Claims Against Healthcare Providers in New Mexico Survive Summary Judgment (Part II-Materiality and Scienter)

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This is Part II of a three-part series summarizing the court’s summary judgment ruling in United States ex rel. Baker v. Community Health Systems, Inc. (D.N.M. May 16, 2014). In this post, we focus on the court’s analysis of the materiality and scienter elements. A description of the history of the case can be found here, and a summary of earlier parts of the decision is here.

Materiality: Both sides in Baker filed cross-motions on the question of whether the allegedly false claims by New Mexico were material to the federal government’s decision to reimburse the hospitals under the Medicare program. “False claims are material if they have a tendency to influence or are capable of influencing agency decision making.” (citing United States ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189, 1200 (10th Cir. 2006)). Basically, if the government would have made the payments even if it had known about the alleged false statements, then the statements are not material.

Since both sides submitted adequate evidence tending to show that New Mexico’s submission of the form reporting donations was and was not material, the court denied the parties’ cross-motions for summary judgment. Some evidence suggested that the allegedly false statements had no effect on the Centers for Medicare & Medicaid Services’ (CMS) payment decision, while other evidence suggested the opposite. As a result, the court ruled the matter was for a jury to resolve.

Scienter: The defendants moved for summary judgment, arguing that (1) they did not act knowingly, as that term is defined by the False Claims Act (i.e., with actual knowledge, reckless disregard, or deliberate ingnorance), (2) they relied in good faith on the advice of a New Mexico official, and (3) the federal government was aware of the donations and their circumstances.

The defendant hospitals presented significant evidence showing that they did not know how the state was reporting the donations and that they relied on the advice of a senior official at the New Mexico agency responsible for administering Medicaid.

While the court previously held the defendants could not rely on the standalone affirmative defense of government knowledge, the court had permitted the parties to use the government’s knowledge to negate the scienter element. In order to use the government’s knowledge to negate scienter, “a defendant must show that it was so ‘forthcoming’ and cooperative in disclosing the relevant facts to the Government that the defendant could not have known that its conduct was improper.” (citing Burlbaw v. Orenduff, 548 F.3d 931, 949 (10th Cir. 2008)). Consistent with this ruling, the defendants presented substantial evidence demonstrating that CMS was aware of problems with New Mexico’s reporting of the donations for years before it took any action to defer funding or otherwise avoid making impermissible payments.

The plaintiffs countered with significant evidence tending to show the defendant hospitals were aware that their donations were linked to Medicare funding and that they made the donations to help New Mexico pay the state portion of the Medicare funding, which then triggered the federal payments. As with the other legal elements, the court determined that the evidence presented a genuine conflict that would have to be resolved by the jury.