The once-predictable world of long term care regulation has been rocked by a series of sensational cases using the False Claims Act to force major and expensive concessions from nursing facilities including very heavy fines, outside monitors, and stringent standards. The first volley occurred in February, 1996 when the U.S. Attorney's Office for the Eastern District of Pennsylvania (Philadelphia) filed a civil complaint against the owner and former manager of Tucker House, a 180-bed nursing facility in Philadelphia. The suit targeted inadequate nutrition and wound care to three former residents. In a bold new initiative, the government contended that the defendants had violated the FCA by submitting claims for services provided to these residents when, in fact, the residents had not been provided with inadequate care. The case was resolved with a $600,000 settlement and consent orders imposing rigorous quality-of care standards on the facility.
In January, 1998, David Hoffman, the Assistant United States Attorney who handled Tucker House filed a similar action against three more nursing homes. This case, too settled for $500,000 and an agreement to implement the same type of quality-related standards imposed in Tucker House. The reach of these aggressive enforcement efforts was dramatically increased by a government suit against Extendicare-owned Greenbelt, Nursing & Rehabilitation Center in Baltimore. Suit was filed in August, 1998, and settled just one month later. The government sought, and got Greenbelt's agreement to a detailed court order, even while it is still suing for massive money damages under the FCA. The sweeping changes ordered are remarkable. In a settlement reaching well beyond the patient protection requirements of federal legislation, Greenbelt's owner, Extendicare, agreed to strict standards for staffing, staff training, quality assurance, medical care, nursing care, nutritional needs, psychiatric services, wound care, and resident safety. Greenbelt has also had to hire a "monitor" and an interim manager to be approved by the government, but paid for by Extendicare. Most significantly, Extendicare has agreed that the United States can interview Greenbelt staff outside the presence of supervisors and without company lawyers present. Equally remarkable is the speed with which the federal government moved once it became involved. State regulators had surveyed Greenbelt in January, 1998, and in February they warned the facility that it was rendering substandard care. A repeat survey in April revealed that Greenbelt had lied when it filed a report claiming it was now in compliance with federal requirements. This same sequence was repeated in July and August, 1998. By then, Greenbelt was being fined over $20,000 per month, and state officials had asked HCFA (now CMS) to nearly double that amount. Aggressive use of the False Claims Act achieved results which more than seven months of repeated surveys, warnings, and fines and had not accomplished.
The legal theory behind the suits is fairly straightforward. As part of the Omnibus Budget Reconciliation Act of 1987 (OBRA) Congress enacted the Nursing Home Reform Act. The Act requires nursing facilities to comply with federal requirements for provision of services to all patients. Most critically, the Act commands that "a nursing facility must care for its residents in such a manner and in such an environment as will promote maintenance or enhancement of the quality of life of each resident." Facilities are required to "provide services and activities to attain or maintain the highest practical physical, mental and psychological well-being of each resident" in accordance with individualized written care plans. The Act goes on to specify conditions under which restraints may be used, and establish quantitative nutritional standards. Federal regulations addressing quality of care cover the areas already discussed, as well as the prevention and treatment of bedsores, urinary incontinence, nasogastric tubes, and hydration.
Another key area of unlawful conduct arises from nursing facility discrimination against Medicaid beneficiaries. Although many nursing facilities try to deny it, federal law strictly prohibits discrimination against Medicaid beneficiaries. Here are the basic rules:
Each year nursing facilities prepare a cost report which is submitted to CMS. The cost report is viewed by CMS as the facilities' final claim for payment. It includes all of the facilities' costs and accounts for them under applicable provisions of the Medicare statute, regulations, and CMS program instructions. Immediately above the signature line is a certification that must be signed by the facility's chief administrator or a responsible designeee. The certification promises, among other things, that the facility complies with the Nursing Home Reform Act. In the words of a top official:
"HCFA views any false statement contained in a cost report as constituting an abuse of the Medicare program. HCFA conditions both payment and provider eligibility on the veracity of the statements in the cost report. HCFA considers any cost report containing a false statement to be invalid."
The government and patients' rights advocates assert that signing that certification without regard to its truth renders it a false statement made in order to get a claim -- the nursing home's entitlement to federal reimbursement -- paid. Although the industry has disputed this reasoning, courts have generally upheld the government's position. All three nursing homes settled rather than try their luck in court. That may reflect a reasoned judgement about how a jury would respond to pictures of patients with blackened feet, stage IV decubiti, and chafed wrists and ankles from physical restraints. The only facility to fight this trend was a psychiatric hospital charged with `failure to meet professionally recognized standards in health care as required by 42 CFR 455.2.
The hospital complained that these standards were too vague to enforce. The court rejected this argument, comparing the government's suit to a suit against a defense contractor for defective aerospace equipment, commenting that in "appropriate" cases hospitals and other providers could be liable under the False Claims Act for systematically providing substandard health care.
