The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we will take a closer look at recent legal developments involving the FCA. This week, we examine recent court decisions considering relators’ efforts to plead and prove falsity under the FCA by relying on a worthless services theory of liability.
The Seventh Circuit’s decision in U.S. ex rel. Absher v. Momence Meadows Nursing Center, Inc., 764 F.3d 699 (7th Cir. 2014), casts significant doubt on the “worthless services” theory of FCA liability. Following the Seventh Circuit’s ruling in Momence, courts have reaffirmed the high hurdle that relators must surmount in order to plead a “worthless services” claim under the FCA.
In U.S. ex rel. Bellevue v. Universal Health Services of Hartgrove, Inc., 2015 WL 5873292 (N.D. Ill. Oct. 5, 2015), the district court rejected the notion that requiring patients to sleep on cots in a dayroom results in services that are “worthless.” The district court explained that, absent allegations that failure to provide a personal room destroyed the effectiveness of the rest of a patient’s treatment, the relator could not state a claim for worthless services. In a prior ruling dismissing the original complaint, the district court stated “[i]t is not plausible to believe that the room Hartgrove is supposed to provide to such patients is more essential than the therapy they also receive.” Therefore, the complaint lacked any allegations “explaining why the deprivation of a room is so detrimental to a patient’s treatment that a claim for services provided to a patient should be considered false.”
In U.S. ex rel. McGee v. IBM Corp., 81 F.Supp.3d 643 (N.D. Ill. 2015), the district court dismissed a worthless services claim against Johnson Controls, Inc. (JCI) that alleged JCI had installed non-functional and unreliable equipment on mobile platforms (interoperable voice, data and video systems for municipal emergency vehicles). The district court concluded that “by alleging that some of the equipment was unreliable, [the relator] concede[d] that JCI provided something of value, even if unreliable.” The district court also concluded that JCI’s work on a separate phase of the project did not implicate the worthless services theory, where JCI failed to fix equipment that the relator deemed unfixable. Nonetheless, the district court did hold that JCI’s inability to “maintain” other equipment implicates the worthless services theory because the relator alleged that JCI had eliminated any value realized by the successfully installed equipment.