The Fourth Circuit affirmed a lower court’s dismissal of a qui tam case alleging healthcare fraud, finding no evidence that the defendants knowingly misinterpreted North Carolina Medicaid rules governing billings for personal care services for disabled persons. However, the panel split 2-1 on the decision, with Judge William Traxler arguing that the majority’s interpretation of the scienter element was too narrow. The judge also argued the defendants didn’t even follow their own interpretation of Medicaid’s billing requirements.
United States Court of Appeals for the Fourth Circuit No. 20-1583; U.S. ex rel. Stephen Gugenheim v. Meridian Senior Living LLC
In Brief
The Fourth Circuit affirmed a district court’s dismissal of a qui tam case alleging healthcare fraud. The relator argued that a group of adult care homes knowingly billed Medicaid for the full allotment of personal care services hours for disabled clients, when they were required to bill only for hours actually spent on PCS. However, the court found the state’s policy ambiguous and that the defendants’ interpretation of billing requirements was reasonable. Because the defendants provided in-facility care, the state presumed that full services were provided 24/7 and its billing portal pre-populated records for PCS with the full approved daily hours per beneficiary. The state’s guidance also said that providers could bill for the full time as long as at least some services were provided.
In a dissenting opinion, Judge William Traxler found the state’s policy less ambiguous and looked more favorably on the relator’s allegation that the defendants billed for more hours than their PCS aides worked. Even assuming that the defendants could bill for tasks rather than time, Judge Traxler noted that the billing department did not view reports of daily services provided but merely billed Medicaid for the maximum number of daily hours.
Background
Stephen Gugenheim alleged that forty-five adult care homes knowingly violated a North Carolina Medicaid billing regulation and thereby submitted false claims for payment. The complaint also named Affinity Living Group LLC, which manages those homes, and Charles E. Trefzger, Jr., Affinity’s CEO.
The complaint involved the provision of personal care services (PCS), which assist disabled adults with the activities of daily living, whether they reside at home or in an adult care home. To determine eligibility for these services, beneficiaries are rated by their capacity to perform basic daily living tasks, such as dressing, bathing, and preparing meals. Evaluators then prepare a plan of care describing the level of service needed and the number of days per week assistance is required. Once this is established, a beneficiary’s monthly authorized PCS hours are calculated.
North Carolina Medicaid policy capped authorized PCS hours at 80 hours per month, but allowed for an additional 50 PCS hours per month for patients under certain conditions. The state requires PCS providers to document the performance of all PCS tasks listed in a beneficiary’s service plan at the indicated frequency. This documentation must include the date of service, the tasks performed, and the name of the aide providing the service, but does not need to state the exact time spent on each task. PCS hours are billed in 15 minute increments.
The Alleged Billing Scheme
For its in-facility care, Affinity generates weekly invoices for PCS using a census method, which identifies the residents present in the facility at midnight each day. For every PCS beneficiary present in the facility at midnight, Affinity bills the average daily PCS hours calculated from the total monthly hours authorized for that beneficiary.
Gugenheim alleged that this billing method resulted in the submission of false claims for payment. According to the relator, state policy required the defendants to track and bill for the actual time spent on PCS, rather than the full daily authorized hours.
The district court granted summary judgment in favor of the defendants, finding that Gugenheim failed to show that the bills for PCS were materially false or made with the requisite scienter. This appeal followed.
The Appeal
Gugenheim argued that North Carolina policy unambiguously put the defendants on notice that they were required to bill for specific PCS hours. Specifically, he cited to the policy’s “7/8 rule”, which states that seven minutes of service or less rounds down to zero and eight minutes of service or more rounds up to fifteen. —as a clear indication that PCS providers were required to track and bill by time. According to Gugenheim, this regulation clearly shows that PCS providers must track and bill by time, and therefore, the defendants must have known they violated the rule.
