Previously in United States ex rel. Baker v. Community Health Systems, Inc. (D.N.M. May 16, 2014), the court partially granted summary judgment in favor of the government, holding that the defendants lacked the evidence necessary to prove a good-faith reliance defense but permitting them to proceed with a government-knowledge defense (a decision reported here earlier).
More recently, the court sustained the intervened claims against a summary judgment motion from defendants challenging the government’s ability to prove the essential elements of its case, including falsity, materiality, scienter, and causation. (The plaintiffs cross-moved on falsity and materiality, which was also denied.) However, the court did dismiss the plaintiffs’ non-intervened claims.
Although the fraud allegations are complex, the crux of the allegations are that the defendant hospitals caused New Mexico to submit false statements to the federal government as part of the Medicaid program—which is a program jointly funded by the states and the federal government—because the reports included donations made by the hospitals to the state. The complaint alleges that because these donations had a “direct or indirect relationship” to the Medicaid payments received by the hospitals from the Medicaid program, they should not have been counted as part of New Mexico’s contribution to the Medicaid program.
Falsity: The Tenth Circuit follows the conventional recognition of two types of false claims: “factually false claims and legally false claims.” (citing United States ex rel. Conner v. Salina Regional Health Ctr., Inc., 543 F.3d 1211, 1217-18 (10th Cir. 2008)). The Tenth Circuit likewise recognizes both “express [and] implied certification[s] of compliance with a statute, regulation, or contract provision that is a condition of Government payment” as basis for legal falsity. (citing id.) In Baker, the plaintiffs alleged both factual and legal falsity.
On the issue of falsity, the court applied a test set forth in the applicable regulations (43 CFR § 433.54(c)) to determine whether the defendant hospitals’ donations were directly or indirectly related to their receipt of Medicaid funds. The court held that numerous pieces of evidence were sufficient to raise a triable issue of fact, including numerous statements from representatives of defendant hospitals and the counties tying the donations to Medicaid payments. While the court acknowledged defendants had voluminous evidence suggesting that any reporting error to the federal government about the donations was wholly the state’s, the court found the evidentiary contradictions sufficient to warrant a jury trial.
Of note, the court never resolved whether the evidence would support either or both theories of falsity alleged: factual or legal. On its face, this appears to be yet another case where the analytical dichotomy between different “types” of fraud—“legal falsity” versus “factual falsity”—does more harm than good. The distinction between factual falsity and legal falsity has no analog in traditional fraud concepts and is nowhere found in the text of the False Claims Act. Doctrinal categories should aid analysis and decision making, but often it appears the factual versus legal falsity distinction serves to obfuscate rather than illuminate.