Court Rules: Standard for Evaluating Reimbursement of Skilled Nursing Medicare Claims Was Material Improvement

A False Claims Act (“FCA”) lawsuit in Georgia was dismissed on March 31, 2015, after a federal district judge ruled that the government’s expert witnesses used the wrong standard to determine whether certain skilled therapy services were reimbursable under Medicare Part A (United States ex rel. Lawson v. Aegis Therapies, Inc., S.D. Ga., No. 2:10-cv-00072-LGW-RSB, 3/31/15). The U.S. District Court for the Southern District of Georgia granted a rehabilitation therapy company and skilled nursing facility summary judgment on this basis.

In April 2010, the relator, a former physical therapist for the rehabilitation therapy company, filed a FCA action against the rehabilitation therapy company alleging that it provided medically unnecessary skilled therapy services and billed the government for these services through Medicare.

The government intervened in March 2013 and filed its complaint against the rehabilitation  therapy company and a skilled nursing facility that contracted with the rehabilitation therapy company to provide therapy services to its residents. Like the relator, the government also alleged the provision of medically unnecessary services. For example, the government claimed that when the rehabilitation therapy company’s therapists would meet with nursing staff to prepare a patient’s plan of care, it was assumed that patients should receive skilled therapy services for the full period covered by Medicare.

During discovery, the relator testified that he was always under pressure to keep residents as long as Medicare would pay, especially if a patient was in the highest reimbursement level, referred to as a Resource Utilization Group (RUG). A manager also testified that the rehabilitation therapy company tracked RUG utilization and set benchmarks for billing patients at certain levels. The manager testified that the skilled nursing facility had upper RUG benchmarks of 75-80%, but that the benchmark was not a number that had to be reached.

The government also retained two expert witnesses, a physician and a nurse, who testified about their opinions of a “pattern of unreasonable and unnecessary therapy services.” In assessing whether the skilled therapy services were unnecessary, the experts reviewed patient files to see if there was documentation to support skilled therapy services that were expected to result in “significant” improvement.

The defendants argued that the plaintiff’s experts employed the wrong standard to determine whether the skilled therapy services were medically necessary because they based their conclusions on an expectation of “significant” improvement for those services.

The court agreed with defendants that the correct improvement standard for skilled therapy services in a skilled nursing setting under Medicare Part A was “material” improvement, and excluded the plaintiff’s expert testimony. In addition, the court ruled that simply having therapy benchmarks was not an indication of an intention to bill Medicare for unnecessary services, especially when there was no penalty for missing the benchmark.

To prevail on a FCA lawsuit, a plaintiff must prove an “objective falsehood.” Without the expert witness testimony, the judge said the defendants were entitled to summary judgment because there was no evidence of a specific fraudulent claim submission—objectively or otherwise.

The difficulty in proving that a statement of medical necessity is objectively false has not dissuaded whistleblowers from filing, or the government from prosecuting, FCA actions. This case presents an example of how careful examination of an expert’s methodology can provide an opportunity to dismiss a case on summary judgment.