We have previously discussed the California Insurance Frauds Prevention Act (IFPA)–a state antifraud statute that, while modeled on the False Claims Act (FCA), is unique in targeting fraud in the commercial health insurance space.

At the time, IFPA actions had resulted in tens of millions of dollars in settlements, and we anticipated IFPA would remain a tool used by qui tam relators and the State of California in targeting alleged healthcare fraud moving forward.

The intervening years have indeed seen continued enforcement under IFPA:

• Essilor Laboratories of America agreed to a $23.8 million settlement related to allegations of providing up-front cash payments to eye care providers to funnel business to Essilor and use Essilor lenses and laboratory services. 
• FVR Medical Group, Inc. and related entities agreed to pay $3.275 million related to allegations of submitting false claims that inflated the length of patient visits and represented telehealth visits as in-person, as well as prescribing FC2 female condoms that were not medically necessary.
• As recently as a few months ago, Concentra reported in its Form 10-K that it had received a subpoena from the California Department of Insurance relating to an investigation under IFPA.

A recent decision, however, has demonstrated one pathway to combat allegations of IFPA violations. In California ex. rel. Duncan v. Sutter Health et al., a surgeon and his patient filed a qui tam action under IFPA, alleging that nine Sutter hospitals improperly billed for care in a more expensive recovery room than necessary. The court explained that Phase I treatment takes place in Post-Anesthesia Care Units (PACU) rooms and consists of “high-intensity, high-acute” immediate postoperative care under the supervision of an anesthesiologist and registered nurses.

Once the patient’s vital signs are normal and the patient is awake and alert enough to move to a less intense level of care, they enter Phase II treatment, in which the patient is still monitored for residual effects of anesthesia or other complications. After authorization by an anesthesiologist, a patient in Phase II may be moved out of the PACU room to a “step-down” room in preparation for discharge. Relators alleged, however, that it was fraudulent for Sutter to bill Phase II care outside of the PACU room (in the step-down room) as a separate line item.

The trial court ultimately determined that it was not fraudulent to charge for Phase II care in a step-down room and that the Phase II care billed in the case was medically appropriate. Further, the court noted that “insurance fraud is a specific intent crime; the defendant must specifically intend to defraud a person with a false or fraudulent claim.” Banerjee v. Superior Ct., 69 Cal. App. 5th 1093, 1103 (2021)). The court found that Sutter did not have the intent to misrepresent the treatment provided, nor did it receive payment to which it was not actually entitled: “There was confusion about terminology and billing, but the services billed were provided and billable.”

While IFPA remains a handy regulatory tool for the government, the Sutter Health decision demonstrates that these claims are not invincible. And, as the court notes, the IFPA is a specific intent statute. This is less permissive than the federal FCA scienter requirements, which we have written about before. Further, this risk is somewhat contained for national or multinational companies, as California and Illinois remain the only two states with qui tam provisions allowing claims for commercial insurance fraud.