On March 29, 2019, the district court in the Northern District of Illinois dismissed a False Claims Act suit against numerous defendants, including one represented by Nichols Liu partner Bob Rhoad, alleging fraud under Medicare Part C. See United States ex rel. Nedza v. Am. Imaging Mgmt., Inc., No. 15-C-6937, 2019 WL 1426013 (N.D. Ill. Mar. 29, 2019).
A number of Medicare Advantage (MA) plans had contracted with American Imaging Management (AIM), a specialty health benefits management corporation, for utilization-management services. Because AIM was in a position to review authorizations requested by providers in advance of treatment, it could theoretically deny those providers’ requests even where they were medically necessary. The plans were accused of boosting profits “by denying care to Medicare beneficiaries in violation of Medicare Rules.” Slip. Op. at 4.
The whistleblower in this case alleged two claims: (1) that CMS had been fraudulently induced to contract with the MA plans; and (2) that the plans had submitted false claims for capitation payments under the MA system. The court read relator’s claims as “most closely resembl[ing] implied false certification” and analyzed the complaint under that rubric. Slip Op. at 11. The complaint still failed.
First, the court read Escobar to require “misleading half-truths” in order for an implied false certification to be actionable. As we have previously reported, courts have split on this question. The most notable case to require specific representations was United States ex rel. Rose v. Stephens Institute, in which the Supreme Court recently denied certiorari.
Second, irrespective of whether the defendants had made such specific representations, the court reasoned that no such statements could be material under Escobar. In the MA realm, the court rightly observed that “[a] utilization management review process is not in itself contrary to the Medica[re] Rules.” Slip Op. at 13. More fundamentally, the capitation payments made by CMS were not tied to the alleged misrepresentations. There was no link, in other words, between the utilization review and the decision whether—or how much—to pay the MA plans. CMS had audited several of the defendant MA plans but never ceased payments or terminated a contract. As we have suggested and as DOJ seems to acknowledge, one of the most important questions in the wake of Escobar is the government’s prior reaction to knowledge or suspicion of the kind of fraud later alleged by a relator. In this case, the relator failed “to plead any factual support to the allegation that AIM’s UM review process would be material to the government’s decision to pay.” Slip Op. 16.
The court dismissed claims against all defendants—including Nichols Liu’s client. Prevailing in these cases requires attention to the ever-changing jurisprudential landscape—especially as Escobar continues to work its way through the lower courts—and an ability to apply current cases to the unique contexts, e.g. Medicare Advantage. We are proud to add this victory to our proven experience in FCA litigation and investigations.
