FCA Allegation That Surgeons Let Residents and PAs Obtain Patient Consent for Procedures Fails Materiality Test
June 18, 2021 – Articles
Guided by the materiality standard from Escobar, a key safeguard for FCA defendants, the Western District of Pennsylvania found the Zaldonis relator failed to show the alleged fraud “would have any effect on the government’s decision to pay a claim.” Five years after the Supreme Court decided it, Escobar thus continues to set a high hurdle for plaintiffs.
Does a surgeon’s delegation to physician assistants and other practitioners of the duty to obtain a patient’s informed consent to surgery render the hospital’s[1] subsequent billing of the government for the procedures fraudulent under the False Claims Act? Such delegation formed the crux of the relator’s allegations in United States ex rel. Zaldonis v. University of Pittsburgh Medical Center,[2] a qui tam case recently decided by the Western District of Pennsylvania.
Guided by the Supreme Court’s stringent materiality standard from Universal Health Services, Inc. v. United States ex rel. Escobar,[3] the district court was not convinced. The court dismissed the relator’s complaint without prejudice, finding she did not succeed in showing the alleged “delegation scheme . . . would cause the government to deny payment.”[4] In other words, the allegations failed to clear Escobar’s materiality hurdle.[5]
The Allegations
The Zaldonis allegations involved how the hospital obtained consent from patients for cardiothoracic surgeries.[6] The relator alleged that, over a span of six years or more, attending surgeons at the hospital “improperly delegated the responsibility to obtain patients’ consent for surgical procedures to residents, fellows, nurse practitioners, and physician assistants.”[7] The complaint cited Medicare regulations, the pertinent U.S. Centers for Medicare and Medicaid Services state operations manual, and a Pennsylvania Supreme Court case as prohibiting the alleged delegation.[8] Moreover, the complaint alleged, the surgeons “often signed a consent form . . . certifying that they had explained to the patient all of the information in the consent form, when, in fact, they had not.”[9]
The complaint went on to allege that, in billing the costs of the surgical procedures to the U.S. Centers for Medicare and Medicaid Services (“CMS”) and other government payors,[10] the hospital violated the FCA by “falsely certif[ying] compliance with CMS regulations, including those requiring [the hospital] to obtain [its] patients’ informed consent properly prior to surgery,” and the false certification “caused Medicare and other government payors to remit funds to [the hospital].”[11]
The hospital moved to dismiss for failure to state a claim,[12] arguing the complaint failed to identify an applicable regulation prohibiting delegation of the informed consent process.[13] Even if such delegation were prohibited, the hospital asserted the complaint failed to plead a false certification under the FCA[14] because “the certifications at issue do not make any representations about the consent process used, [and] do not specifically affirm compliance with any consent-related regulation.” The hospital also argued that dismissal was appropriate because the complaint “fail[s] to adequately plead materiality.”[15]
The district court’s decision
The district court began its analysis with a typology of false claims under the FCA. A first division separates factually false claims, involving misrepresentation of what goods or services the claimant provided to the government, from legally false claims, involving a knowing “false[] certif[ication] that [the claimant] has complied with a statute or regulation the compliance with which is a condition for [g]overnment payment.”[16] Legally false claims, in turn, can be further subdivided into those based on “express” and “implied” false certifications.[17] The “express false certification” theory bases FCA liability on “falsely certifying . . . compliance with regulations which are prerequisites to [g]overnment payment in connection with the claim for payment of federal funds.”[18] Under “implied false certification,” on the other hand, a defendant’s representations in submitting a claim for payment, where the representations “omit[] [defendant’s] violations of statutory, regulatory, or contractual requirements, . . . can be a basis for liability” if the omissions “render the defendant’s representations misleading with respect to the goods or services provided.”[19]
While noting it was unclear which “false certification” theory the complaint implicated, the district court found that, either way, “a misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the [g]overnment’s payment decision” to incur FCA liability.[20] Under the statute, “material” means “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”[21] Escobar further sharpened this definition by focusing on the alleged misrepresentation’s “effect on the likely or actual behavior of the recipient of the alleged misrepresentation”[22]—here, the effect on the government payors that received the hospital’s certifications and claims for payment.
