June 30, 2017

District Court Gives Short Shrift to Payment Terms in Recent Brookdale Decision

By Molly Knobler and Rosie Dawn Griffin

A recent district court decision from the Middle District of Tennessee serves as a reminder that qui tam relators would be wise to ferret out and include in their filings examples of any instances in which the government has taken enforcement action against companies involved in the type of misconduct they allege. It also underscores the point that courts must remember that the government has to pick and choose what malfeasance to pursue. 

The case, United States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., concerns a whistleblower’s allegations that Brentwood, Tennessee-based Brookdale Senior Living improperly billed Medicare for assessments and submitted claims for home health services in the absence of proper certification of medical necessity. The district court dismissed the case on a finding that Brookdale’s violation, admittedly “a condition of payment,” was not sufficient to render Brookdale’s alleged malfeasance material under Escobar.

While Escobar provides that a regulatory requirement’s status as a condition of payment is not automatically dispositive of materiality, the case continued the tradition of treating explicit regulatory restrictions on payment as a key factor in evaluating materiality. The court in Brookdale gave the significance of this requirement at best a slight nod, finding that the explicit requirement weighed only “somewhat in [Relator’s] favor.”

In contrast, although the court correctly cited Escobar’s standard regarding the government’s continued payment despite actual knowledge of a violation—i.e., that it is “strong evidence” of materiality—the court seemingly treated this factor as all but dispositive, devoting no meaningful analysis to Relator’s additional evidence of government interest in enforcing the provision at issue. Escobar counseled that materiality is not too fact-intensive to be judged at the motion to dismiss stage, but the court must take the plaintiff’s allegations as true.  We are not convinced that the court properly followed that standard here.

An agency’s decision to continue to pay a suspected or known fraudster invariably arises in circumstances that make it extremely difficult to judge whether the government’s action, or inaction, meaningfully reflect whether the violation was material to payment. Is CMS truly to be expected to halt payment for necessary medical services for home-bound seniors and disabled persons every time it learns that the company servicing those individuals has violated its rules, even material ones? Is the DOD to stop making payments to its distributor of food overseas when it discovers it is being overcharged? To find that a cheating company will only be held liable for cheating the government when its violation is so obscene as to halt the ceaseless mechanism that is the administrative state ignores the real world circumstances in which these contracts exist.

Additional commentary on the district court’s decision by Constantine Cannon attorneys Molly Knobler and Rosie Dawn Griffin can be read here.

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