Mikes v. Straus,

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

_______________

August Term, 2000

(Argued: May 23, 2001 Decided: December 19, 2001 )

Docket Nos. 00-6269, 00-6270

_______________

PATRICIA S. MIKES, U.S. Gov’t. Ex Rel., Patricia S.
Mikes,

Plaintiff-Appellant-Cross-Appellee,

v.

MARC J. STRAUS, JEFFREY AMBINDER, ELIOT L. FRIEDMAN,

Defendants-Appellees-Cross-Appellants.

_______________

Before: CARDAMONE, F. I. PARKER,
Circuit Judges, and SPATT*,
District Judge.

_______________

This appeal is taken from a judgment
entered August 7, 2000 in the United States District Court for the Southern
District of New York (McMahon, J.). Plaintiff appeals the district court’s grant
of summary judgment dismissing her complaint under the federal False Claims
Act, which alleged that the defendants requested Medicare reimbursement for
medical procedures performed in a substandard manner. Plaintiff also appeals
the district court’s award of attorneys’ fees to defendants, while defendants
cross-appeal the amount of the award.

Affirmed.

_______________



HAROLD R. BURKE, Greenwich, Connecticut (Holland Kaufmann & Bartels,
LLC, Greenwich, Connecticut, of counsel), for Plaintiff-Appellant Patricia
S. Mikes, M.D.

BARRY B. CEPELEWICZ, White Plains,
New York (David J. Meiselman, Arthur
G. Larkin, Meiselman, Denlea, Packman & Eberz, P.C., White Plains, New York,
of counsel), for Defendants-Appellees Marc J. Straus, M.D., Jeffrey M. Ambinder,
M.D. and Eliot L. Friedman, M.D.

GIDEON A. SCHOR, Assistant United
States Attorney, New York, New York
(Jeffrey Oestericher, Assistant United States Attorney, Mary Jo White, United
States Attorney for the Southern District of New York, New York, New York, of
counsel), for Amicus Curiae United States of America.

JESSIE K. LIU, Washington, D.C.
(Paul M. Smith, Robert M. Portman,
Jenner & Block, LLC, Washington, D.C., of counsel), for Amici Curiae
American Medical Association, Medical Society of the State of New York, American
Academy of Family Physicians, American Academy of Orthopaedic Surgeons, American
Association of Neurological Surgeons-Congress of Neurological Surgeons, American
College of Chest Physicians, American Society of Cataract and Refractive Surgery,
and Association of American Medical Colleges.

_______________

Anthony L. DeWitt, Jefferson City,
Missouri (Bartimus, Frickleton, Robertson
& Obetz, PC, Jefferson City, Missouri, of counsel), filed a brief for
the American Association for Respiratory Care as Amicus Curiae.

Amy M. Wilken, Washington, D.C.
(Dylan G. Trache, Taxpayers Against
Fraud, The False Claims Act Legal Center, Washington, D.C.; Bruce J. Terris,
Terris, Pravlik & Millian, LLP, Washington, D.C., of counsel), filed
a brief for Taxpayers Against Fraud, The False Claims Act Legal Center as Amicus
Curiae.

_______________

CARDAMONE, Circuit Judge:

On this appeal we review a complaint asserting
violations of the False Claims Act (Act), 31 U.S.C. §3729 et seq.
(1994), brought by a plaintiff employee against her former employers, who are
health care providers. The appeal raises issues of first impression in this
Circuit concerning the applicability of medical standards of care to the Act.

Congress enacted the False Claims Act after
disclosure of widespread fraud during the War-Between-The-States revealed that
the union government had been billed for nonexistent or worthless goods, had
been charged exorbitant prices, and had its treasury plundered by profiteering
defense contractors. See United States v. McNinch, 356 U.S. 595,
599 (1958). In 1986 the Act was substantially amended to combat fraud in the
fields of defense and health care. See S. Rep. No. 99-345, at 2-4, 8
(1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5267-73. As of February
2000 over half of the $3.5 billion recovered since that amendment derived from
cases alleging fraud against the Department of Health and Human Services. See
Shelley R. Slade & Thomas A. Colthurst, Health-Care Fraud and the False
Claims Act: The Supreme Court Supports a Federal Weapon, 10 Bus. L. Today,
Sept.-Oct. 2000, at 24, 27.

