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Maintaining high-quality care in nursing homes is a vital yet difficult task. To help achieve it, the government has relied upon the federal False Claims Act in lawsuits against nursing homes that provide substandard care. This new tactic is controversial. The nursing-home industry has complained bitterly that such claims distort the statute’s intent. Yet the need for quality care in nursing homes is critical, and the False Claims Act, if used wisely, can help federal and state governments create a safe environment for vulnerable citizens. PROTECTING RESIDENTS The Medicare and Medicaid programs combined spend more than $65 billion a year on nursing-home services. This money pays for the care of 1.5 million nursing-home residents. Many residents need considerable help with feeding, hygiene, and other aspects of daily living. If the care is substandard, their condition quickly deteriorates and they become susceptible to malnutrition, dehydration, and pressure sores. To protect the vulnerable nursing-home population and the financial investment made in their care, the federal government is using a statute with roots dating back to the Civil War. The federal False Claims Act was originally enacted to deter fraud in military procurement. The act establishes liability for knowingly presenting a false claim for payment to the government. “Knowingly” is defined broadly to include acts “in reckless disregard of the truth.” The act also contains a qui tam, or whistle-blower, provision that allows private citizens to sue on behalf of the government in exchange for part of any recovery. The act allows the government to recover treble damages and penalties of up to $11,000 per false claim. Today the government now uses the statute against a form of fraud never imagined in the 1860s — namely, false claims made to federal health care programs. From the government’s perspective the statute is ideally suited to combat health care fraud because damages are directly tied to the number of false claims filed. Unlike a construction contractor, health care providers tend to file numerous relatively small claims. As a result, the multiplier effect of the penalty provision can result in liability of enormous (and sometimes even absurd) proportions. The sheer size of liability means that few potential defendants can risk litigation, and almost all seek a negotiated settlement. The most basic use of the False Claims Act in health care involves a suit for nonrendered services. In other words, a nursing home has charged the government for care that it never actually provided to a Medicare or Medicaid resident. No real dispute exists that the statute covers this situation. But what if services were rendered, but they were of poor quality? Can the False Claims Act be used in these cases to deal with substandard nursing-home care? WORTHLESS SERVICES Precedent exists for applying the False Claims Act in these circumstances under three legal theories: (1) worthless services, (2) express certification, and (3) implied certification. •

Worthless Services In the nursing-home context, the government or qui tam relator (the private party bringing suit on behalf of the government) alleges that the home’s efforts to provide care to residents are so inadequate that they equate to no services being rendered. Often, the evidence points to severe staffing shortages and other wide-ranging failures on the part of the nursing facility to meet the physiological and psychological needs of residents, with attendant adverse medical effects. At least one federal district court (in the Western District of Missouri), in the case of United States v. NHC Healthcare Corp. (2000), has recognized worthless services as a viable theory.


Express Certification Under this theory the government’s case is based on the false representations made by the defendant. These representations can often be found in claim-form provisions explicitly affirming that the claimant complied with federal and state laws and government instructions. The claim form may further affirm that documents exist to support payment. Express certification is directly applicable to nursing homes. For example, claim forms that the nursing home files each month seeking reimbursement may contain an explicit affirmation that the facility has complied with the government’s care standards. Under this theory the government may allege that the claim the facility filed was false because, contrary to assurances in the claim, the facility failed to provide mandated care. Courts have explained that the false certification of compliance creates liability when certification is a prerequisite for obtaining a government benefit, as it is with Medicare and Medicaid.


