Defendants Cannot Show that CMS Guidance Allows for Reimbursement of Travel that Never Occurred; United States Court of Appeals for the Fifth Circuit No. 18-20501. U.S. ex rel. Richard Drummond v. BestCare Laboratory Services L.L.C. and Karim A. Maghareh


The Fifth Circuit denied the defendants’ appeal of a lower court’s decision granting the government’s motion for summary judgment in a Medicare fraud case, finding no dispute that the defendants obtained reimbursement for employee travel that never occurred. The defendants argued that they relied on unclear guidance in a policy manual, but the court explained that policy statements do not override clear statutory language. Further, the court found the defendants’ interpretation of the policy language defied logic, as no reasonable person could construe the reimbursement language as allowing claims for travel that never occurred. The court also found that the owner of one of the defendants had been correctly found personally liable, as he had instructed his employees how to fill out the claims for travel reimbursement and signed them. While he argued that he did not personally benefit from the scheme, the court held that the government did not need to make such a showing. Instead, the government needed only to show he participated, which it had.

BestCare Laboratory Services L.L.C. and its owner and CEO Karim A. Maghareh appealed a district court’s ruling granting summary judgment to the United States in its qui tam case alleging the defendants obtained millions of dollars in reimbursements from Medicare for miles that its technicians never traveled.

Relator Richard Drummond was one of BestCare’s competitors. In 2008, Drummond hired one of BestCare’s former employees, Martha Shirali. When Shirali described BestCare’s Medicare billing practices, Drummond suspected the defendant had been improperly billing Medicare. He later brought a qui tam case, and the government elected to intervene, bringing claims for fraud, unjust enrichment, payment by mistake, and violations of the False Claims Act.

The government alleged that BestCare submitted false claims for travel reimbursements to Medicare. Specifically, BestCare sought reimbursements for miles purportedly driven by technicians to collect test specimens from patients, when in fact the samples were actually shipped one-way via airplane without any technician onboard. In addition, BestCare often failed to prorate mileage, treating a single shipment of multiple samples as though each sample had been shipped separately.

The government filed two partial motions for summary judgment, both of which were granted. Only the second is under appeal here. In that motion for summary judgment on the government’s claims for FCA violations, the government sought damages for trips of more than 400 miles between August 4, 2005, and June 30, 2008. The government limited its request in this manner because there was no dispute that BestCare did not provide technicians for trips of this length. The government calculated that the total amount paid by Medicare during this time period for trips involving more than 400 miles was $10,190,545, and sought treble damages of $30,571,635. The court eventually granted summary judgment in this amount. The defendants appealed.

In their appeal, the defendants did not dispute that BestCare sought and obtained round-trip, driving mileage reimbursements for the one-way shipment of samples via airplane with no technician onboard. Instead, they argued that their billing practices were lawful. Alternatively, they argued that they didn’t have the requisite mens rea because they thought it was lawful to bill the government for technicians’ road trips—when in fact there were no road trips, and the technicians stayed at home.

The court found no support for the defendants’ first argument. Medicare allows laboratories to collect a nominal fee to cover appropriate costs to collect test samples, including transportation costs for trained personnel. However, this amount may be collected only when a patient is homebound or an impatient at an inpatient facility other than a hospital. The court found the statutory language clearly forbid BestCare’s billing practices. There was no dispute that BestCare technicians did not travel to collect specimens, and therefore the defendants clearly violated the plain language of the regulation. While the defendants pointed to language in CMS guidance manuals, the court explained that policy statements have no binding legal effect and can not be used to legally justify a clear violation of a statute.

Alternatively, the defendants argued that their good-faith reliance on the CMS Manual created a genuine fact dispute about whether they had the requisite mental state to violate the False Claims Act. The court also rejected this argument, finding no plausible reading of the manual that could support the defendants’ billing practices.

The defendants pointed to language in the manual setting out the minimum per mile travel allowance, for situations where the average trip to patients’ homes for medically necessary laboratory specimen collection is longer than 20 miles round trip. According to the defendants’ reading, while other paragraphs in the manual state that laboratories may not bill for more miles than are reasonable or for miles not actually traveled by a laboratory technician, that language was not included in the particular paragraph on which they relied to develop their billing practices. The defendants argued that the paragraphs were presented as alternatives, and therefore they could follow the paragraph that lacked the prohibition, while ignoring the paragraph that did. Accordingly, they asserted that they could not reasonably know it was unlawful to bill a “per mile travel allowance” for miles not traveled by anyone.

The court found this argument defied reason, as both paragraphs set out rules for reimbursement for technicians who actually traveled somewhere. The court found no way to interpret the language to suggest a provider could bill Medicare for miles that were not traveled by anyone. The court found it clear that reimbursement was not allowed merely for the transportation of samples that were already collected, even if a technician was traveling, and it was certainly not allowed when the samples were shipped with no technician travel. Finally, the court found that no reasonable person could possibly think that round-trip mileage reimbursements are permissible for the one-way shipment of samples.

The defendants also argued they relied on statements from the government’s third-party administrators when establishing their billing practices. However, the court noted that some of the conversations cited by the defendants occurred after the dates of the fraudulent billing, and therefore could not have influenced BestCare’s business decisions. The court also found that conversations that occurred before or during the fraudulent activity were either irrelevant or supported the government’s position. For example, the defendants submitted evidence they provided to Medicare’s Comprehensive Error Rate Testing office, which they argued showed that their technicians traveled to provide service to a patient. However, the court noted the real mileage for that trip was zero, as the shipment was sent via air without any technician onboard, and therefore the support provided by the defendants for their defense actually supported the finding of fraud.

Next, the defendants argued that there are genuine disputes of material fact about the accuracy of the $10,600,000 damages calculation for the award involving unjust enrichment and payment by mistake. However, the court noted they did not clearly challenge the calculation of the $30,571,635 False Claims Act award in their opening brief, so that argument was forfeited. Because the court affirmed the $30.6 million award under the False Claims Act, the defendants’ challenge to the $10.6 million award is moot.

Next, defendant Maghareh argued that the district court erred in holding him personally liable for BestCare’s improper billings. He first argued that the government hadn’t met the Texas-law standard for piercing the corporate veil, but the court found that argument plainly wrong, as no state law has relevance to the government’s federal claim under the FCA, which allows Maghareh to be held personally liable.

Maghareh also argued there were genuine disputes about whether he was personally responsible for BestCare’s improper billing, but the court disagreed. The court found Maghareh signed the Medicare enrollment form, in which he promised not to submit claims with deliberate ignorance or reckless disregard of their truth or falsity. He signed every false transport claim that BestCare submitted, causing the government to pay more than $10 million for miles that no technician traveled. And BestCare’s billing manager Martha Shirali testified that Maghareh and his wife instructed her on how to bill for travel reimbursements. A supervisor’s delegation of responsibility for claims submission to another person does not necessarily absolve the supervisor of liability under the False Claims Act.

Third, Maghareh argued that he did not personally benefit from the fraud, but the court found that irrelevant, even if true. To hold Maghareh jointly and severally liable under the False Claims Act, the government need only prove he participated in a conspiracy to submit false claims. The government did so, and therefore the district court did not err.

Finally, the defendants argued the district judge should recuse because he was not impartial, but the appeals court found this argument was not raised in the district court and was therefore forfeited. In any event, the defendants’ perfunctory, two-sentence argument cited no evidence and the court found it meritless.

FCA Drummond v Bestcare Fifth Circuit

The original decision

FCA Drummond v Bestcare SD Texas