The Act contains a qui tam
provision designed to encourage private individuals to file suit by offering
them a percentage of any money recovered. Those persons bringing a qui
tam suit are known colloquially as whistle-blowers. The plaintiff in
this case purports to blow the whistle on those practices of her employers she
believes violate the Medicare statute, payment for which would defraud the government.
Regardless of whether such suit is successful or unsuccessful (and here it is
unsuccessful), a tale-bearer stands out, and risks being thought as bad as those
alleged to be the tale-makers.

BACKGROUND

A. Facts

In 1991 defendants Dr. Marc J. Straus,
Dr. Jeffrey Ambinder and Dr. Eliot L. Friedman, physicians specializing in oncology
and hematology, formed a partnership called Pulmonary and Critical Care Associates
to extend their practice to include pulmonology, the branch of medicine covering
the lungs and related breathing functions. In July of that year defendants hired
plaintiff Dr. Patricia S. Mikes, a board-certified pulmonologist, to provide
pulmonary and critical care services in defendants’ offices in Westchester and
Putnam Counties, New York. In September 1991 Mikes discussed with Dr. Straus
her concerns relating to spirometry tests being performed in defendants’ offices.
Three months later, plaintiff was fired.

The parties dispute the reason for Mikes’
termination. Plaintiff says she was fired because she questioned how defendants
conducted their medical practice. Defendants declare that Mikes’ employment
agreement provided she was terminable-at-will, and that plaintiff had difficulty
procuring privileges at area hospitals.

On April 16, 1992 Mikes commenced the instant
litigation against defendants in the United States District Court for the Southern
District of New York, asserting not only causes of action for retaliatory discharge
and unlawfully withheld wages, but also a qui tam suit under the
False Claims Act. She served the complaint on the United States Attorney who,
on April 19, 1993, notified the district court that it declined its statutory
right to substitute for Mikes in the prosecution of this litigation. See
31 U.S.C. §3730(b)(2), (b)(4)(B).

B. Prior Proceedings

Plaintiff’s qui tam cause
of action under the Act alleged that defendants had submitted false reimbursement
requests to the federal government for spirometry services. Plaintiff contended
that defendants’ failure to calibrate the spirometers rendered the results so
unreliable as to be "false" under the Act. In addition, Mikes averred
that spirometry is an eligible service under the Medicare statute, and that
defendants submitted Medicare claims for reimbursement during the period relevant
to this dispute ­- now said to be 1034 claims from 1986 through 1993 ­-
for a total Medicare payout of $28,922.89.

After the government declined to take over
as plaintiff, Mikes served defendants with her complaint on December 22, 1993.
District Court Judge Vincent L. Broderick, before whom the complaint was then
pending, dismissed it in May 1994 finding fraud had not been pleaded with particularity
as required by Fed. R. Civ. P. 9(b). See United States ex rel. Mikes
v. Straus, 853 F. Supp. 115, 118 (S.D.N.Y. 1994).

Mikes then filed an amended complaint repeating
the spirometry, retaliation and withholding wages claims, and also asserting
that defendants improperly received Medicare reimbursement for referrals to
Magnetic Resonance Imaging (MRI) facilities in which they held a financial interest.
It was Mikes’ contention that receipt of these referral fees violated the anti-kickback
provision of the Medicare statute, 42 U.S.C. §1320a-7b(b)(1) (1994), and
thus defendants’ claims for reimbursement for the MRIs also violated the False
Claims Act. District Court Judge William C. Conner, now assigned to the case,
denied a motion to dismiss the False Claims Act causes of action, and ordered
arbitration of the employment-based claims. See United States ex rel.
Mikes v. Straus, 889 F. Supp. 746, 751-57 (S.D.N.Y. 1995).