Implied Certification Implied certification relies upon the submission of a claim that implies compliance with a standard set forth in a contract between the government and the claimant. Here, as with express certification, the false certification creates liability under the False Claims Act when certification is central to obtaining government reimbursement. For example, some jurisdictions impose staffing ratios for nursing homes by statute. If a nursing facility signed a provider agreement, any claims the provider files may be construed as impliedly certifying that it conformed with designated staffing ratios. Because compliance with staffing ratios is treated as a quid pro quo for receipt of government funds, deviations from that ratio would render any reimbursement claims false. The federal district court in United States v. NHC Healthcare Corp. explicitly embraced this as a viable theory in a nursing-home case. For governments applying these theories, the Federal Nursing Home Reform Act would likely be a key aspect of any false-claims suit based on quality of care. This statute sets forth a framework governing nursing facilities that receive government funding under the Medicare and Medicaid programs. The Federal Nursing Home Reform Act and its implementing regulations impose extensive health-related standards that nursing homes must meet. These mandates are wide-ranging, and they specify that a nursing-home resident must receive care and services to “attain or maintain the highest practicable physical, mental and psychosocial well being.” Resident assessments and care plans are mandated for each resident. Specific examples of health-related standards for Medicare and Medicaid residents include provisions for preventing and treating pressure sores, for using feeding tubes appropriately in limited circumstances, and for providing adequate nutrition. The government can argue that when the nursing home signs a provider agreement, it is committing to comply with the care standards under the Federal Nursing Home Reform Act. This commitment is the quid pro quo for government reimbursement under the provider agreement. This quid pro quo then provides a basis for an action under the False Claims Act. A GROWING TREND The trends point to the government’s continued reliance on the federal False Claims Act to press for quality care in nursing homes. This is also true at the state level. Many states have begun to enact similar statutes. Currently, 19 of them have some type of false claims legislation for civil or criminal prosecutions. Of those 19 that have their own false claims acts, 13 have whistle-blower provisions. It is likely that more states will enact false claims acts with whistle-blower provisions as a result of the Deficit Reduction Act of 2005. Under that law, Congress provided a financial incentive to states to encourage the enactment of state false-claims statutes with whistle-blower provisions for recoveries under a state’s Medicaid program when funds were fraudulently paid. It is thus reasonable to expect (1) an increase in the number of states with false claims acts and (2) further litigation against facilities for alleged false claims under the Medicaid program. Several lawsuits that Arkansas filed in the past few years are good illustrations. Arkansas filed civil suits against Advocat Inc., a chain of nursing homes, and affiliated entities. The suits alleged, among other things, violations of the Arkansas Medicaid False Claims Act at several of the entity’s facilities. The state argued that the nursing facilities were aware of the medical condition and care required for residents, failed to provide that care, and thus filed false claims when they sought Medicaid reimbursement. For example, the government alleged that drug errors occurred, medical records were inadequately maintained, and residents suffered weight loss and pressure sores. In one of the cases, the state alleged that the lack of adequate care led to the death of a resident. Arkansas argued that it incurred damages arising from the false claims, and it sought restitution, treble damages, and statutory penalties. The cases were ultimately settled in 2005. FEDERALIZING MALPRACTICE? The use of the False Claims Act to pursue quality-of-care cases has been controversial, however. Perhaps not surprisingly, the nursing-home industry objects to such suits, arguing that poor quality of care is not tantamount to a false claim. Moreover, concern about the statute’s expansion goes well beyond the self-interested perspective of industry representatives. Courts also have sounded cautions. Most notably, the U.S. Court of Appeals for the 2nd Circuit warned in Mikes v. Straus (2001) against the “federalization of malpractice.” The Mikes case did not involve a nursing home, and the facts and law applied are distinguishable from nursing-home cases under the False Claims Act. Arguably, the use of the False Claims Act in quality-of-care cases does create a parallel remedy for the medical torts that traditionally are the province of state laws and courts. Nevertheless, nursing homes sign provider agreements under which they consent to conform to certain government standards, and they are paid under these agreements. These factors create a governmental interest not present in private tort litigation and thus distinguish these new false-claims cases from suits between private parties. An artfully worded complaint citing those government standards and associated statutory provisions would likely overcome the concerns voiced in Mikes. Furthermore, this criticism will further erode if states continue to enact their versions of the False Claims Act and use them in quality-of-care cases. State legislatures will have acted affirmatively to empower prosecutors and whistle-blowers in their states, rather than have false-claims suits result from the aggressive use of a federal statute. The False Claims Act can fight the abuse of some of society’s most vulnerable members, but as with any powerful weapon, it must be wielded carefully. It should be used only in cases of significantly substandard care. The government should not lose its focus on the main goal — protecting patients. Recovering money is secondary, and if the mere threat of huge damages can help create a safe environment in nursing homes, much will have been accomplished.

Sidney Rocke, a lawyer now with the federal government, established the Medicaid Fraud Control Unit of the D.C. Office of the Inspector General. He was director of the unit from 2000 to 2003. Stuart Silverman is a lawyer in that unit. The views expressed are those of the authors and cannot be attributed to their employing agencies.

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