No FCA Claim Where CMS Not Billed for Allegedly Unnecessary Medical Tests; United States District Court for the Western District of Missouri, Southern Division No. 17-3273-CV-S-BP, U.S. ex rel. Charles Rasmussen D.O. v. Essence Group Holdings Corporation, et al.


The district court dismissed a qui tam case alleging the defendants conducted medically unnecessary examinations and test to inflate their billings to Medicare. The relator alleged the additional exams and tests were intended to increase the annual capitation payments the defendants receive under Medicare Part C, which provides a set annual amount for patient care regardless of the amount of care required by a beneficiary. However, the court noted that because the defendants receive a set payment for each beneficiary, Medicare was never specifically billed for and never paid for these exams, and therefore no false claims for payment were made. The court also noted the relator did not allege that any medical diagnoses were false. The court explained that even if the tests were medically unnecessary at first, the defendants were still entitled to increased future payments if the tests uncovered previously undiagnosed conditions. Because the relator did not allege any harm to the government—regardless of the outcome of the tests—and because no regulations had been violated, the court dismissed the claims. The court also dismissed the relator’s attempt to frame his complaint as Antikickback Statute violations. While physicians were paid to conduct these additional tests, the court again noted that Medicare was not billed for them.

Defendants Essence Group Holdings Corp., Essence Healthcare Inc., Lumeris Solutions Company LLC, Lumeris Healthcare Outcomes LLC, and Lester E. Cox Medical Centers moved to dismiss a qui tam case alleging fraud on the Medicare program.

The allegations involved Medicare Part C or Medicare Advantage, through which the government pays insurers a fixed amount for each eligible Medicare beneficiary they enroll, and the insurers in turn negotiate agreements with healthcare providers to reimburse them for services they provide to the insurers’ enrolled beneficiaries. To this end, a capitation rate is calculated annually to reflect the average amount the government would otherwise expect to spend providing care to these same beneficiaries. The capitated amount is a fixed monthly payment that is remitted to insurers regardless of the volume of services used by an enrollee.

The relator alleged that the defendants concocted a scheme to increase enrollees’ risk scores and thereby inflate their capitation payments. The relator alleged Essence reviewed patient records to identify those who might have additional medical conditions that could be diagnosed and coded, thereby increasing their risk score. The relator did not allege that doctors were required to conduct any additional examinations or tests, or that patients were required to submit to them.

The relator pursued his case under a false certification theory, alleging that the defendants certified that they complied with all Medicare regulations when they did not. He did not allege that any diagnostic code entered for any patient was incorrect or that the defendants submitted or encourage the submission of false diagnoses.

As an initial matter, the court addressed one of the relator’s complaints. The relator repeatedly noted that the defendants sought to diagnose additional ailments for the sole purpose of inflating their annual capitation rates, not out of any concern for their patients’ well-being. However, the court explained that the relator’s concern about the defendants’ motivation had no bearing on whether or not they violated Medicare regulations. The court also noted that Medicare is not billed for any additional tests or doctor visits, because the defendants receive a fixed monthly payment. Thus, even if the additional examinations are unnecessary, as the relator alleged, this cannot form the basis of an FCA complaint. Further, even if a test is unnecessary, the government is not harmed if it reveals no additional ailment or if it discovers a previously unidentified ailment. The government is harmed only if a provider submits a false diagnosis code. If the diagnoses are correct, the provider is entitled to any increased payments.

Because there were no allegations of false diagnoses, the court examined whether the defendants violated two Medicare regulations, as the relator asserted.

First, the relator alleged the defendants violated a regulation that states that MA contracts must require that MA plans do not interfere with provider advice. According to the relator, by encouraging doctors to perform additional exams, the defendants interfered with the doctors’ advice that such tests were medically unnecessary.

The court held that this is not a violation of the prohibition on interference as contemplated by the regulation and, even if it was, the violation was not material to the decision to pay. The court found the regulations prohibit interference with a doctor’s advice on medical care or treatment options; the risks, benefits, and consequences of treatment; and the patient’s opportunity to refuse treatment.

While the relator alleged the defendants interfered with physicians’ work, the court noted that doctors were not required to conduct any tests nor render a false diagnosis. The court explained that the regulations are designed to ensure that financial concerns are not used to deprive patients of needed care; the regulation is not designed to prohibit allegedly unnecessary care because, under Part C, CMS does not pay for it.

