“Services that are ‘worth less’ are not ‘worthless.’”

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That’s the upshot from U.S. ex rel. Absher v. Momence Meadows Nursing Center, Nos. 13-1886 & 13-1936 (Aug. 20, 2014), a recent decision from the Seventh Circuit (authored by Judge Manion) that addressed the worthless-services theory of liability under the False Claims Act.

The worthless-services theory is the idea that a qui tam relator could prove a violation of the False Claims Act if the defendant was reimbursed for products or services that had a value equal to zero. To obtain reimbursement for providing something truly worthless would seem to be the essence of a “false claim.” The theory has been adopted by the U.S. Courts of Appeals for the Second, Sixth, Eighth, and Ninth Circuits. But it hasn’t been adopted by the Seventh Circuit, though the court considered it at length in Absher. Ultimately it was Absher‘s facts that caused the Seventh Circuit to stop short.

Vanessa Absher and Lynda Mitchell were nurses at Momence Meadows Nursing Center, a 140-bed long-term care facility in Kankakee County, Illinois. The nurses (no longer employed at Momence and disgruntled about their time there) brought suit under the False Claims Act, alleging that the facility had violated the act by knowingly submitting “thousands of false claims to the Medicare and Medicaid programs.” At the crux of the allegations was that Momence provided substandard care. A jury awarded substantial damages, including $3 million to the United States to compensate it for the reimbursements (ultimately trebled to $9 million under the act) and $19 million in fines for the qui tam claims. The district court struck the fines, however, finding them excessive under the Eighth Amendment.

The Seventh Circuit vacated the judgment and remanded to the district court with instructions to enter judgment for Momence. The problem was that Absher and Mitchell argued to the jury that Momence had provided substandard services worth less than their reimbursement value, but not that Momence had provided completely worthless services. The district court even instructed the jury that “[s]ervices can be worthless, and the claims for those services can, for that reason be false, even if the nursing facility in fact provided some services to the patient. To find worthless services, you do not need to find that the patient received no services at all.”

That was wrong. “It is not enough,” the Seventh Circuit wrote, “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.’”

The Seventh Circuit declined the opportunity to adopt the worthless-services theory, but it noted that, under existing case law in the circuit, worthless services could be “evidence that a claim for reimbursement is false or fraudulent (under a false certification theory of liability).”

Momence, at any rate, was off the hook.

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