Though grounding its holding on the issue of materiality, the district court first analyzed the relator’s falsity argument. For instance, the Medicare conditions of participation cited by the relator identify “mak[ing] informed decisions” regarding treatment as a patient right,[23] and specify that a patient’s medical record include “[p]roperly executed informed consent forms for procedures and treatments” for which written patient consent is required by law or hospital policy.[24]
The problem: the absence in the relevant Medicare conditions of participation of a definition of what makes an informed consent form “properly executed.”[25] The relator’s attempt to fill the definitional gap by citing hospital policy and a state supreme court holding regarding medical malpractice struck the court as somewhat tenuous.[26] The court, however, decided it need not reach the issue of falsity. Even assuming the complaint plausibly established that the surgeons’ delegation of obtaining patient consent rendered the hospital’s certifications false under the FCA, however, the court found the allegations failed as to materiality.[27]
The relator argued that materiality involved three tests, and that her factual allegations satisfied all three: (1) compliance with the relevant statute or regulation is a condition of payment; (2) the violation is not “minor” but rather “goes to the essence of the bargain”; and (3) knowledge of like violations “consistently” leads the government to “refuse[] to pay claims.”[28] The court found this argument wanting because the regulations relating to informed consent “touch[] on Medicare conditions of participation, not payment.”[29] The distinction, in the court’s view, mattered because alleged violations of conditions of participation did not necessarily satisfy materiality.[30] Indeed, the court pointed out, the administrative cases cited by the relator established, not that the government refuses to pay claims where a principal surgeon delegated the task of obtaining informed consent, “but rather, at most, . . . that the government may penalize a provider or terminate a provider’s ability to participate in Medicare after repeated failures to obtain patient consent at all prior to treatment.”[31]
An even more serious shortcoming was that, with two exceptions, the complaint failed to allege any deficiency in the information provided to patients in obtaining informed consent. It alleged only that the “wrong practitioner” provided the information.[32] Moreover, the two exceptions cited by the relator involved situations where informed consent was simply not obtained, and were therefore irrelevant to the alleged “delegation” scheme.[33]
To show an informed consent violation can be a predicate for FCA liability, the relator relied on United States ex rel. Wollman v. General Hospital Corp.[34] In Wollman, a relator’s FCA claim, based in part on a hospital’s failure to inform patients that the lead surgeon would perform only parts of their procedures, was found adequately pled.[35] The court found Wollman of limited relevance at best, however, because the allegations there involved substantive deficiencies in informed consent information, rather than delegation of the task as in Zaldonis.[36]
In dismissing the relator’s FCA claims, the district court underscored the “demanding” nature of Escobar’s materiality standard.[37] The heart of the matter, for the court, was that even assuming the alleged delegation constituted a regulatory violation, the relator failed to meet her burden of showing that knowledge of the alleged violation “would cause the government to deny payment.”[38]
Escobar’s key lesson
As the calendar marks Escobar’s fifth anniversary, Zaldonis is a reminder of the important role played by that signal Supreme Court precedent as a safeguard against potentially untrammeled FCA liability for all manner of non-compliance, real or perceived, with regulations and requirements. Escobar’s lesson for FCA defendants remains both powerful and practical: in addition to marshaling their own evidence refuting materiality where possible, defendants should insist plaintiffs show the alleged misrepresentations were truly material—in other words, that the alleged falsity went “to the essence of the bargain”[39] between defendant and government.
In that context, it is necessary for relators to make some showing that a misrepresentation has caused, or is likely to cause, the government not to pay the associated claims. This continues to be the paramount means of establishing materiality—the failure to do so is grounds for dismissal of the complaint.
[1] In addition to the university medical center that was the first named defendant, the lawsuit also named the hospital physicians group, and the university itself (as part of the state higher education system), as defendants. For simplicity, this article simply refers in the singular to “the hospital” or “the defendant.”
[2] No. 2:19-CV-01220-CCW, 2021 U.S. Dist. LEXIS 92001 (W.D. Pa. May 14, 2021). The government declined to intervene in the case. Id. at *2.
