Court Ruling: Medicare Rule Breaches Do Not Create False Claims Act Violations

Maximum damages in the second half of the False Claims Act (“FCA”) lawsuit against Halifax Hospital Medical Center and Halifx Staffing, Inc. (“Halifax”) could have exceeded $200 million. But last month, Halifax settled with Elin Baklid-Kunz, the whistleblower and Halifax’s former compliance director, for $1 million. This settlement is the result of a ruling by a federal judge that FCA relators must prove more than just violations of Medicare administrative rules.

Baklid-Kunz alleged that Halifax admitted patients when inpatient care was not medically necessary and the patient could have been treated with outpatient care. As proof of these allegations, Baklid-Kunz provided evidence of medical records that did not contain the necessary physician order for inpatient care. According to the court, the failure to document the physicians’ order in the medical records does not, by itself, establish a FCA violation. Further, Baklid-Kunz did not provide any evidence that Halifax did not provide the services for which it submitted claims. The judge emphasized that the decision is consistent with other federal rulings that a violation of the Medicare conditions of participation alone does not give rise to a FCA violation.

At all times relevant to the Halifax case, the physician order was a condition of participation under Medicare Rules. Now, however, CMS has amended the requirement for a physician order such that it is now a condition of payment, meaning that a payment in the absence of a required physician order may open the door to FCA violations. Additionally, this ruling has clarified certain aspects of FCA enforcement in favor of providers, and so is likely to become an often-cited case in their defense. At the same time, the decision is unlikely to stem the tide or decrease the frequency of FCA lawsuits.

The full decision can be read here.

Carrie Gilbert is an attorney in the law firm of Dressman, Benzinger & LaVelle with offices in Crestview Hills, Kentucky, Cincinnati, Ohio and Louisville, Kentucky.