- November 21, 2023
- Alerts
Second Circuit Decision Undercuts Lawsuits Against NYS Nursing Homes
During the past year, the New York Attorney General (AG) has brought five cases against nursing homes alleging poor care and seeking, among other things, tens of millions of dollars in restitution for what the AG alleges is Medicaid and Medicare Fraud. A common thread among these cases has been the AG’s theory that Medicaid and Medicare reimbursement payments to a nursing home remain government funds even after they are paid to the nursing home, and that the nursing home therefore has a legal obligation to spend those funds on patient care. The nursing homes’ failure to spend all of the Medicaid and Medicare reimbursement funds they receive on patient care, including using the reimbursement funds to pay rent to a related party landlord, according to the AG, constitutes Medicaid and Medicare fraud.
The U.S. Court of Appeals for the Second Circuit decided United States ex. rel. Quartararo v. Catholic Health Services, et al., No. 21-1534, 2023 WL 6798610 (2d Cir. Oct. 16, 2023), holding that while nursing homes have a general obligation to adequately care for their residents, there is no specific requirement that nursing homes use Medicaid or Medicare reimbursement payments in a certain way because such payments are reimbursements for services already provided to residents, and do not contain “forward-looking conditions” on how the funds must be used. This important decision significantly undermines the AG’s novel theory of Medicaid and Medicare fraud, which is a centerpiece of its recent litigation strategy.
In Quartararo, the Plaintiff alleged that the defendants committed Medicaid and Medicare fraud when they used reimbursement payments to pay what the Relator alleged were inflated charges from related parties, diverting that money away from the nursing home and its residents. According to the Relator, the Nursing Home’s payments to related parties violated a federal statue which makes it a crime for a person “having made application to receive [a federal health care program] benefit or payment 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 person.” 42 U.S.C. § 1320a-7b(a)(4). Likewise, in at least several of the Petitions recently filed, the AG accuses nursing home owners and others of violating 18 N.Y.C.R.R. § 515.2(b)(4), a regulation prohibiting the conversion of Medicaid payments “to a use or benefit other than for the use and benefit intended by” the Medicaid program.
The Second Circuit rejected this argument and opined that this use of reimbursement payments “could not have violated the Benefits Conversion Statute” because the statute cannot apply to government payments that are not specifically “for the use and benefit of another,” such as Medicaid and Medicare reimbursement payments, because they constitute reimbursement for past services rendered and are not required to be “used to confer a future benefit upon any person.” As the Court explained, a nursing home is reimbursed a set daily dollar amount for care provided to a Medicare or Medicaid patients based upon “after-the-fact claim forms.” The Court pointed out that reimbursement claim forms “imposed no forward-looking conditions as to how the Nursing Home had to use the funds” and there is no requirement that nursing homes certify that they will set aside the funds for certain purposes or individuals, or even the nursing home itself.
Although the Quartararo decision is good news for nursing home operators, particularly with regard to the ongoing enforcement actions, it does not mean that there are no rules at all governing reimbursement monies and nursing home spending, in general. For example, there are still laws governing the recoupment of overpayments, and as the Court in Quartararo pointed out, a “nursing home, like all residential health care facilities, has a general obligation to provide adequate care for its residents.” (citing NYCRR 10 § 415.1 et seq.). Further, there are more specific restrictions under New York law, including the 3% of revenue limit on equity withdrawals and the spending and profit limiting mandates that were recently enacted.
If you have questions regarding the full impact of the Quartararo on a decision on a regulated facility please contact the authors, Garfunkel Wild attorney with whom you usually work, or contact us at info@garfunkelwild.com.
The U.S. Court of Appeals for the Second Circuit decided United States ex. rel. Quartararo v. Catholic Health Services, et al., No. 21-1534, 2023 WL 6798610 (2d Cir. Oct. 16, 2023), holding that while nursing homes have a general obligation to adequately care for their residents, there is no specific requirement that nursing homes use Medicaid or Medicare reimbursement payments in a certain way because such payments are reimbursements for services already provided to residents, and do not contain “forward-looking conditions” on how the funds must be used. This important decision significantly undermines the AG’s novel theory of Medicaid and Medicare fraud, which is a centerpiece of its recent litigation strategy.
In Quartararo, the Plaintiff alleged that the defendants committed Medicaid and Medicare fraud when they used reimbursement payments to pay what the Relator alleged were inflated charges from related parties, diverting that money away from the nursing home and its residents. According to the Relator, the Nursing Home’s payments to related parties violated a federal statue which makes it a crime for a person “having made application to receive [a federal health care program] benefit or payment 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 person.” 42 U.S.C. § 1320a-7b(a)(4). Likewise, in at least several of the Petitions recently filed, the AG accuses nursing home owners and others of violating 18 N.Y.C.R.R. § 515.2(b)(4), a regulation prohibiting the conversion of Medicaid payments “to a use or benefit other than for the use and benefit intended by” the Medicaid program.
The Second Circuit rejected this argument and opined that this use of reimbursement payments “could not have violated the Benefits Conversion Statute” because the statute cannot apply to government payments that are not specifically “for the use and benefit of another,” such as Medicaid and Medicare reimbursement payments, because they constitute reimbursement for past services rendered and are not required to be “used to confer a future benefit upon any person.” As the Court explained, a nursing home is reimbursed a set daily dollar amount for care provided to a Medicare or Medicaid patients based upon “after-the-fact claim forms.” The Court pointed out that reimbursement claim forms “imposed no forward-looking conditions as to how the Nursing Home had to use the funds” and there is no requirement that nursing homes certify that they will set aside the funds for certain purposes or individuals, or even the nursing home itself.
Although the Quartararo decision is good news for nursing home operators, particularly with regard to the ongoing enforcement actions, it does not mean that there are no rules at all governing reimbursement monies and nursing home spending, in general. For example, there are still laws governing the recoupment of overpayments, and as the Court in Quartararo pointed out, a “nursing home, like all residential health care facilities, has a general obligation to provide adequate care for its residents.” (citing NYCRR 10 § 415.1 et seq.). Further, there are more specific restrictions under New York law, including the 3% of revenue limit on equity withdrawals and the spending and profit limiting mandates that were recently enacted.
If you have questions regarding the full impact of the Quartararo on a decision on a regulated facility please contact the authors, Garfunkel Wild attorney with whom you usually work, or contact us at info@garfunkelwild.com.