Medical providers often are left confused by the incredibly complex statutory and regulatory body of law implemented by the Centers for Medicare and Medicaid Services (CMS). Without further administrative guidance, providers are left to their own conclusions with regard to what CMS intended. Unfortunately, sometimes these decisions lead to expensive and time-consuming False Claims Act litigation brought by relators, who disagree with the provider’s interpretation. In a recent decision, the Fourth Circuit offers some well-deserved protection from False Claims Act actions to medical providers struggling to decipher CMS requirements.
It Isn’t a “Knowing” Violation of the FCA if Your Interpretation of the Law is “Objectively Reasonable”
In United States ex rel. Sheldon v. Allergan Sales, LLC, the Fourth Circuit affirmed the United States District Court for the District of Maryland’s dismissal of a relator’s False Claims Act complaint. The relator claimed that his employer, a drug manufacturer, violated the False Claims Act by engaging in a fraudulent scheme inconsistent with the federal Medicaid Drug Rebate Statute. The Fourth Circuit held that the defendant did not act “knowingly” under the False Claims Act in following its own “objectively reasonable” interpretation of the law.
The court’s analysis focused on the scienter element of the False Claims Act allegation. Joining a host of other federal circuits, the Fourth Circuit interpreted the scienter requirement consistent with the 2007 United States Supreme Court analysis in Safeco Ins. Co. of Am. v. Burr opinion. In Safeco, the Supreme Court equated scienter with acting with willful disregard – first assessing whether the defendant’s interpretation was objectively reasonable; and then determining if authoritative guidance would have guided the defendant away from that interpretation.
Applying the Safeco scienter standard to the Sheldon case, the Fourth Circuit determined that CMS offered no clarification on what the statute intended, and that the defendant’s plain language interpretation of the applicable statute was objectively reasonable. The court also was quick to caution that this clarified scienter analysis is limited to legally false claims (as opposed to factually false claims). Legally false claims, particularly with regard to medical providers and hospitals, generally arise in the context of a provider knowingly certifying compliance with a Medicare or Medicaid regulation or statute.
The Sheldon decision is refreshing judicial recognition of the struggle medical providers can face in attempting to comply with tremendously complex CMS rules and regulations. Does this mean that medical providers are now immune from False Claims Act complaints based upon otherwise ambiguous Medicare and Medicaid requirements? Not necessarily. This Fourth Circuit opinion, however, certainly gives medical providers a much needed foundation to defend specious False Claims Act allegations.
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