[3] 136 S. Ct. 1989 (2016).
[4] Zaldonis, 2021 U.S. Dist. LEXIS 92001, at *20–21 (internal quotation marks omitted); see also id. at *14 (holding relator failed to demonstrate that “knowing that a physician delegated obtaining informed consent to another practitioner would have any effect on the government’s decision to pay a claim”).
[5] Id. at *20.
[6] The allegations also involved other procedures, including clinical trials for medical devices used in connection with lung transplants. See id. at *3–4. For simplicity, this article refers only to cardiothoracic surgeries, the main procedure dealt with in the district court’s opinion.
[7] Id. at *3.
[8] Id.
[9] Id.
[10] Id. at *3–4.
[11] Id. (alterations added). To support her false certification allegation, the relator pointed to certification language on two CMS forms, each of which was used for a subset of the relevant claims for payment presented by the hospital to the government: one form certified that billing information was “true, accurate and complete,” and that “[t]he submitter did not knowingly or recklessly disregard or misrepresent or conceal material facts,” id. at *4–5 (quoting CMS Form 1450), while the other form stated “this claim . . . complies with all applicable Medicare . . . laws, regulations, and program instructions for payment,” id. (quoting CMS Form 1500). The relator also pointed to language on CMS Form 855A, which the hospital submitted at the time of its original enrollment with Medicare as a provider, including certification that the hospital understood that Medicare’s payments of claims was “conditioned upon the claim and the underlying transaction complying with [applicable] laws, regulations, and program instructions . . . , and on the provider’s compliance with all applicable conditions of participation in Medicare.” Id. at *5–6.
[12] Id. at *6–7 (citing Fed. R. Civ. P. 12(b)(6)). The hospital also moved to dismiss under Rules 8(a) for plausibility, and 9(b) for particularity of allegations of fraud; however, the district court’s opinion addressed neither of those possible grounds for dismissal.
[13] Id. at *6.
[14] See infra n.17–19 and accompanying text.
[15] Id. at *6–7.
[16] Id. at *8–9 (quoting United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir. 2011)).
[17] Id. (citing Wilkins, 659 F.3d at 305).
[18] Id. (quoting Wilkins, 659 F.3d at 305).
[19] Id. at *9–10 (quoting Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 1999 (2016)) (alterations added).
[20] Id. at *10 (quoting Escobar, 136 S. Ct. at 2002) (emphasis and alteration added).
[21] Id. (quoting 31 U.S.C. § 3729(b)(4)).
[22] Id. (quoting Escobar, 136 S. Ct. at 2002).
[23] Id. at *11–12 (citing, inter alia, 42 C.F.R. § 482.13(b)).
[24] Id. at *12 (citing 42 C.F.R. § 482.24(c)(4)(v)); see also id. (citing 42 C.F.R. § 482.51(b)(2)) (requiring that, in relation to surgical services, and other than in emergencies, “[a] properly executed informed consent form for the operation must be in the patient’s chart before surgery”).
[25] Id.
[26] See id. at *12–13 (citing, inter alia, Shinal v. Toms, 162 A.3d 429, 455 (Pa. 2017)).
[27] Id. at *14.
[28] Id.
[29] Id. at *15.
[30] Id. at *15–16.
[31] Id. at *16.
[32] Id..
[33] Id. at *16–20.
[34] 394 F. Supp. 3d 174 (D. Mass. 2019).
[35] Id. at 182–83, 188-91.
[36] Zaldonis, 2021 U.S. Dist. LEXIS 92001, at *17–18 (citing Wollman, 394 F. Supp. 3d at 184).
[37] Id. at *20.
[38] Id.
[39] Id. (quoting United States ex rel. Petratos v. Genentech, Inc., 855 F.3d 481, 489 (3d Cir. 2017)); see also United Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016)) (quoting Junius Constr. Co. v. Cohen, 178 N.E. 672, 674 (1931)) (in general common law fraud context, holding a misrepresentation material “if it ‘went to the very essence of the bargain’”).