Mikes then filed in March 1996 a second
amended complaint that eliminated the claim for improperly withheld wages, and
on July 20, 1999 filed a three count supplemental complaint ­- the pleading
relevant to the present appeal ­- containing only the spirometry claims
brought under the False Claims Act. The case was again reassigned, this time
to District Court Judge Colleen McMahon.

Defendants moved for summary judgment on
August 13, 1999, and the government again chose not to intervene. In granting
defendants’ motion on November 18, 1999, the district court ruled that submitting
a claim for a service that was not provided in accordance with the relevant
standard of care does not make that claim false or fraudulent for False Claims
Act purposes. United States ex rel. Mikes v. Straus, 84 F. Supp. 2d 427,
433 (S.D.N.Y. 1999). Defendants’ submission of claims for reimbursement, the
court continued, did not implicitly certify that their performance of spirometry
conformed to any qualitative standard. See id. at 436-38. And,
it concluded, that even were the Medicare claims objectively false, plaintiff
had not shown defendants submitted the claims with the requisite scienter. See
id. at 438-39. Plaintiff’s motion for reconsideration was denied. United
States ex rel. Mikes v. Straus, 78 F. Supp. 2d 223, 224 (S.D.N.Y. 1999).

After plaintiff’s complaint had been dismissed,
defendants asked for attorneys’ fees pursuant to §3730(d)(4) of the Act.
The district court conducted a two-day bench trial and found plaintiff’s withdrawn
MRI claims were vexatious, but that her spirometry claims were not. See
United States ex rel. Mikes v. Straus, 98 F. Supp. 2d 517, 529 (S.D.N.Y.
2000). It held that defendants Ambinder and Friedman were entitled to either
two-thirds of any attorneys’ fees attributable solely to defending the MRI claims
or a default fee of $5000. See id. at 530.

Despite defendants’ declaration that they
had expended $437,000 defending the action, the district court agreed with the
magistrate judge ­- to whom the attorneys’ fees issue had been referred
­- that defendants’ records did not sufficiently delineate the time spent
between the MRI and spirometry causes of action. Judge McMahon accordingly awarded
defendants only the default sum of $5000. From this disposition, plaintiff appeals
the grant of summary judgment and the award of attorneys’ fees for defendants.
Defendants cross-appeal with respect to the amount of the attorneys’ fees award.
1 We affirm.

C. Spirometry

Before turning to a discussion of the law,
it will be helpful to define spirometry ­- a subject that lies at the heart
of this case ­- and plaintiff’s allegations regarding defendants’ performance
of this diagnostic test. Spirometry is an easy-to-perform pulmonary function
test used by doctors to detect both obstructive (such as asthma and emphysema)
and restrictive (such as pulmonary fibrosis) lung diseases. The type of spirometers
used by defendants measures the pressure change when a patient blows into a
mouthpiece, thereby providing the doctor with on-the-spot analysis of the volume
and speed by which patients can exhale. The spirometry equipment consists of
readily transportable lightweight machines, and defendants apparently used at
least one in each of their several offices.

