The DOJ recently intervened in a lawsuit against Prime Healthcare Services, Inc., and its subsidiaries (“Prime”).  The lawsuit alleges that Prime submitted claims for medically unnecessary services and routinely pressured its staff to exaggerate Medicare beneficiaries illnesses in order to increase the number of inpatient admissions and billed for services as inpatient admissions that should have been classified as outpatient or observation stays.

Over the past several years, there has been a surge in the number of FCA cases based on the submission of claims for medically unnecessary services. This uptick is based in large part on the prevalence and increased recognition of the implied certification theory—the legal theory under which medically unnecessary claims are most commonly brought.  As discussed in our previous article, the implied certification theory is based on the concept that every time a payee submits a claim to the government it has impliedly certified compliance with all contractual, statutory, and regulatory obligations, and therefore, is entitled to payment.  As previously mentioned, the United States Supreme Court recently heard oral argument in Universal Health Services v. U.S. ex rel. Escobar, a case challenging the validity of the implied certification theory.  We anticipate a ruling in Escobar in the upcoming weeks and expect that its holding will have a dramatic impact on the FCA landscape.

And while the Court’s ruling in Escobar could curtail the viability of medically unnecessary claims going forward, there is evidence suggesting that volume-based medically unnecessary FCA claims will diminish for independent reasons; namely, healthcare providers have become more incentivized to focus on the value-rather than the volume-of claims submitted for reimbursement.  Starting most notably with the Affordable Care Act’s implementation of accountable care organizations (“ACOs”), legislators and the healthcare industry as a whole have moved towards value-based, high quality care.  ACOs participating in Medicare’s Shared Savings Program (“MSSP”) have the opportunity to receive a portion of the savings the ACO generates by lowering the total cost of healthcare of its Medicare beneficiaries.  Consequently, these providers are less incentivized to submit false claims based on an excessive amount of services rendered.

These incentives can eliminate waste and serve to negate the implied presumption in FCA complaints that providers seek to produce a high volume of services and patients.  The complaint against Prime argues an alleged internal pressure to generate inpatient admissions and high-costing claims.  But even Prime has shifted its internal pressure to value, rather than volume, by implementing an ACO and participating in the MSSP – instituting a type of internal compliance department focused on eliminating wasteful spending.  Although the DOJ’s invention has received attention, the Court’s ruling in Escobar and providers’ new financial incentives could cause the current plethora of medically unnecessary FCA cases to diminish.

The author acknowledges and thanks Erin Dine, a rising 3rd year law student at Loyola University Chicago School of Law, for her help and support in the preparation of this post.