliance was material to the government's payment decision and that the defendant knew at the moment the defendant sought payment that the non-compliance was material to the government's payment decision.

         More particularly, Escobar addresses whether a vendor's failure to disclose the violation of “statutory, regulatory, or contractual requirements constitutes . . . an actionable misrepresentation.” 136 S.Ct. at 1999. Escobar again encapsulates the holding:

Accordingly, we hold that the implied certification theory can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant's failure to disclose noncompliance with material statutory, ...

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