CLIENT ALERT: Ninth Circuit Affirms That a Good Faith Interpretation of a Regulation Negates the Scienter Necessary to Establish a False Claims Act Violation

    23 September 2009

    In a False Claims Act action involving Medicare’s somewhat arcane “incident to” billing rules, the Ninth Circuit affirmed the grant of summary judgment for the defendants notwithstanding the existence of factual issues regarding defendants’ compliance with those rules in certain instances. The appellate court based its ruling on defendants’ good faith interpretation of the regulations, which foreclosed the possibility that defendants “knowingly” submitted false claims, as required under the False Claims Act (FCA).

    This whistleblower, or qui tam, suit under the FCA, was initiated by Dr. James Lockyer against his employer, Kauai Medical Clinic (KMC), KMC’s corporate parent, Hawaii Pacific Health and two affiliated entities (“the corporate defendants”), and KMC’s CEO, William A. Evslin, M.D. The complaint, in which the United States intervened, alleged that Lockyer’s Medicare provider number was fraudulently used by KMC to bill for chemotherapy that Lockyer neither administered nor supervised. Dr. Lockyer also alleged that defendants retaliated against him for gathering information about KMC’s alleged fraudulent billing activities. Defendants prevailed on summary judgment in the United States District Court for the District of Hawaii and on appeal in the United States Court of Appeals for the Ninth Circuit because: (1) KMC had complied with the “incident to” regulations, except possibly on three occasions; (2) even if KMC had failed to comply on those three occasions, the noncompliance was not “knowing,” a necessary element of an FCA violation; and (3) KMC did not unlawfully retaliate against Dr. Lockyer. The corporate defendants were represented in the district court and in the court of appeals by Harry R. Silver and Susan Baldwin Hendrix of Patton Boggs LLP. United States ex rel. Lockyer v. Hawaii Pacific Health, 490 F.Supp.2d 1062 (D. Hawaii 2007), aff’d 2009 WL 2700321 (9th Cir. 2009).