For similar reasons, the court concluded that any possible violation was not material to CMS. Even if a particular test was medically unnecessary, CMS was not paying for the test, so the fact that Defendants arranged for unnecessary tests would not have been material to CMS’s payment decisions. If an MA plan denied care, that might be material. But when there was no billing to Medicare, the additional exams, even if unnecessary, cannot by definition be material to a decision to pay. Further, the fact that a correct diagnosis arose from an examination that the doctor did not want to perform (but that CMS did not pay for) would not be material to CMS’s decision to increase the capitation rate based on that diagnosis.

Based on the alleged facts, the court held that the relator could not pursue an FCA claim based on violations of this regulation.

Next, the relator argued that Medicare regulations state that a diagnosis can be coded only if the patient received treatment for that condition within the past year. That subsection is entitled “Deadlines for submission of risk adjustment data.” The specific passage cited by the relator states that “[r]isk adjustment factors for each payment year are based on risk adjustment data submitted for items and services furnished during the 12-month period before the payment year that is specified by CMS.” Based on this, the relator argued that if a patient has a diagnosed condition, that condition can only be coded if the patient received treatment for that condition in the preceding year.

The court disagreed with this interpretation of the regulation, turning to official CMS guidance that provides more detail on the rule. That guidance states that a provider’s attestation that a condition exists is sufficient for providers to assign that diagnosis to a beneficiary. Therefore, according to the guidelines adopted by CMS, a patient’s medical condition can be coded even if the patient did not receive treatment for that condition in the prior year. The relator pointed to other areas of CMS guidance to support his allegation, but the court still found no requirement for prior treatment before a diagnosis code can be applied. Accordingly, the court found the defendants did not violate any regulations by using diagnostic codes that accurately described the patients’ medical conditions, even when those conditions had not been treated in the past year. Because the relator did not allege any codes were falsely applied, the court dismissed this claim as well.

Alternatively, the relator argued that Counts I and II stated a claim under the FCA because the defendants violated the Antikickback Statute. The relator argued that the $100 payment to the doctors to perform additional exams constituted a payment prohibited by the AKS.

However, the court disagreed, again noting that the $100 exam payments are not paid by CMS. Therefore, the service “induced” or “arranged” by the $100 is not paid for in whole or in part by CMS as required for a regulatory violation. The court also noted the allegations differed from the typical kickback situation, in which a doctor is paid to refer patients to a specific facility to receive tests or treatments. If CMS pays for the treatment, the physician payment is an impermissible kickback, because it was paid to induce the physician to make the referral. But here, Medicare did not pay for the exams.

The relator argued that the $100 payment is a kickback because it created diagnostic testing revenue for Cox. However, the court found this was not true under Medicare Part C. While the relator argued the tests eventually increased the annual capitation rate, the court again noted this would only be true if the tests revealed a hitherto undisclosed condition. The court found that the possibility that a capitation rate might increase too speculative to support an AKS claim.

The relator also argued that CMS did pay for the tests because the money the defendants used to pay the $100 fee ultimately came from the money CMS paid for the patients’ care. However, the court was not persuaded either that the amended complaint actually advanced that theory or that it was viable. The court acknowledged that the funding for a patient’s care came from CMS and that it was conceivable that the $100 payment could be traced to CMS funds, assuming the annual cost of the patient’s care did not exceed the annual CMS payment. However, the court again found it entirely speculative whether that payment would cause that patient’s capitation rate to increase. Because the exam costs were not paid by CMS, the court held the relator failed to allege an AKS violation.

Finally, the court examined the relator’s claim of unlawful employment retaliation by Lester E. Cox Medical Centers. Cox argued the complaint did not allege that it knew the relator was engaged in protected activity.

The court agreed, first noting the relator did not respond to Cox’s arguments and therefore the claim could be deemed abandoned. Second, the court rejected the claim on the merits. The court found the evidence of the relator’s communications with his employer too vague to support a claim of retaliation. For example, Rasmussen inquired why hospice patients were not taken off the list for additional exams and stated his disagreement with certain medical opinions. Nowhere did the court find he made allegations about possible false claims. While the relator made several conclusory statements that he complained about fraud, the court found no support in his complaint or found that his concerns were unrelated to the submission of false claims.