Eastern District of Pennsylvania Dismisses False Claims Act Case based on Quality of Care

By Sarah Wirskye - On

In Taylor v. Comhar, Civ. 16-1218 (E.D. Pa. Aug. 30, 2021), the court dismissed a False Claims Act (FCA) action in which the government declined to intervene. The relator, a licensed professional nurse named Sarah Taylor, alleged that treatment facilities for disabled individuals fraudulently billed Medicare and Medicaid for substandard care. In dismissing the case, the court heavily relied on Universal Health Services, Inc. v. U.S. and Mass., ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016) (the FCA protects governmental funds and property from fraudulent claims, and is not “a vehicle for punishing garden-variety breaches of contract or regulatory violations”).

Under the FCA, a claim can be factually false or legally false. Factually false means that the claim is false on its’ face. In this case, relator’s factually false claims were based on a “worthless services” theory. The court acknowledged that several Circuits recognize the “worthless services” theory of liability under the FCA, as a factually false claim. Where it is recognized, however, “the performance of the service [must be] so deficient that for all practical purposes it is the equivalent of no performance at all.” … It “is not enough to offer evidence that the defendant provided services that are worth some amount less than the services paid for. That is, a ‘diminished value’ of services theory does not satisfy this standard. Services that are ‘worth less’ are not ‘worthless.’” (citations omitted). Thus, the court held that relator’s allegations of (1) staffing shortages, (2) subpar services, (3) mismanaging medication did not meet this standard. The court went on the state that relator failed to satisfy Rule 9(b)’s pleading standard regarding her allegations of employees physically abusing residents and overmedicating patients. Thus, relator’s factually false claims failed.

Relator’s legal claims were based on an implied certification theory. When a defendant submits a claim for payment, it impliedly certifies compliance with the conditions of payment. Citing Escobar, 136 S.Ct. at 1995. Relator contended that certifications to Medicare and Medicaid were false by their noncompliance with Medicare and Medicaid’s “professionally recognized standards of care” requirements. The court held, however, that her conclusory allegations were not adequately plead that compliance with the above regulations was material to the Government’s payment decision. Citing Escobar, 136 S.Ct. at 2003. Thus, relator’s legal falsity claims also failed.

This case is important for defense practitioners for two reasons. First, the court recognized the danger of the FCA including services that are “worth less” and not “worthless.” Doing so could be a slippery slope resulting in merely negligent conduct, as opposed to falsity, being punished under the FCA. Second, the court held relator to the “demanding” FCA materiality standard in Escobar. 136 S. Ct. at 2003. In Escobar, the Supreme Court rejected the argument that a misrepresentation is automatically deemed material if it goes to a condition of payment. Id. Despite the Court’s ruling, plaintiffs still attempt to rely on “condition of payment” language where they do not have the facts or details to establish materiality under the FCA. A proper interpretation of Escobar makes clear that is not sufficient.

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