However, the Fourth Circuit found the requirement was not as clear as Gugenheim suggested, as other policy undermined his interpretation. For example, in other guidance, NC Medicaid advised that providers do not need to record the time spent on each PCS task. The court found this significant, as adult care homes are not bound by a time window or scheduled patient visits, but provide services around the clock. In fact, the state’s reporting software assumes that adult care homes provide services 24/7 and therefore pre-populates the weekly PCS schedule with the pre-approved hours per beneficiary.
Separate guidance stated that time need not be deducted provided that at least one of a group of tasks was provided during the day. In other words, as long as an aide completed one of the required tasks within the category, the provider could bill for the full associated PCS hours. The court found this reasonably suggested that NC policy authorized providers to bill based on tasks, rather than time.
The defendants argued that they reasonably interpreted state guidance as permitting their census billing method. According to the defendants, they track the accomplishment of PCS tasks for beneficiaries each day and bill for the full daily allotment of PCS hours for any day a beneficiary was present at a facility.
The Fourth Circuit found the state’s policy sufficiently ambiguous to preclude the relator from demonstrating scienter. The court found the relator failed to provide any evidence that defendants knew, or had any reason to believe, their interpretation of the regulation was incorrect or that they ignored any relevant agency guidance in reaching this conclusion. Therefore, the relator could not show that the defendants knowingly submitted false claims for payment.
Alternatively, Gugenheim argued that the defendants made no attempt to seek clarification on the guidance. However, the court rejected this argument. Arguing that the defendants could have asked for more guidance was not sufficient to show that they acted in reckless disregard for the accuracy of their billings. The court found no evidence that the defendants knew, or even suspected, that their interpretation was incorrect, or that they continued their course of business despite misgivings about their conduct. In fact, the court reasoned that the defendants’ interpretation could be correct.
The court also noted that state and federal regulators audited the defendants’ facilities numerous times without incident during the relevant period. Despite specific questions from the defendants regarding the need to maintain time records, state Medicaid officials did not suggest that any documents were missing nor question the appropriateness of the relevant billing practices. The court found this undercut the allegation that the defendants deliberately avoided asking about the correct method to bill for PCS services.
Because the policy guidance was ambiguous and the defendants’ interpretation was reasonable, the court affirmed the district court’s decision.
Dissent
Judge William Traxler dissented, finding the evidence supported the relator’s complaint. Judge Traxler argued that the relator’s evidence showed that the defendants intentionally billed the government for the maximum amount of compensable time for PCS for every Medicaid beneficiary in every one of their adult care homes, without any inquiry into what services the beneficiaries actually received. The judge found it significant that for every 8 hours worked by an adult care home aide, the defendants billed Medicaid for almost 12 hours of personal care services.
Judge Traxler also looked more favorably on the relator’s allegation that the defendants did not seek additional guidance on their interpretation of the billing requirements. The judge cited to multiple statements by defendant representatives suggesting they did not understand certain requirements and did not inquire about them. The judge also disagreed with the majority’s conclusion that the defendants’ interpretation was reasonable.
Further, even if it were reasonable for the defendants to use “task-based” billing, Judge Traxler concluded the defendants did not use this method. According to the complaint, the defendants’ billing representatives did not check work logs to determine whether PCS had been performed or attempted, but billed the full allotment of PCS hours based on whether a beneficiary was present in a facility. In other words, the billing had nothing to do with time, tasks, or the actual provision of PCS. Instead, Medicaid was billed the maximum number of authorized hours even if the beneficiary was absent from the facility for a portion of the day or received no assistance at all with his or her activities of daily living.
Judge Traxler also disputed the majority’s conclusion about the materiality of the alleged fraud. Assuming that state policy required time-based billing, as the judge did, then any invoice seeking payment for the maximum authorized daily hours for each patient, regardless of time actually spent with the patient, was materially false. Even if the defendants’ correctly believed that policy allowed task-based billing, the judge noted that the defendants’ billing department never sees any records of tasks performed, but billed the maximum number of hours by rote. According to Judge Traxler, the defendants’ maximum-hour billing amounted to an assertion that all authorized PCS tasks were completed, and that assertion was clearly material under a task-based reimbursement system.
