Medical Judgment v. Objective Falsity: Hospitals Must Defend FCA Action Over Disputed Medical Necessity Claims Related To Physician’s Medical Judgment

In a decision that all hospitals should be aware of, on July 9, 2018, the Tenth Circuit reversed a lower court’s dismissal of a False Claims Act case against a physician and two hospitals based on allegations that the physician’s procedures were not medically necessary or reasonable.

The decision hinged largely on whether or not a physician’s “medical judgment” was sufficient to defend against an allegation of objective falsity. For hospitals, the decision raises the disturbing specter that they may be expected to know that a physician’s medical judgment is leading to false claims even before the medical staff completes an investigation of any concerns.

In US ex rel. Polukoff v. St. Mark’s Hospital et al., a physician brought a whistleblower action alleging that a fellow physician, Dr. Sorensen, performed medically unnecessary heart procedures and that two Salt Lake City hospitals were complicit in, and profited from, the physician’s fraud. From 2002 to 2011, Dr. Sorensen allegedly performed thousands of heart procedures at the two hospitals based on his belief that the procedures would cure migraines and prevent strokes. The whistleblower argued that these procedures were not medically necessary, relying on guidelines from the American Heart Association and American Stroke Association indicating that the procedures are only medically necessary in limited circumstances involving recurrent stroke. Of note, one of the two hospitals promptly took steps to address concerns raised about the physician’s practice, including conducting an investigation that ultimately led to Dr. Sorensen’s suspension of medical privileges and his voluntary resignation from the medical staff.

In January 2017, the district court dismissed the suit, concluding that allegations that a physician failed to comply with an industry standard of medical care do not satisfy the objective falsity standard necessary to support an FCA claim, as medical judgments where reasonable minds may differ cannot be considered “false” for the purposes of an FCA claim. But the Tenth Circuit Court of Appeals reversed the dismissal, holding that the whistleblower adequately pled that both the physician and the hospitals engaged in fraudulent conduct.

District Court Decision: Differences in Medical Opinion Do Not Satisfy the FCA’s Falsity Standard

In the decision in the district court noted that Medicare has not issued specific guidance on the heart procedures at issue and concluded that “a mere difference of opinion between physicians, without more, is not enough to show falsity.” The district court also rejected the whistleblower’s reliance on the AHA/ASA guidelines, stating that Medicare does not require compliance with industry standards as a prerequisite for payment.

Moreover, the district court determined that general allegations that the hospitals “knew” about Dr. Sorensen’s performance of heart procedures to treat migraines and prevent strokes are not sufficient. The court dismissed the claims against one of the hospitals for lack of particularity, because the whistleblower failed to identify a “managing agent” of the hospital that knew about the alleged fraudulent scheme. The district court granted the defendants’ motion to dismiss with prejudice and denied the whistleblower’s motion for leave to amend.

Court of Appeals Disagrees; Medical Judgement Can Be False and the Hospitals Were Alleged to Have Acted With Reckless Disregard

The Tenth Circuit Court of Appeals rejected the district court’s position that medical judgement cannot serve as a basis for an FCA claim. The court found that the whistleblower adequately pled that Dr. Sorensen submitted false claims based on allegations that:

  1. Dr. Sorensen performed an unusually high volume of the procedures; 
  2. Performing the procedures to prevent strokes or treat migraines violated both industry and hospital guidelines; 
  3. Other physicians objected to Dr. Sorensen’s practice; 
  4. One hospital eventually investigated Dr. Sorensen’s practice and found that it violated hospital guidelines; and 
  5. Dr. Sorensen knew that federal health care programs would not pay for these procedures to treat migraines so he represented that the procedures were performed based on indications set forth in the AHA/ASA guidelines for strokes.

The Court of Appeals also flatly rejected the district court’s “managing agent” theory. Instead, the court held that the hospitals are responsible for the knowledge of their employees acting within the scope of their authority. The court also held that the amended complaint adequately alleged that the hospitals acted with reckless disregard as to whether Dr. Sorensen’s procedures were medically necessary, specifically citing the allegedly “excessively large number of profitable” heart procedures performed by Dr. Sorensen for the hospitals and the allegation that at least one hospital for years ignored the “loud objections” of its medical staff and leadership.

The Tenth Circuit therefore reversed the district court’s dismissal of the hospitals from the FCA suit and remanded the case back to the lower court for further proceedings.

Hospitals in a No-Win Situation 

Typically, a hospital’s medical staff has the responsibility to credential and monitor the appropriateness of the clinical services rendered by physician members. If there is an issue with a physician related to medical necessity or quality of care, the medical staff independently investigates the issue and recommends appropriate action as to that physician. In this case, at least one of the medical staffs did, in fact, investigate Dr. Sorensen’s procedures, leading to his ultimate suspension and resignation. The question a hospital may face is whether those actions were timely enough. In other words, at what point do complaints about a physician’s practice rise to the level of “knowledge” or “reckless disregard for the truth?”

Whistleblowers, as a result of this decision, seem to have a low bar to plead an FCA case against a hospital where a physician may have performed medically unnecessary procedures. Apparently, such whistleblowers need not allege specific knowledge by the hospital of whether the physician performed any medically unnecessary procedures. Instead, general allegations of complaints about a physician by colleagues and information on the number and type of procedures performed by that physician is sufficient to demonstrate “reckless disregard” on the part of hospital in the submission of claims to Medicare and other government payers. As a result, the hospitals will likely remain in the case and each will need to prove at trial that its cumulative conduct does not support a finding of actual knowledge or reckless disregard in its actions.


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