Blog provider Sidley False Claims Act escapes, contractor remains at Qui Tam alleging failure to comply with bad debt regulations

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Recently, the Seventh Circuit partially reversed a district court’s dismissal of a qui tam complaint alleging that debt collection agencies and their client hospital is liable under the FCA for the agencies’ failure to comply with Medicare’s “bad debt” collection requirements. See United States ex rel. Sibley v. University of Chicago Medical Center, no. 21-2610 (7th Cir. 11 August 2022). In reaching this decision, the court found that the reporters had sufficiently argued that reasonable collection efforts are important to the government’s decision to reimburse Medicare bad debts.

CMS reimburses Medicare providers for bad debts if a Medicare patient fails to make required deductible or coinsurance payments until Medicare providers first make reasonable efforts to collect those debts. See 42 CFR § 413.89. A supplier’s reasonable collection efforts must last at least 120 days after the issuance of the original invoice before a debt is written off as uncollected. If a supplier takes the appropriate action, they can seek repayment of their debts from CMS when submitting their annual cost report.

The reporters alleged that the defendant academic medical center knowingly avoided an obligation to reimburse the government after it actually learned that it had been reimbursed for non-conforming debts. Relations further alleged that two jointly owned companies that provide medical billing and debt collection services to healthcare providers – Medical Business Office Corp. (“MBO”) and Trustmark Recovery Services, Inc. (“Trustmark”) – caused the submission of false statements to the government by failing to comply with bad debt collection regulations.

The Complaint alleges that, through an audit, the University Medical Center Defendant learned that MBO had only one person working part-time to pursue his Medicare beneficiary debt, from which relationships conclude that the Defendant University Medical Center must have known that it was impossible for MBO to have engaged in reasonable collection efforts. By extension, the reporters allege that the defendant academic medical center knowingly avoided an obligation to reimburse the government for a bad debt claimed in its cost report. The complaint also alleged that MBO and Trustmark were responsible for causing their hospital customers to submit false statements.

In assessing these allegations, the panel first found that the district court properly granted the college medical center defendant’s motion to dismiss, because the parents failed to accurately plead under Rule 9 (b ), either that the defendant from the university medical center had an obligation to reimburse the government or that it knowingly failed to do so. In addition to failing to plead specific examples of patient debts that were incorporated into defendant’s University Medical Center cost reports as bad debts reimbursable by Medicare despite failure to meet regulatory requirements, the court found that the relationships had not sufficiently pleaded scientific. The reporters blamed a “knowing” failure to reimburse the government on the mere fact that the university medical center defendant knew that fewer MBO employees than expected were working on its debt collection. The panel pointed out that in order to conclude from this fact that the defendant from the university medical center knowingly violated the law, it was necessary “for the court to pile inference on inference”: first, the work of the two MBO employees pursuing the debt of the medical center university medical center defendant did not constitute “reasonable collection efforts”, secondly, the university medical center defendant did not (directly or indirectly) engage in additional collection efforts to complete MBO’s work, thirdly, this bad debt was submitted in a cost report to the federal government, and fourth, the government actually reimbursed the defendant academic medical center for this bad debt.

The panel also upheld the dismissal of the claims against MBO but reversed as to Trustmark. With respect to MBO, the panel found that the rapporteurs failed to provide the necessary representative examples and did not accurately plead “that fewer than nine full-time employees were unable to meet the requirements of the settlement”. However, the complaint included specific examples of patient debts assigned to Trustmark for collection that were written off as Medicare bad debts without reasonable collection efforts under 42 CFR § 413.89. The complaint also specifically described the alleged mechanics of this scheme, for example, Trustmark classified the debts as bad debts before the required period of 120 days had passed from the date of service, did not consider of having to send multiple statements to beneficiaries and skipped reviewing many debts entirely.

The court further explained that the rapporteurs had sufficiently pleaded materiality in accordance with Escobar in an effort to survive a motion to dismiss, as “it is hard to imagine the government knowingly and systematically reimbursing Medicare providers for so-called ‘bad debts’ that they did not actually attempt , in good faith, to recover”.

Although the claims against the supplier hospital were dismissed, the Seventh Circuit’s decision suggests that there may be circumstances in which suppliers are liable under the FCA for non-compliance by their debt collection agency. Medicare bad debt regulations. This may be particularly important for suppliers operating in circuits which, as noted heredo not require specific representative examples of misrepresentation.

A copy of the jury’s decision is available here.

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