7th Circ. Limits FCA 'Worthless Services' Theory

On Aug. 20, 2014, the Seventh Circuit struck another blow against relators’ and the federal government’s increasingly aggressive False Claims Act theories of liability. Rejecting the relators’ use of the “worthless services” theory, the court in United States ex rel. Absher v. Momence Meadows Nursing Center Inc., Nos. 13-1886 & 13-1936 (7th Cir. Aug. 20, 2014) overturned a $9 million jury verdict and cast doubt on the efforts to pursue similar cases in which a business allegedly provides services of diminished, but still some, value.

Background

Momence Meadows Nursing Center was a 140-bed nursing home facility based in Illinois. It served almost exclusively Medicare and Medicaid patients and received reimbursement on a flat per diem for each resident. To receive that reimbursement, Momence had to provide certain billing and care-assessment data for each patient, certifying its truthfulness and accuracy.

In 2004, the relators, both former nurses of the facility, filed a qui tam (or whistleblower) complaint alleging that Momence defrauded the government by providing substandard services to the patients under defendants’ care while seeking reimbursement for patient care of higher value. While still under seal, the complaint was amended multiple times through 2009. Eventually, the government declined to intervene and the district court unsealed the complaint.

Relators elected to press forward with the case, and it later proceeded to trial. At trial, relators presented evidence of a host of shortcomings and noncompliance at Momence relating to infection control, cleanliness, food and water temperature, administration, patient care and other issues. The jury ultimately ruled for relators, finding over 1,700 false claims and awarding compensatory damages over $3 million and fines of over $19 million. The district court entered judgment for the relators, which — after trebling the damages — resulted in an award of over $9 million. The court separately vacated the fines imposed by the jury based on the Eighth Amendment’s excessive fines clause.

Worthless Services Theory

On appeal, Momence advanced several arguments, most notably challenging the district court’s jury instructions based on relators’ worthless services theory of FCA liability. The relators filed a cross appeal challenging the vacating of the statutory penalties. Although the government had not intervened in the case, it filed an amicus curiae brief in support of the relators’ cross appeal.

The worthless services theory — adopted by the Second, Eighth and Ninth Circuits — allows a qui tam relator to bring claims for violations of the FCA premised on the theory that the defendant received reimbursement for products or services that were worthless. Unlike express or implied certification theories, which construe claims as “legally false” because they are...