Plaintiff’s expert stated that spirometers
are susceptible to inaccuracy through time and usage because they become clogged,
causing false readings. Erroneous measurements may also arise from damage to
the instrument through cleaning or disturbance during transport, or from variations
in barometric pressure, temperature or humidity. Mikes claims that guidelines
first published in 1979 and later updated in 1987 and 1994 by the American Thoracic
Society (ATS guidelines), a division of the American Lung Association, set out
the generally accepted standards for spirometry. To ensure accuracy, these guidelines
recommend daily calibration of spirometers by use of a three liter calibration
syringe, the performance of three successive trials during test administration
and the appropriate training of spirometer technicians. In support of her contention
that the ATS guidelines are the medical standard for spirometry, Mikes notes
they are incorporated by reference in the federal Longshore and Harbor Workers’
Compensation Act, 33 U.S.C. §902(10) (1994), and included in regulations
promulgated pursuant to the Social Security Act, see 20 C.F.R. pt. 404,
subpt. P, app. 1, pt. A, §3.00(E) (2001), the Radiation Exposure Compensation
Act, see 28 C.F.R. §79.36(d)(1)(ii)(B)(1) (2001), and the
Federal Mine Safety and Health Act, 52 Fed. Reg. 34,460, 34,551 (Sept. 11, 1987).

Mikes maintains further that defendants’
performance of spirometry did not conform to the ATS guidelines and thus would
yield inherently unreliable data. She argues that defendants allowed medical
assistants to perform spirometry tests when they were not trained in its proper
administration. Plaintiff states she personally observed the medical assistants
fail to calibrate the spirometer daily and that she was informed the assistants
could not recall the last time the machine had been calibrated. Moreover, defendants
did not possess a three liter calibration syringe, nor did the assistants properly
instruct the patients during the administration of the test or perform three
successive tests.

Defendants insist that after plaintiff
raised her concerns regarding the spirometer and its use in their practice,
they told her to review exam results for inaccuracy, and to train the medical
assistants in proper spirometric administration. Dr. Straus reports that plaintiff
did not apprise the practice of any false readings in response to this directive,
nor did she supervise the medical assistants. With this factual background,
we turn to the law.

DISCUSSION

I Elements of Plaintiff’s False Claims
Act Causes of Action

Mikes challenges the district court’s grant
of summary judgment to defendants that resulted in the dismissal of her False
Claims Act causes of action. Summary judgment is a remedy we review de
novo, see Hamilton Bank, N.A. v. Kookmin Bank, 245 F.3d
82, 89 (2d Cir. 2001), affirming only if we conclude "there is no genuine
issue as to any material fact and that the moving party is entitled to a judgment
as a matter of law," Fed R. Civ. P. 56(c); see also Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 247-49 (1986).

Liability under the False Claims Act occurs
when a person

(1) knowingly presents, or causes
to be presented, to an officer or employee of the United States Government …
a false or fraudulent claim for payment or approval;

(2) knowingly makes, uses, or
causes to be made or used, a false record or statement to get a false or fraudulent
claim paid or approved by the Government; [or]

(3) conspires to defraud the Government
by getting a false or fraudulent claim allowed or paid.

31 U.S.C. §3729(a). Plaintiff brought
suit under each of these subdivisions, but since our analysis applies equally
to all three, we limit discussion primarily to the first. As the language of
that subdivision makes clear, to impose liability under the Act Mikes must show
that defendants (1) made a claim, (2) to the United States government, (3) that
is false or fraudulent, (4) knowing of its falsity, and (5) seeking payment
from the federal treasury. Because plaintiff’s claims fail on other grounds,
we need not decide whether the Act contains another element of proof, namely
a showing that the United States sustained damages. Cf. Harrison v.
Westinghouse Savannah River Co., 176 F.3d 776, 785 n.7 (4th Cir. 1999) (noting
split of authority on whether False Claims Act contains damages element). We
set out briefly the requirements of the above five elements.

The Act expansively defines the term "claim"
to cover "any request or demand, whether under a contract or otherwise,
for money or property … if the United States Government provides any portion
of the money or property which is requested or demanded." 31 U.S.C. §3729(c).
As required by the Medicare implementing regulations, see 42 C.F.R. §424.32
(2000), defendants submitted Medicare reimbursement claims for spirometry on
form "HCFA-1500" or an electronic equivalent. Each submission of the
HCFA-1500 form meets the first two elements of a False Claims Act cause of action
in that it qualifies as a claim made to the United States government. See
United States v. Krizek, 111 F.3d 934, 940 (D.C. Cir. 1997) (holding
that number of claims under Act based upon submission of HCFA-1500 forms).

