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DOJ Agrees, Sixth Circuit Decision in Paulus Bolsters Medical Necessity False Claims Act Cases

July 12, 2018

In United States v. Paulus, the Sixth Circuit recently held that a criminal conviction for submitting false claims can be based on false statements of medical necessity.  In other words, statements that involve an element of medical judgment. The Court also held that a jury must decide if the doctor’s assessments are false. This self-evident conclusion counters a recent trend of lower court decisions in False Claims Act cases holding that claims cannot be false if the statements reflect a sufficient degree of medical judgment. As a result, the Department of Justice is already relying on this decision in False Claims Act cases pending on appeal in front of the Tenth and Eleventh Circuits.

Dr. Paulus Was the Top Biller to Medicare for Angiograms and Stent Insertions

Dr. Richard E. Paulus was a cardiologist practicing in Kentucky who performed a prodigious number of angiograms and resulting stents. An angiogram is an invasive test for arterial blockage. In fact, Paulus was the top biller to Medicare for this procedure – earning $2.5 million partially as a result of his per-procedure compensation package. Paulus, at 5.

In 2008, HHS received an anonymous whistleblower tip that Dr. Paulus was defrauding the government by performing medically unnecessary procedures. Id. Medicare does not cover items or services that “are not reasonable and necessary for the diagnosis or treatment of illness”. For this reason, physicians are required to certify, at the risk of submitting false claims, that each service was medically necessary. 42 U.S.C. § 1395y(a)(1)(A). Dr. Paulus’s high billing volume drove HHS investigators to look further.

The Government Indicted Dr. Paulus for Making False Statements of Medical necessity

Paulus was indicted for submitting false claims and health care fraud for making false statements of medical necessity. During trial, the government’s case relied largely on the testimony of expert witnesses and physicians who had worked with Dr. Paulus. These physicians reviewed angiograms of Dr. Paulus’s patients.  They subsequently testified  that the Dr. Paulus’s patients did not require the stents he placed. Thus, they argued, the claims certifying the medical necessity of the procedures were false.

As a result of the testimony, the jury convicted Dr. Paulus. However, the district court reversed the decision and entered a judgment of acquittal, finding that this evidence did not prove that Dr. Paulus had made a false statement.

The district court concluded that the interpretation of the angiograms was “a subjective medical opinion, incapable of confirmation or contradiction,” noting that “interpreting angiograms is a difficult task” and that “cardiologists frequently disagree with one another.” Id. at 8. Therefore, the court reasoned, Dr. Paulus’s statements could never be false nor fraudulent.

The Sixth Circuit Explains that Jury Determines Whether Claims of Medical Necessity are False

The Sixth Circuit recognized that for a statement to be false, it generally must be a statement of fact, and opinions – when given honestly – are almost never false. Id. at 9. However, the court emphasized that opinions give rise to fraud “when they are not honestly held” or “the speaker knows of facts that are fundamentally incompatible with his opinion.” Id. Thus, while a doctor could never be convicted for misreading an angiogram, he could be prosecuted for repeatedly and systematically misstating the results of the angiograms he interpreted, as Dr. Paulus was. Id. at 10.

On appeal, Paulus and amici pointed to a number of studies showing wide variety in angiogram interpretation, claiming variability was so wide no reading could ever constitute a false statement. But, according to the Court, it is the role of a jury, not the judge to decide whether the doctor’s interpretation is an honest difference of opinion or fraud. This is true, even where the trial takes the form of a battle of the experts as it did in this case.

Paulus Refutes Other District Courts Decisions

The Paulus opinion rejects the reasoning of a number of misguided recent district courts that have held that issues of medical judgment can never form the basis for False Claims Act liability.

For example, in United States v. Aseracare, an Alabama court reversed a jury verdict in favor of the government and granted summary judgment to the defendant, concluding that hospice admissions determinations were an issue of subjective judgment and, when two clinicians “look at the very same medical records and disagree about whether the medical records support hospice eligibility, the opinion of one medical expert alone cannot prove falsity without further evidence of an objective falsehood.” U.S. ex. rel. v. AseraCare Inc., No. 12-00245, at *1-2 (N.D. Ala. Mar. 31, 2016), Eleventh Circuit Decision (11th Circ.).

Similarly, in U.S. ex rel. Polukoff v. St. Mark’s, No. 16-00304 (Jan 17, 2017 D. Utah), on appeal No. 17-4014 (10th Circ.), the court dismissed a complaint alleging that the physician performed surgical procedures that were not medically warranted.

Department of Justice Pushes Back Against Argument that Medical Necessity Statements Cannot Be False

The Department of Justice is already relying on Paulus to push back on both of these opinions by filing letters with the appeals courts in the 10th and 11th Circuits explaining that the Sixth Circuit decision reserves for the jury, not the judge the determination about when a statement of medical judgment is true or false. In response, the defendants submitted with letters of their own.

Whistleblowers and attorneys who have been keeping a watchful eye on this issue have renewed ammunition with Paulus. While there undoubtedly are cases where good faith judgment should not result in a prosecution for false statements, there cannot be blanket immunity for all statements involving an exercise of judgment—to do so would open the floodgates to fraud.

Above all, knowing when the facts articulate a viable medical necessity case is critical issues for attorneys and whistleblowers evaluating the merits of a potential FCA case. It requires a strong understanding of the law, the practice of medicine, and trial practice.

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