• Award of Eight Times Actual Damages for False Claims Act Violation to Be Reviewed
  • February 24, 2012 | Authors: Roy M. Bossen; Daniel M. Purdom; Brian R. Zeeck
  • Law Firms: Hinshaw & Culbertson LLP - Chicago Office ; Hinshaw & Culbertson LLP - Lisle Office
  • The U.S. District Court for the Middle District of Tennessee has held that a leading diagnostic testing firm (the Center) was liable under the False Claims Act (FCA) for failing to comply with Medicare’s direct physician supervision requirement at several of its independent diagnostic testing facilities (IDTFs) in Nashville. The court granted summary judgment to the federal government in the whistleblower action, which had been initiated by a former employee of the Center. According to the court, the governing regulation expressly requires a supervising physician to “evidence proficiency in the performance and interpretation of each type of diagnostic procedure performed by the IDTF” under criteria established by the Medicare carrier. Here, the carrier had required IDTFs to have Medicare-approved physicians on hand to supervise diagnostic tests, a requirement that the Center had failed to meet, resulting in the submission and payment of false claims by Medicare, the court concluded.

    The Center’s IDTFs were conducting diagnostic tests using contrast without trained physicians approved by Medicare and, in some instances, by the Center’s staff members who were not physicians. The court rejected the Center’s argument that it had not violated any statute or regulation and, therefore, had not violated the FCA.
    According to the court, a statement or omission on CMS enrollment forms, as well as responses or omissions relating to specifications set by the carrier, could form the basis of FCA liability. Here, the court concluded that statements on the Center’s completed CMS enrollment application resulted in the contract in which the company certified or agreed that testing at its IDTF would be provided in accord with applicable regulations. The court further concluded that a requirement of a physician approved by Medicare for these tests was also a specification and, by the language of the regulation, a condition for Medicare’s payment of tests by an IDTF.

    The court ultimately awarded $11,110,662 in treble damages and civil penalties, approximately eight times the amount of actual damages. Upon reconsideration, the court held that this was not grossly disproportionate to the gravity of the offense.

    This case is currently on appeal. Among the issues under consideration is whether or not the district court erred in ruling on summary judgment that the Center knowingly submitted false claims when it billed for tests that were medically necessary and properly performed, but which were not directly supervised by a board-certified radiologist or carrier-approved physician. It will certainly be interesting to see where the appellate court goes with this appeal in light of the recent amendments to the FCA. The White Collar Crime and Internal Investigations Group at Hinshaw & Culbertson LLP has written about the Fraud Enforcement and Regulation Act and the recent amendments to the FCA.

    U.S. ex rel. Hobbs v. Medquest Associates, Inc., Case No. 3:06-cv-01169 2011 WL 3703762 (M.D. Tenn. Aug. 23, 2011)