Regarding the third element, the term "false
or fraudulent" is not defined in the Act. A common definition of "fraud"
is "an intentional misrepresentation, concealment, or nondisclosure for
the purpose of inducing another in reliance upon it to part with some valuable
thing belonging to him or to surrender a legal right." Webster’s Third
New International Dictionary 904 (1981). "False" can mean "not
true," "deceitful," or "tending to mislead." Id.
at 819. The juxtaposition of the word "false" with the word "fraudulent,"
plus the meanings of the words comprising the phrase "false claim,"
suggest an improper claim is aimed at extracting money the government otherwise
would not have paid. See Clarence T. Kipps, Jr. et al.,
Materiality as an Element of Liability Under the False Claims Act, A.B.A.
Center for Continuing Legal Educ. Nat’l Inst. (1998), WL N98CFCB ABA-LGLED B-37,
B-46 ("[A] claim cannot be determined to be true or false without consideration
of whether the decisionmaker should pay the claim ­- that is, a claim is
‘false’ only if the Government or other customer would not pay the claim if
the facts about the misconduct alleged to have occurred were known.").

This notion also applies to subdivisions
(2) & (3) of 31 U.S.C. §3729(a). The former prohibits a party from
knowingly using or making "a false record or statement to get a false
or fraudulent claim paid or approved by the Government," id.
§3729(a)(2) (emphasis added), while the latter prohibits conspiring "to
defraud the Government by getting a false or fraudulent claim allowed or
paid," id. §3729(a)(3) (emphasis added). The language of
these provisions plainly links the wrongful activity to the government’s decision
to pay.

On this appeal, the parties’ dispute whether
defendants’ Medicare claims rise to the level of being false or fraudulent.
They disagree, in addition, as to the fourth element ­- i.e., whether
any false or fraudulent claims were "knowingly" made. The Act defines
"knowingly" as either: (1) possessing actual knowledge; (2) acting
in deliberate ignorance of falsity; or (3) acting in reckless disregard of falsity.
See id. §3729(b).

The fifth element of the Act further supports
the conclusion that the statute reaches only those claims with the potential
wrongfully to cause the government to disburse money. The Senate Report accompanying
the 1986 amendments to the Act states that "[t]he purpose of [the amendments]
is to enhance the Government’s ability to recover losses sustained as a result
of fraud against the Government." S. Rep. No. 99-345, at 1, reprinted
in 1986 U.S.C.C.A.N. 5266, 5266. The Supreme Court has further indicated
that the Act’s primary purpose is to indemnify the government ­- through
its restitutionary penalty provisions ­- against losses caused by a defendant’s
fraud. See United States ex rel. Marcus v. Hess, 317 U.S. 537,
549, 551-52 (1943). With these understandings of the Act’s language in mind,
we turn to plaintiff’s contentions.

II "Legally False" Certification
Theory

The thrust of plaintiff’s qui tam
suit is that the submission of Medicare reimbursement claims for spirometry
procedures not performed in accordance with the relevant standard of care, that
is, the ATS Guidelines ­- violates the False Claims Act. Mikes relies principally
on the "certification theory" of liability, which is predicated upon
a false representation of compliance with a federal statute or regulation or
a prescribed contractual term. See Lisa Michelle Phelps, Note, Calling
off the Bounty Hunters: Discrediting the Use of Alleged Anti-Kickback Violations
to Support Civil False Claims Actions, 51 Vand. L. Rev. 1003, 1014-15 (1998).
This theory has also been called "legally false" certification. See
Robert Fabrikant & Glenn E. Solomon, Application of the Federal False
Claims Act to Regulatory Compliance Issues in the Health Care Industry,
51 Ala. L. Rev. 105, 111-12 (1999). It differs from "factually false"
certification, which involves an incorrect description of goods or services
provided or a request for reimbursement for goods or services never provided.
Id.

