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Evolving Trends in Enforcing Quality of Care Standards in Nursing Homes

on Tuesday, 23 December 2014 in Health Law Advisory: Zachary J. Buxton, Editor

Beds caked in feces and soaked in urine are not the typical living conditions for the nation’s nursing home population. These facts recently motivated Government officials to utilize ever evolving methods of enforcement to uphold quality of care standards for the elderly under Federal criminal statutes and the “worthless services” doctrine of the False Claims Act (FCA; 31 U.S.C. § 3729-3733).

Two recent cases out of the Seventh and Eleventh Circuits (U.S. ex rel. Absher v. Momence Meadows Nursing Center, Inc., 764 F.3d 699 (7th Cir. 2014); U.S. v. Houser, 754 F.3d 1335 (11th Cir. 2014)) demonstrate how the Federal government will treat providers that deliver and bill for services that are so lacking that they are deemed “worthless” under Federal health care programs.

Houser – FCA and Criminal Liability

Spouses George and Rhonda Washington Houser owned three Georgia long-term care facilities through a holding company. Between 2003 and 2007, the Housers transferred nearly $3 million from the holding company to their personal accounts and another $1.7 million to a construction company owned by George Houser.

The nearly $4.5 million transferred during the five-year period directly impacted patient care. Vendors and employees went unpaid for extended periods, and cleaning supplies were in short supply resulting in “a strong odor of urine and feces.” Patients lived in absolute squalor. Items and services that should have been provided, such as medications and therapy services, were often not provided or delayed. Food was in short supply and residents suffered unusual weight loss. By anyone’s measure, conditions were abhorrent.

The Government brought a criminal suit under 18 U.S.C. § 1349 for conspiracy to commit health care fraud as defined in 18 U.S.C. § 1347. With the case dismissed against his wife, George Houser was convicted in the district court. The lower court utilized the “worthless services” theory from the civil FCA cases to justify his conviction under the criminal statute.

On appeal, Houser argued that engrafting a civil theory of liability for worthless services onto a criminal statute rendered the Federal statute unconstitutionally vague. The Eleventh Circuit disagreed. The court partially based its conclusion on Houser’s certification to comply with the Medicare Conditions of Participation when he enrolled in the Medicare and Medicaid programs.

The Court fell short of concluding that the services Houser actually did provide were worthless services, but did note Houser failed to provide some services at all, such as adequate food and nutrition. By enrolling in Medicaid, for quality of care, those providers agree that they must “provide services and activities to attain or maintain the highest practicable physical, mental, and psychosocial well-being of each resident.” Based on certain services that are fundamental to meeting quality standards (and that are intended to be offered under the per diem and consolidated billing rules in effect for patients) being withheld altogether, the Court upheld the criminal fraud conviction.

Momence – FCA and Civil Liability”

In Momence, the Seventh Circuit addressed the provision of worthless services in the context of a civil false claims case brought by two former nurses of an Illinois long-term care facility. This was a qui tam case in which neither the state nor federal government had intervened. The nurses alleged Momence submitted hundreds of false claims for substandard care.

Similar to Houser, the facts depicted patients living in terrible conditions: scabies, pressure ulcers, accidents, falls, and issues with patient trust accounts. It was also alleged that the facility actively engaged in deception with respect to documentation of scabies and pressure ulcers in the medical record. The facility was inspected by government regulators 117 times, often with resulting corrective action plans going into effect.

At trial, the nurses sought to prove that care was so substandard as to be “worthless,” such that billing for the care (again, per diem payment methodology) constituted false claims. Here the issue was not withheld services. Rather this case brought into focus the difficult issue of deciding when services that are provided are so deficient as to be worthless and of no value at all.

At trial, a jury had found Momence liable for 1,700 false claims. The trial court had instructed the jury

“If Uncle Sam paid Momence 200 bucks and they only got $120 worth of value, [then Momence defrauded them of $80 worth of services.”

On appeal, the three-judge panel of the Seventh Circuit reversed, finding:

“It is not enough to offer evidence that the defendant provided services that are worth some amount less than the services paid for. That is, a ‘diminished value’ of services theory does not satisfy this standard. Services that are ‘worth less’ are not ‘worthless.'”

Importantly, the court rejected a “diminished value” benchmark for when services are worthless and cannot be billed, even when subsumed within a per diem or other composite rate. This is helpful, but this and other cases (mostly criminal) have providers still wondering when services that are provided but are highly deficient can be the basis for civil or criminal false claims prosecutions.

Houser and Momence, Important Lessons for Providers

The facts of Houser demonstrate a likely outlier in the long-term care arena. Few owners will transfer millions from their facilities to the extreme detriment of residents to the point their living quarters double as lavatories. In these, and similar cases, the Government will likely continue to refine worthless services as a basis for criminal liability to rightly punish those wrongdoers.

Momence, on the other hand, demonstrates a more universal lesson for long-term care providers that the greatest risk for civil FCA liability is still premised on submitting claims for providing no services at all.

Alex M. “Kelly” Clarke

Zachary J. Buxton

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