Last week, EDNY Chief Judge Margo Brodie certified a False Claims Act (FCA) appeal to the Second Circuit.  In United States ex rel. Quartararo v. Catholic Health System of Long Island Inc., the district court found that defendants met the requirements for an interlocutory appeal of the denial of their motion to dismiss FCA misappropriation claims based on violations of a criminal statute governing conversion of benefits or payments under a Federal health care program.

FCA Relator Michael Quartararo, a nursing home administrator at a Catholic Health Services (CHS) nursing home, alleged that CHS had been improperly diverting the nursing home’s Medicaid funds.  Relator alleged that CHS charged the nursing home for medical, administrative, utility, and other costs that either had not been incurred or were overinflated.  These included laboratory costs, workers’ compensation costs, and salary for various staff members.

After lengthy motion practice, the only claims remaining were Relator’s FCA misappropriation claims and his own personal claim alleging retaliation.  In a July 2020 decision, the district court held that “Relator has articulated a viable implied-false-certification argument based on his allegations that Defendants violated section 1320a-7b(a) during a time they were submitting false Medicaid and Medicare reimbursement claims.”

42 U.S.C. § 1320a-7b(a)(4) is a criminal statute providing that “[w]hoever … having made application to receive any [benefit or payment under a Federal health care program] for the use and benefit of another and having received it, knowingly and willfully converts such benefit or payment or any part thereof to a use other than for the use and benefit of such other person” shall be guilty of a felony or misdemeanor.

The district court held that section 1320a-7b(a)(4) could serve as the basis for Relator’s FCA misappropriation claims.  Defendants argued that that criminal statutory provision could not, as a matter of law, serve as the basis for an FCA claim, and sought an interlocutory appeal.

Interlocutory appeals are disfavored in federal litigation.  To certify an interlocutory appeal, the district court must find that:

  • The order involves a controlling question of law,
  • As to which there is substantial ground for difference of opinion, and
  • An immediate appeal from the order may materially advance the ultimate termination of the litigation.

Judge Brodie first held that whether the misappropriation FCA claims may be pursued under section 1320a-7b(a)(4) is a controlling question of law that can be decided without the need to review a factual record.  The court found that the issue of whether defendants misappropriated funds is fact-driven, but the question of whether misappropriation claims may be pursued under that section in a FCA case is a pure question of law.  The district court concluded that if the Second Circuit held that section 1320a-7(b)(a)(4) cannot serve as a basis for Relator’s misappropriation claims, the FCA part of the case would be terminated.

Judge Brodie next addressed whether there was a substantial ground for a difference of opinion, which can exist when there is conflicting authority on an issue or when the issue is particularly difficult and of first impression in the Second Circuit.  The court noted that its case was the only one on this issue in the Second Circuit, and that substantial difference of opinion may exist as to the statute’s interpretation.  In addition, a resolution of the issue could have “broad-reaching ramifications for heathcare facilities.”

Finally, the court found that an immediate appeal may materially advance the ultimate termination of the litigation.  If the FCA claims were dismissed, Relator would still have his own retaliation claim, and that claim would have to be litigated.  The court concluded, however, that even though there may be overlap between the FCA and retaliation claims, a dismissal of the FCA claims would streamline discovery.  In addition, if the Second Circuit ruled for defendants on appeal, the action would be dismissed in substantial part.

The Second Circuit’s decision on this appeal will be interesting in two ways.  First, a decision that section 1320a-7b(a)(4) may serve as the basis for an FCA claim could lead to additional qui tam cases advancing that theory, and a decision on whether the appeal was properly certified will affect district court decisions on whether non-final FCA rulings, as well as those in other areas, should be the subject of interlocutory appeals.