4th Circuit Finds Misrepresentations about Medical Necessity for Urinalysis Testing are Material

The United States Court of Appeals for the Fourth Circuit has affirmed a District Court’s judgment on a husband and wife’s health care fraud convictions.  The Appellate Court found that medical necessity was a “critical prerequisite to payment” and insurers would not have knowingly paid for medically unnecessary urine drug tests.

Joseph Webb and Beth Palin, husband and wife, had been convicted of billing Medicare and private insurers for unnecessary urine drug tests.  Palin owned Mountain Empire Medical Care, an addiction medicine clinic. Palin also owned Bristol Laboratories, which processed urine drug tests ordered by physicians at her addiction medicine clinic and elsewhere.  Webb assisted his wife in the operation of both of these facilities.  Bristol Laboratories performed two types of urine tests: a basic, inexpensive “quick-cup” tests and a more sophisticated and expensive “analyzer” test.   Most referring physicians did not designate a specific type of test.  Webb and Palin decided for them.  While uninsured patients received the “quick-cup” test, insured patients routinely received both the “quick-cup” and the “analyzer” test.  Bristol Laboratories billed both government payors and private insurers for the more expensive “analyzer” test.  After a bench trial, they were found guilty of health care fraud.  Once the Supreme Court issued their ruling in Escobar, however, the couple moved for an acquittal or a new trial.

The couple attempted to overturn their convictions by arguing that Escobar has established a new materiality standard that applies to all criminal fraud statutes.  They further argued that under the new standard, their misrepresentations were not material.  The 4^th Circuit Court disagreed that a new materiality standard has been established: “We do not believe the Supreme Court intended to broadly ‘overrule’ materiality standards that had previously applied in the context of criminal fraud. And we doubt the Court’s examination of how materiality applies under ‘implied false certification’ FCA cases transfers to all cases charging fraud, or even all cases charging health care fraud.”

Despite noting that they doubt that a new materiality standard applies, the 4^th Circuit panel considered the argument that a new standard had been established.  The Court found that there was ample evidence to show that the insurers would not have knowingly paid for medically unnecessary tests.  The Court then applied the Escobar materiality standard, stating, “If materiality ‘looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation,’ as provided in Universal Health, the misrepresentations here were material: insurers would not have paid for the sophisticated tests had they known those tests were unnecessary.”  The Court found that even if the Escobar standard applied, the couple’s misrepresentations were material.  Additionally, the Court found that any error on the part of the District Court was harmless because the verdict would have been the same absent the error.

All of Webb and Palin’s arguments fell short, and the 4^th Circuit affirmed their convictions for health care fraud.