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Sixth Circuit Limits False Claims Act Liability

 Regulatory Noncompliance Does Not Equal FCA Liability

False Claims Act Condition of PaymentIn U.S. ex rel. Hobbs v. MedQuest Associates, Inc., the Sixth Circuit recently reversed an $11 million False Claims Act judgment against Medquest, a multi-location diagnostic imaging facility, and declared that the Government’s attempt to use the False Claims Act as a tool to police “false certification” cases was inappropriate.

The Medquest case began in 2006 when a former employee filed a whistleblower suit under the FCA. The Department of Justice soon intervened and asserted two allegations:

  1. Medquest violated Medicare program requirements by allowing unapproved physicians (who were not certified in radiology) to supervise certain testing procedures; and
  2. Medquest inappropriately billed the Medicare program under the prior owner’s billing number instead of obtaining its own.

In a forceful decision that expressed “little sympathy” for Medquest, the Court found that regulations underlying Medicare certifications were not “conditions of payment” and did “not mandate the extraordinary remedies of the FCA.” The Court observed that these violations were “instead addressable by the administrative sanctions available.”

This decision could limit certain FCA cases. It is powerful evidence against those who argue every Medicare regulation enrollment agreement breach or error is a violation of an express or implied condition of payment and creates FCA liability. Instead, if there is no contractual or regulatory language making Medicare payments contingent on fulfilling Medicare enrollment or participation conditions, the Sixth Circuit appears to apply a common sense approach – that FCA’s “extraordinary penalties” should be reserved for more offensive regulatory violations.

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John H. Fisher

Health Care Counsel
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