Providers frequently protest that quality of care cannot be the subject of a qui tam action because qui tam cases require monetary damages to the United States and that providing poor care is not "material". In determining what misconduct is actionable under the FCA the Supreme Court, in U.S. v. Neifert-White held that the Act is to be read broadly, and extends "to all fraudulent attempts to cause the Government to pay out sums of money." Such a conclusion may only be buttressed by the legislative history of the 1986 amendments which teaches that: The False Claims Act is intended to reach all fraudulent attempts to cause the Government to pay out sums of money or to deliver property or services. Accordingly, a false claim may take many forms, the most common being a claim for goods or services not provided, or provided in violation of contract terms, specification, statute, or regulation. Most recently, the Ninth Circuit held that:
Administering a federally funded program in violation of funding conditions was also held to constitute a false claim in United States v. Village of Island Park. Village of Island Park involved a community that defrauded HUD's Community Development Block Grant Program by pre-selecting only white applicants for subsidized housing. The court found that the defendants, in obtaining grant funds, falsely stated that persons would not be excluded from the program on the basis of race. In concluding that the False Claims Act was intended to include those situations in which the claimant engaged in fraudulent conduct in order to receive payment, the court considered the legislative history of the False Claims Act, which demonstrates that the False Claims Act was intended to cover "each and every claim submitted under a contract, loan guarantee, or other agreement which was originally obtained by means of false statements or other corrupt or fraudulent conduct, or in violation of any statute or applicable regulation...."
It is thus clear that the False Claims Act was intended to cover not only those situations in which the claims themselves are false but also those situations in which a claimant engages in fraudulent conduct with the purpose of inducing payment by the government.
Most recently the government has escalated this battle. Vencor's failure (or refusal) to staff its facilities sufficiently to provide necessary services triggered a False Claims case in which the United States joined. Although Vencor's bankruptcy allowed it to pay roughly only ten cents on the dollar, Vencor nonetheless had to pay the United States $20,400,000 to settle claims of deliberately substandard care. Another recent settlement recent settlement in Kentucky represented the first time that nursing home managers, as well as owners, were held liable for unacceptably low levels of care. 11
Administration initiatives to gut SNF licensing surveys met immediate and firm opposition, and the Vencor and Service Master settlements were both finalized during the new administration, so caregivers, patients, and their families have some cause for optimism.
Indeed, past enforcement efforts have netted a powerful new resource for patients rights litigators. As a condition of settling false claims cases, health care providers are typically required to agree to a kind of probation administered by the Office of the Inspector General. The probation takes the form of "Corporate Integrity Agreements". The agreements that SNFs sign will help patient advocates overcome two roadblocks commonly used by defendants in nursing home litigation. SNF chains frequently take the position in litigation that they have no real ability to control the conduct of the individual facilities, which may be separately incorporated. Since the Corporate Integrity Agreements require the parent corporation to develop compliance policies which become the basis for evaluating all employees, and since the agreements typically require that managers at individual facilities be trained in the new federal requirements, it will be harder than ever for nursing home chains to disclaim responsibility for patient abuse in individual homes.
SNFs often contest patient abuse or neglect cases by seeking to refute the patients' allegations about the standard of care. Although these agreements are binding only on the parties to them (the individual SNF or chain and the United States), the existence of very specific staffing standards and quality of care standards in the agreements will provide fertile ground for for patients's rights litigators.12 Caught between budget cuts and the demanding expectations of a "boomer" population worried about aging parents, providers can expect more of these suits in the future. The heat is on, and will stay on.
1. 42 U.S.C 1395i-3, 42 U.S.C 1396r.
2. 42 CFR 483.5-483.75
3. U.S. ex rel Aranda v. Community Psychiatric Centers of Oklahoma, Inc. 945 F. Supp. 1485, 1488 (W.D. Okla 1996)
4. 390 U.S. 228, 233 (1968).
5. S. Rep. No. 345, 99th Cong., 2d. Sess. 9 (1986), U.S.S.C.A.N. 5266, emphasis added.
6. U.S. ex rel Insoon Lee v. Smithkline Beecham Clinical Laboratories 245 F.3d 1048, 1053 (9th Cir. 2001)
7. 888 F.Supp. 419 (E.D.N.Y. 1995).
8. Id., at 440.
9. S.Rep. No. 345, 99th Cong., 2d Sess. 9 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5274.
10. U.S. ex rel Huff, et al. v. Vencor, et. al. CV 97-4358 (C.D. Cal.)
11. U.S. v. ServiceMaster/Diversified Health Services (Ky.)
12. The Corporate Integrity Agreements currently in force are all on line, and may be found at http://www.dhhs.gov/progorg/oig/cia/ciacurrent.htm. There may be found the Agreements for, among others, Beverly Enterprises, Guardian Post-Acute Services, Levindale Hebrew Geriatric Center, and Vencor. The agreement for the Sun nursing home chain has already been finalized, but will not be posted until the entire settlement has been worked out and approved by the court overseeing Sun's bankruptcy.
Mark Kleiman is a trial lawyer specializing in whistleblower litigation in Los Angeles, California. He has represented numerous health care professionals in qui tam cases and whistleblower retaliation suits. The actions he has brought have led to three providers being jailed for felony convictions and the recovery of over $27.5 million for the United States. He may be reached at email@example.com, or through his website, www.falseclaimspecialist.com.