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Court finds that violation of condition of participation is not the basis for an FCA suit

March 2015
By Mary M. Bearden and Allison Shelton, Brown & Fortunato, P.C.

The U.S. District Court for the Middle District of Florida became the first court in the 11th Circuit to expressly hold that a violation of a condition of participation will not support a claim under the False Claims Act (FCA). On January 28, 2015, the district court held that a violation of a state licensure law could not serve as the basis for a FCA claim in U.S. ex rel. Ortolano v. Amin Radiology.

Charles Ortolano brought the case against his former employer, Amin Radiology. Located in Florida, Amin Radiology is a physician group that furnishes diagnostic tests. Ortolano is a certified nuclear medicine radiologic technologist. When he worked for Amin Radiology, he injected radioactive isotopes into patients undergoing combination PET/CT scans. Thereafter, general radiographers at Amin Radiology completed the scans. This practice was inconsistent with state law, however. State licensure rules permit only licensed or certified nuclear medicine technologists to conduct PET/CT scans in Florida.

Ortolano claimed that Amin Radiology violated the FCA because it billed Medicare, Medicaid, and Tricare for services that were furnished by unqualified personnel. At trial, the jury agreed with Ortolano. The jury found that Amin Radiology submitted 426 false claims and that these claims resulted in $490,138.31 in damages. Amin Radiology appealed the decision to the U.S. District Court for the Middle District of Florida.

The district court explained that two types of actions may result in violations of the FCA. First, when a provider submits claims that misrepresent the furnished services, the provider engages in actual fraud and violates the FCA. Second, if in order to receive reimbursement from a governmental program, a provider falsely certifies that it is in compliance with applicable laws, then the provider violates the FCA.

On appeal, Ortolano asserted that Medicare Part B only covers services that are medically necessary. He argued that because the PET/ CT scans were performed by unqualified personnel, the services were not necessary under the law. As a result, claims submitted by Amin Radiology were false. The district court disagreed. Ortolano failed to identify any federal requirement indicating that scans performed in physician offices must be conducted by personnel with the appropriate state licensure or certification. According to the court, the applicable federal regulations merely require that diagnostic tests be performed under the appropriate level of physician supervision. Thus, the court concluded that there was no evidence that the PET/CT scans were medically unnecessary. As a result, claims submitted by Amin Radiology were not per se false.

Ortolano argued that Amin Radiology certified that it complied with Florida licensing laws each time it submitted a claim. However, the district court found no evidence that Amin Radiology made an express certification of such compliance on any submitted claim or provider agreement with the federal health care programs. Ortolano further argued that the certification was implied when Amin Radiology submitted a claim.

The district court explained that, in order to prevail in a suit based on the implied certification theory, Ortolano had to show that compliance with state licensure requirements was a condition of payment rather than a condition of participation in the federal health care program. Citing the 10th Circuit Court of Appeals, the district court explained that “conditions of payment are ‘those which if the government knew they were not being followed, might cause it to actually refuse payment.’” Failure to comply with conditions of participation, however, results in termination of the provider’s enrollment in the health care program. “[V]iolations of a condition of participation do not form the basis of an FCA claim.”

Ortolano did not cite any authority providing that compliance with state licensure requirements is a condition of payment for the PET/CT scans. Furthermore, the district court highlighted that federal regulations governing diagnostic tests performed in physician offices do not address licensure requirements. Thus, the court concluded that licensure compliance in this case was, “at most, a condition of participation, and not a condition of payment. As such Mr. Ortolano’s FCA claim fails, and the jury’s verdict in favor of Mr. Ortolano cannot stand.” In reaching this conclusion, the district court followed the majority of courts that accept the implied false certification theory.

Not every federal circuit has accepted the theory that a false claim can arise from an implied certification of legal compliance. Courts in the 4th, 5th, and 7th appellate circuits either have refused to adopt the theory or have expressed views that are inconsistent with the theory. On the other hand, courts in the 1st, 2nd, 3rd, 6th, 9th, 10th, 11th, and D.C. circuits have accepted the theory. The majority of these courts have indicated that in order for a violation of the FCA to occur under the implied false certification theory, the provider must fail to comply with a legal prerequisite for payment. The district court in Ortolano joins this majority in finding that a violation of a condition of participation does not result in a violation of the FCA.