Although the False Claims Act is "not
designed to reach every kind of fraud practiced on the Government," United
States v. McNinch, 356 U.S. at 599, it was intended to embrace at least
some claims that suffer from legal falsehood. Thus, "a false claim may
take many forms, the most common being a claim for goods or services not provided,
or provided in violation of contract terms, specification, statute, or regulation."
S. Rep. No. 99-345, at 9, reprinted in 1986 U.S.C.C.A.N. 5266, 5274 (emphasis
added).

Just as clearly, a claim for reimbursement
made to the government is not legally false simply because the particular service
furnished failed to comply with the mandates of a statute, regulation or contractual
term that is only tangential to the service for which reimbursement is sought.
Since the Act is restitutionary and aimed at retrieving ill-begotten funds,
it would be anomalous to find liability when the alleged noncompliance would
not have influenced the government’s decision to pay. Accordingly, while the
Act is "intended to reach all types of fraud, without qualification, that
might result in financial loss to the Government," United States v.
Neifert-White Co., 390 U.S. 228, 232 (1968), it does not encompass those
instances of regulatory noncompliance that are irrelevant to the government’s
disbursement decisions.

We join the Fourth, Fifth, Ninth, and District
of Columbia Circuits in ruling that a claim under the Act is legally false only
where a party certifies compliance with a statute or regulation as a condition
to governmental payment. See United States ex rel. Siewick v. Jamieson
Sci. & Eng’g, Inc., 214 F.3d 1372, 1376 (D.C. Cir. 2000) ("[A]
false certification of compliance with a statute or regulation cannot serve
as the basis for a qui tam action under the [False Claims Act]
unless payment is conditioned on that certification."); Harrison,
176 F.3d at 786-87, 793; United States ex rel. Thompson v. Columbia/HCA Healthcare
Corp., 125 F.3d 899, 902 (5th Cir. 1997); United States ex rel. Hopper
v. Anton, 91 F.3d 1261, 1266-67 (9th Cir. 1996).

We add that although materiality is a related
concept, our holding is distinct from a requirement imposed by some courts that
a false statement or claim must be material to the government’s funding decision.
See, e.g., Harrison, 176 F.3d at 785. A materiality requirement
holds that only a subset of admittedly false claims is subject to False Claims
Act liability. Cf. United States ex rel. Cantekin v. Univ. of Pittsburgh,
192 F.3d 402, 415 (3d Cir. 1999), cert. denied, 531 U.S. 880 (2000) (finding
that Hopper held that not every regulatory violation is a "knowingly
false statement" and distinguishing this holding from a materiality requirement).
We rule simply that not all instances of regulatory noncompliance will cause
a claim to become false. We need not and do not address whether the Act contains
a separate materiality requirement.

A. Express False Certification

We analyze first plaintiff’s argument that
defendants’ claims contained an express false certification. An expressly false
claim is, as the term suggests, a claim that falsely certifies compliance with
a particular statute, regulation or contractual term, where compliance is a
prerequisite to payment.

Plaintiff contends that by submitting claims
for Medicare reimbursement on HCFA-1500 forms or their electronic equivalent,
defendants expressly certified that they would comply with the terms set out
on the form. Form HCFA-1500 expressly says: "I certify that the services
shown on this form were medically indicated and necessary for the health of
the patient and were personally furnished by me or were furnished incident to
my professional service by my employee under my immediate personal supervision."
Both the form, which further provides "No Part B Medicare benefits may
be paid unless this form is received as required by existing law and regulations,"
and the Medicare Regulations, see 42 C.F.R. §424.32, state that
certification is a precondition to Medicare reimbursement. We agree that defendants
certified they would comply with the terms on the form and that such compliance
was a precondition of governmental payment. Cf. United States ex rel.
Piacentile v. Wolk, Civ.A.No.93-5773, 1995 WL 20833, at *2-3 (E.D. Pa. Jan.
17, 1995) (finding False Claims Act violation where defendant altered Medicare
Certificates of Medical Necessity without doctor’s authorization, because the
forms contained a certification that the claims represented the physician’s
judgment).

