Halifax ruling supports hospitals' defense in false-claims cases

A federal judge in Orlando, Fla., gave hospitals a reason to cheer when he ruled that violating Medicare's conditions of participation doesn't automatically expose providers to the potentially crippling triple-damages available under the False Claims Act.

U.S. District Judge Gregory Presnell's recent ruling in the closely watched case of Elin Baklid-Kunz v. Halifax Hospital Medical Center bolstered a growing body of law around the False Claims Act that requires whistle-blowers to prove more than just violations of Medicare administrative rules. Though the ruling was consistent with recent law, the whistle-blower had urged him to decide otherwise.

Maximum damages in the case were well above $200 million, but the whistle-blower and the Daytona Beach, Fla., hospital agreed to settle the case for $1 million this month. The agreement came after Presnell's summary judgment ruling (PDF) undercut the arguments of Elin Baklid-Kunz, the hospital's former compliance director who filed the lawsuit as a whistle-blower, known as a “relator” in legal parlance.

“The judge just did not buy the relator's claim,” said Edward Barker, a Kansas City, Mo, attorney with Husch Blackwell.

Neither the hospital nor Baklid-Kunz have commented on the proposed settlement, which still needs approval from the Justice Department and from Presnell.

Baklid-Kunz alleged that between 2002 and 2013, Halifax Health officials submitted 21,000 Medicare bills for inpatient care that should have been coded as less expensive outpatient services. Presnell ruled that if any damages were available, the sum would be the difference between the inpatient and outpatient rates—which cut down the potential damages significantly.

Second, Presnell ruled that the False Claims Act isn't triggered just because some of the patients' medical records lacked a doctor's valid order to admit the patient.

“The court's ruling … is consistent with many other cases where courts have held that violating the Medicare conditions of participation regulations is not enough to establish False Claims Act liability,” said Jesse Witten, a Washington partner with Drinker Biddle & Reath. “This is the first decision to point out that the physician-order requirement was a condition of participation.”

Just last year, the CMS revised its regulation to clarify that a physician's valid admitting order is a “condition of payment” from Medicare, and not a condition of participation, Witten said.

“A condition of participation alone cannot and should not give rise to FCA liability,” said Brian Roark, a lawyer in the Nashville offices of Bass Berry Sims. “The government or relators will have to prove these types of cases based on the merits of whether the underlying documentation supported the claim billed—and not simply whether there was some technical violation with the claim.”

Even though Presnell's decision may have clarified the law in favor of hospital defense teams, healthcare providers may not see any resulting drop in False Claims Act lawsuits.

Houston-based Duane Morris attorney Michael Clark, chairman-elect of the American Bar Association's Health Law Section, said changes to the law in 2009 and 2010 made it easier to bring and maintain False Claims Act cases against healthcare providers.

But, he added regarding the Halifax ruling, “The law remains unsettled and this certainly is a prominent case.”

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