In Polansky v. Exec. Health Res., Inc., No. 12-cv-4239, 2019 WL 5790061 (E.D. Pa., Nov. 5, 2019), the district court granted the U.S. government's motion to dismiss the complaint filed in a seven-year-old FCA case because of the litigation burden the government would suffer, and on the court's own volition, it also granted summary judgment to the defendant. In the court's decision, it addressed 1) the split between the federal circuit courts as to the scope of discretion it has to dismiss an FCA case where it has not intervened; 2) the application of the federal Administrative Procedure Act (APA) to Medicare billing policies and 3) whether a violation of billing guidance meets the test of materiality to support an FCA case.

The case was filed in 2012 by the relator, who claimed that the defendant (a physician advisor company) had committed fraud by exploiting the difference in reimbursement rates for inpatient and patient services. According to the relator, the defendant billed for inpatient services when these services should have been billed as outpatient, which caused the government to overpay. The government declined to intervene in 2014 after the plaintiff amended the complaint twice. The government notified the parties and the court that it intended to dismiss the case on Feb. 21, 2019, because of burdensome discovery from the parties. After some discussions with the plaintiff, the government decided not to dismiss the case if the plaintiff narrowed his claim, which would narrow the discovery. The plaintiff filed a third amended complaint to purportedly comply with the government's request. The government determined that the third amended complaint did not narrow the issues. The result was that the government remained subject to significant discovery requests.

Under 31 U.S.C. §3730(c)(2)(A), the government retains control over false claims cases and may dismiss them. The statute does not provide a specific standard for courts to use when considering a motion to dismiss. As a result, the circuit courts have split on their interpretation. One group believes the government must show a rational relationship to the decision to dismiss, and the other group believes the government has unfettered discretion. Under the rational relationship standard, the government must show that it has a valid purpose supporting the dismissal and that there is a valid relationship between the dismissal and accomplishment of the asserted purpose. If the government meets this test, the plaintiff can rebut it by showing the decision was arbitrary and capricious or illegal. Under the unfettered discretion standard, the government may dismiss the false claims case for any reason.

The Polansky court held that it was not required to pick because the government met both standards. The court determined that the government's decision to dismiss met the rational relationship standard because the litigation burden was not justified and the dismissal would address it. The court found that the government showed the costs of monitoring the case, handling discovery and preparing government witnesses for deposition were all costs that would be avoided by dismissal. The court then rejected the plaintiff's argument that the government's decision was arbitrary and capricious or illegal, noting that the plaintiff had not reduced the scope of the claims or the discovery burden as he promised.

The court also granted summary judgment to the defendant and ruled the parties had sufficient notice that the court could do so without any motion. The court, citing the U.S. Supreme Court decision in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019), held that the two-midnight rule that the plaintiff claims was violated by the defendant and was a substantive legal standard (not just a procedure or informal guidance) that should have been adopted through APA rulemaking. The court held that since the rule was not formally adopted, any argument that it was violated was made invalid. Thus, the defendants cannot be subject to a false claims case thereunder. Finally, the court determined that compliance with the rule was not material to the government's decision to pay.

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