News/Resources: Blog

Some laws are just too confusing to be broken, or so sayeth the Sixth Circuit Court of Appeals in United States v. Renal Care Group, Inc., et al. And in reading the Court’s decision, it turns out patients and insurers aren’t the only ones confused by Medicare reimbursement rules.

Our tale begins with one Renal Care Group, Inc. (“RCG”), a medical company providing dialysis treatments to Medicare-eligible patients at over 240 facilities nationwide. At first RCG provided the dialysis and supplies, got reimbursed for them, and all was well. Then, in 1994, Congress amended Medicare reimbursement rules to award higher payments for dialysis treatments provided by “supplier[s] of home dialysis supplies” whose home treatment is “not under the direct supervision of an approved provider of services or renal dialysis facility.” Did we read that correctly? Providing direction supervision of an approved provider of services gets less money than not providing that supervision? Three years after the change, a light bulb went on over the head of RCG’s director of material management. “Why not form a wholly-owned subsidiary to supply the same materials we use to people at home and get paid more from the government?” Thus, the Renal Care Group Supply Company (“RCGSC”) was born.

Now, RCGSC provided the supplies, the money was swept into RCG’s corporate account every night, and business was even better. But all was not well. In 1999, one of RCG’s officers resigned in protest, stating in an email that the RCGSC setup was not in the best interest of patients, was illegal, and that he “[did] not wish to go to jail…” (Who does?) In response, RCG commissioned its outside counsel to evaluate the legality of its setup, as well as requesting opinions from the Office of Inspector General and the Health Care Financing Administration, all of whom failed to provide any clear guidance. RCG’s business model came crashing down in 2005 when two former employees filed a qui tam action alleging RCG had violated the False Claims Act by structuring Medicare payments through the mere “billing conduit” of RCGSC.

After some procedural wrangling, the district court granted summary judgment for the government on all six of the government’s claims, and awarded more than $82 million in damages. RCG appealed. On review, the Court of Appeals delivered a near-total victory for RCG, granting summary judgment to the defendant on the main False Claims Act counts and remanding the other four counts for re-consideration. In its decision, the Court of Appeals kept returning to two main themes: i) the Medicare statutes were unclear, and ii) RCG had tried, albeit unsuccessfully, to figure them out.

The Court of Appeals expressed grave doubts that the “falsity” element of the False Claims Act had been satisfied just because RCG found a way to “maximize profits,” and further emphasized that the subsidiary supplier method did not run afoul of any identifiable legislative interest. Furthermore, the government had failed to prove the “knowledge” element or that RCG recklessly disregard the relevant statutes. The Court found that Medicare statute was ambiguous and that the defendant’s inquiry into the legality of the RCGSC setup was proof that it had not recklessly disregarded the law. The Court of Appeals tartly summed up the case by stating, “[t]he False Claims Act is not a vehicle to police technical compliance with complex federal regulations.” That declaration will be welcome news for the many businesses attempting to comply with complex federal regulations at the same time they work to maximize profits. Blogs