Yet plaintiff’s objections to defendants’
spirometry tests do not implicate the standard set out in the HCFA-1500 form
that the procedure was dictated by "medical necessity." The term "medical
necessity" does not impart a qualitative element mandating a particular
standard of medical care, and Mikes does not point to any legal authority requiring
us to read such a mandate into the form. Medical necessity ordinarily indicates
the level ­- not the quality ­- of the service. For example, the requisite
level of medical necessity may not be met where a party contends that a particular
procedure was deleterious or performed solely for profit, see United
States ex rel. Kneepkins v. Gambro Healthcare, Inc., 115 F. Supp. 2d 35,
41-42 (D. Mass. 2000) (procedures chosen solely for defendants’ economic gain
are not "medically necessary" as required by claim submission form),
or where a party seeks reimbursement for a procedure that is not traditionally
covered, see Rush v. Parham, 625 F.2d 1150, 1156 (5th Cir. 1980)
(upholding state’s exclusion of experimental medical treatment from definition
of "medically necessary" services under Medicaid).

This approach to the phrase "medically
necessary" ­- as applying to ex ante coverage decisions
but not ex post critiques of how providers executed a procedure
­- would also conform to our understanding of the phrase "reasonable
and necessary" as used in the Medicare statute, 42 U.S.C. §1395y(a)(1)(A)
(1994) (disallowing payment for items or services not reasonable and necessary
for diagnosis or treatment). See New York ex rel. Bodnar v. Sec’y
of Health & Human Servs., 903 F.2d 122, 125 (2d Cir. 1990) (acknowledging
Secretary’s authority, in determining whether procedure is "reasonable
and necessary," to consider type of service provided and whether service
was provided in appropriate, cost-effective setting); Goodman v. Sullivan,
891 F.2d 449, 450-51 (2d Cir. 1989) (per curiam) (affirming exclusion of experimental
procedures from Medicare coverage pursuant to requirement that procedures be
"reasonable and necessary"); see also Friedrich v.
Sec’y of Health & Human Servs., 894 F.2d 829, 831 (6th Cir. 1990) (noting
that the Health Care Financing Administration, when determining whether a procedure
is "reasonable and necessary," considers the procedure’s safety, effectiveness,
and acceptance by medical community).

Moreover, the section of the Medicare statute
setting forth conditions of participation has separate provisions governing
the medical necessity of a given procedure and its quality. Compare 42
U.S.C. §1320c-5(a)(1) (1994) (practitioner shall assure that the service
"will be provided economically and only when, and to the extent, medically
necessary"), with id. §1320c-5(a)(2) (1994) (practitioner
shall assure that the service "will be of a quality which meets professionally
recognized standards of health care"). This statutory design supports the
conclusion that the medical necessity for a procedure and its quality are distinct
considerations.

Inasmuch as Mikes challenges only the quality
of defendants’ spirometry tests and not the decisions to order this procedure
for patients, she fails to support her contention that the tests were not medically
necessary. Nor has she proffered evidence to support an allegation that the
defendants did not "personally furnish" the spirometry tests as required
by the HCFA-1500 form. The form allows for reimbursement when a procedure is
"rendered under the physician’s immediate personal supervision by his/her
employee," which covers the medical assistants’ performance of spirometry
at defendants’ direction. Thus, plaintiff’s cause of action insofar as it is
founded on express false certification is without merit.

