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What Does “Materiality” and “Scienter” Have to Do With the False Claims Act?

A Falsehood Must be Material to be Actionable

If a falsehood did not have any impact on whether the government decided to pay a benefit, then the falsehood is not material under the False Claims Act. As a corollary, a False Claims Act violation will not be deemed material if it is minor or inconsequential.  Rather, the violation is material if the government’s decision to make a payment was impacted by the false claim. 

Thus, if the government pays a particular claim in full if it knew (or didn’t care if) certain requirements were violated, then that is evidence that those particular requirements are not material.  By contrast, if a provider knows that the government will refuse to pay a claim when the provider fails to comply with certain requirements, then that is evidence that those requirements are material.

What is Scienter?

The term “scienter” is just the legal term for a person’s intent, or knowledge of wrongdoing.  The False Claims Act imposes liability on “any person who knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.”  Thus, a person cannot be punished under the False Claims Act unless the person was aware of his or her actions, i.e., acted knowingly under the law.

What is interesting about the term “knowingly,” however, is that it does not require “actual knowledge” of a falsehood.  The terms is broader than that.  The term also encompasses “deliberate ignorance,” or “reckless disregard” of the truth or falsity of the information.  In other words, a provider that sticks its head in the sand cannot avoid the reach of the False Claims Act.

Montcrieff Case Study

To better explain, let’s look at the case of United States ex rel. Montcrieff v. Peripheral Vascular Associates.

In Montcrieff, the Relators allege three types of false claims:

  1. Billing for services not yet performed. For the kind of vascular work done by the medical provider in Montcrieff, there are two steps – the testing phase and the interpretation phase.  The defendant in Montcrieff sometimes does both steps, sometimes just the interpretation step.  The Relator’s first allegation in Montcrieff is that for cases in which the defendant was only called on to do the second step, the interpretation phase, it would bill Medicare before it completed that step. 
  1. Double billing. With regard to this false claim, Relators allege that the medical provider was billing for both steps of a vascular study, but there lacked a separate report for each step, which Relators argue is required.
  1. Claims signed by the wrong physician. Because the defendant has a system that does not always identify the particular physician who treated a patient, Relators allege that the defendant submitted almost 2,000 claims that had the wrong physician’s signature.

Materiality and Scienter in Action

Revisiting the case of United States ex rel. Montcrieff v. Peripheral Vascular Associates, it is a real-world example of these False Claims Act concepts. 

The court found no question that the provider’s failure to provide the correct physician signatures for many patients’ tests was material, and thus a violation of the False Claims Act.

With regard to scienter, the Montcrieff court found that the provider had the requisite scienter (knowledge of wrongdoing) for purposes of the False Claims Act because the medical provider specifically abandoned its plans to correct its billing systems when it realized that the corrections would result in lower revenue.  That is, as noted, a perfect example of “deliberate ignorance” of possible false claims being made by the provider.

Conclusion

If you have further questions on this or any Healthcare Fraud subject, contact the Whistleblower Firm – Nolan Auerbach & White, LLP.  We have the experience and resources to protect healthcare fraud whistleblowers.  Contact us online, or by calling 800-372-8304 today.

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