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Court Rejects “Worthless Services” Case Against Nursing Home

August 27, 2014
HSE LEGALcurrents

Last week, in a rare bit of good news for skilled nursing facilities and other health care providers, a federal appeals court reversed a multimillion dollar False Claims Act judgment against a home and its owner. A jury, relying on poor survey results and episodic problems, had held the home liable for providing “worthless services.” The appellate court found insufficient evidence to support that verdict, succinctly explaining, “services that are ‘worth less’ are not ‘worthless.’”

Background

Skilled nursing facilities and other health care providers often receive substantial reimbursements from state and federal health care programs, including Medicaid and Medicare. Those reimbursements open providers up to triple damages and significant penalties under state or federal False Claims Acts for any false or fraudulent reimbursement claims. One popular False Claims Act theory is known as the “worthless services” theory. The theory’s premise is that billing the government for services that are so poor as to be worthless is the equivalent of billing while providing no service at all.

Two nurse whistleblowers pled the “worthless services” theory in a False Claims Act case concerning an Illinois 140-bed long term care facility called Momence Meadows. After investigating and reviewing the nurses’ case, neither the State of Indiana nor the United States of America decided to pursue the case. Instead, the nurses took the case to trial on their own, as the False Claims Act permits.

At trial, the nurses convinced a federal jury that Momence Meadows billed Medicaid and Medicare for “worthless services,” as the judge had defined that term. Significantly, the judge used the following illustration to explain the concept to the jury: “If Uncle Sam paid Momence 200 bucks and they only got $120 worth of value, [then] Momence defrauded them” under the “worthless services” theory. The jury applied that definition, and in light of evidence of seriously deficient surveys, episodes of infectious disease outbreaks and other problems at the home, returned a $22 million verdict.

“‘Worth less’ is not ‘worthless.’”

The appeals court tossed the verdict aside. It rejected the broad definition of “worthless services” provided by the trial judge, explaining, “It is not enough that the defendants provided services that are worth some amount less than the services paid for.” “Services that are ‘worth less’ are not ‘worthless.’”

The appellate court’s narrower definition foreclosed any “worthless services” case against Momence Meadows. Indeed, the court went so far as to call the nurses’ arguments “absurd.” As the court explained, the very survey results the nurses relied on to show seriously deficient services revealed that the government – which continued to provide reimbursements following those surveys – saw real value in the work provided. The court also pointed out that one of the whistleblower nurses testified that her own mother received “good” care at the home. While the nurses proved substantial problems existed at Momence Meadows, they never provided evidence or arguments to support the typical false statements liability. The court concluded that their evidence simply could not prove that the home’s services were truly worthless.

Conclusions

The Momence Meadows case promises some relief for health care providers anxious about crushing False Claims Act liability. The court’s decision is binding only in Illinois, Indiana and Wisconsin, but it may prove persuasive to judges considering cases in other jurisdictions. HSE continues to monitor important developments in this field.

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