Appellate Ruling in Care Alternatives FCA Case May Set New Precedent

A recent court decision in a False Claims Act (FCA) case involving hospice provider Care Alternatives may set a precedent that could influence similar cases.

The U.S. Department of Justice (DOJ) is pursuing a qui tam lawsuit against Care Alternatives Inc., doing business as Ascend Health, for alleged False Claims Act (FCA) violations. The case has been meandering through federal district and appellate courts since 2008.

The new ruling by the third circuit U.S. Court of Appeals indicated that incomplete or inaccurate medical records, including documentation errors, may establish materiality in an FCA litigation.


“Materiality” generally means a misstatement or misrepresentation could have influenced Medicare’s decision to pay or deny the claim.

“Insofar as compliance with [documentation requirements] cannot be divorced from issues surrounding substantive eligibility, a jury might consider that reality in assessing materiality,” appellate judges wrote in their decision. “For purposes of appellate review, we acknowledge that some of [ U.S. Supreme Court precedent Universal Health Services v. United States, ex rel. Escobar’s] factors ‘could support a materiality finding’ not because the evidence definitively points towards materiality — it does not — but because on this record, a reasonable jury could conclude that Care Alternatives’ alleged violations were material.”

“Escobar” was an FCA case in which the U.S. Supreme Court ruled in favor of the plaintiff in 2016.


The materiality issue is key, because it conflicts with a 2021 district court finding in favor of Care Alternatives. In that ruling, New Jersey U.S. District Judge Juan Sanchez concluded that plaintiffs did not establish materiality.

“Upon review of the record, the Court concludes that Plaintiff-Relators have again failed to produce sufficient evidence to create a genuine issue of material fact on the element of materiality,” Sanchez wrote in his decision. “Summary judgment will therefore again be entered in favor of Care Alternatives.”

That decision followed several years of various courts overturning each other’s rulings, and the Supreme Court’s refusal to hear the case. The current appellate case seeks to overturn that ruling.

The litigation first arose in 2008 when four former employees of Care Alternatives filed a qui tam complaint alleging that the New Jersey-based company billed Medicare for hospice services when patients were not eligible to receive them.

In a qui tam action, a whistleblower, called a “relator” by the courts, files a False Claims Act suit on behalf of the government and possibly receives a portion of any funds recovered by the government via the lawsuit, typically ranging from 15% to 25%.

Additional allegations of hospice fraud came the following year in November 2009, when the U.S. Department of Health & Human Services (HHS) Office of the Inspector General (OIG) subpoenaed Care Alternatives for allegedly altering the medical records of 112 patients, along with allegations of violating the anti-kickback statute. OIG raised questions around a variety of its corporate policies, internal documents, physician-based hospice certifications and employee emails.

In the current appeal, according to the plaintiff’s attorneys, the District Court should have considered evidence that was relevant to whether Care Alternatives complied with regulatory requirements, such as a terminal diagnosis from a certifying physician.

The recent appellate ruling underscores the critical importance of complete and accurate documentation, according to Lyndsay Medlin and Virginia Wright, lawyers with the firm Bradley, Arant, Boult, Cummings LLP.

“Courts have long held that there is no FCA liability for mere clerical errors,” Medlin and Wright wrote in a JD Supra blog. “Nonetheless, although the Eleventh Circuit and the Third Circuit diverge when it comes to how physician judgment can be false and what documentation is required to ‘support’ a physician certification, both courts have now found that whether or not deficient medical records are mere clerical errors may be a question for the jury to decide.”

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