California Federal Judge Tosses Claims Predicated On Star Ratings But Allows Kickback Claims To Proceed

In U.S. ex rel. Orten v. North Amer. Health Care, Inc., No. 14-cv-02401 (N.D. Cal. Nov. 9, 2015), a California district court recently denied a relator’s efforts to predicate the alleged manipulation of skilled nursing facility (“SNF”) CMS Star Ratings into a cognizable claim under the FCA, but allowed the relator to proceed with allegations that the CEO of the company directed a kickback scheme designed to create business.   The case reinforces established precedent that FCA suits cannot be based on regulatory violations that are not also conditions of payment.

More specifically, the Orten court concluded that the regulations governing star ratings do not require compliance as a condition for payment.  Instead, they are merely a system for state agencies “to determine whether [SNFs] are compliant or non-compliant with Medicare and Medicaid requirements.”  Important to the court’s ruling was that non-compliance with these regulations could lead to a variety of alternative remedies in place of a discretionary denial of payment.  Therefore, the court found, the relator had “at most” alleged fraud connected to participation in the FHCPs, “depending on the remedy the government decides on to address instances of non-compliance.”

A copy of the court’s opinion can be found here and a copy of the government’s statement of interest can be found here.