B. Implied False Certification

1. Viability of Implied Certification
Theory

Plaintiff insists that defendants’ submissions
to the government for payment were impliedly false certifications. An implied
false certification claim is based on the notion that the act of submitting
a claim for reimbursement itself implies compliance with governing federal rules
that are a precondition to payment. See Phelps, supra, at 1015.
Foundational support for the implied false certification theory may be found
in Congress’ expressly stated purpose that the Act include at least some kinds
of legally false claims, see S. Rep. No. 99-345, at 9, reprinted in
1986 U.S.C.C.A.N. 5266, 5274, and in the Supreme Court’s admonition that the
Act intends to reach all forms of fraud that might cause financial loss to the
government, see Neifert-White Co., 390 U.S. at 232.

The implied certification theory was applied
in Ab-Tech Construction, Inc. v. United States, 31 Fed. Cl. 429 (Fed.
Cl. 1994), aff’d, 57 F.3d 1084 (Fed. Cir. 1995) (unpublished table decision).
The Court of Federal Claims held that the defendants’ submission of payment
vouchers, although containing no express representation, implicitly certified
their continued adherence to the eligibility requirements of a federal small
business statutory program. See id. at 434. The failure by defendants
to honor the terms of this certification rendered their claims for payment false,
resulting in False Claims Act liability. See id. at 433-34.

But caution should be exercised not to
read this theory expansively and out of context. The Ab-Tech rationale,
for example, does not fit comfortably into the health care context because the
False Claims Act was not designed for use as a blunt instrument to enforce compliance
with all medical regulations ­- but rather only those regulations that
are a precondition to payment ­- and to construe the impliedly false certification
theory in an expansive fashion would improperly broaden the Act’s reach. Moreover,
a limited application of implied certification in the health care field reconciles,
on the one hand, the need to enforce the Medicare statute with, on the other
hand, the active role actors outside the federal government play in assuring
that appropriate standards of medical care are met. Interests of federalism
counsel that "the regulation of health and safety matters is primarily,
and historically, a matter of local concern." Hillsborough County v.
Automated Med. Labs., Inc., 471 U.S. 707, 719 (1985); accord Medtronic,
Inc. v. Lohr, 518 U.S. 470, 475 (1996).

Moreover, permitting qui tam
plaintiffs to assert that defendants’ quality of care failed to meet medical
standards would promote federalization of medical malpractice, as the federal
government or the qui tam relator would replace the aggrieved
patient as plaintiff. See Patrick A. Scheiderer, Note, Medical Malpractice
as a Basis for a False Claims Action?, 33 Ind. L. Rev. 1077, 1098-99 (2000).
Beyond that, we observe that the courts are not the best forum to resolve medical
issues concerning levels of care. State, local or private medical agencies,
boards and societies are better suited to monitor quality of care issues. See
Fabrikant & Solomon, supra, at 156-57.

For these reasons, we think a medical provider
should be found to have implicitly certified compliance with a particular rule
as a condition of reimbursement in limited circumstances. Specifically, implied
false certification is appropriately applied only when the underlying statute
or regulation upon which the plaintiff relies expressly states the provider
must comply in order to be paid. See Siewick, 214 F.3d at 1376
(holding that court will "infer certification from silence" only when
"certification was a prerequisite to the government action sought").
Liability under the Act may properly be found therefore when a defendant submits
a claim for reimbursement while knowing ­- as that term is defined by the
Act, see 31 U.S.C. §3729(b) ­- that payment expressly is precluded
because of some noncompliance by the defendant.

2. Plaintiff’s Allegations Under the
Implied Theory

Mikes asserts that compliance with §§1395y(a)(1)(A)
and 1320c-5(a) of the Medicare statute is a precondition to a request for federal
funds and that submission of a HCFA-1500 form attests by implication to the
providers’ compliance with both of those provisions.

a. §1395y(a)(1)(A). Section
1395y(a)(1)(A) of the Medicare statute states that "no payment may be made
under [the Medicare statute] for any expenses incurred for items or services
which … are not reasonable and necessary for the diagnosis or treatment
of illness or injury or to improve the functioning of a malformed body member."
42 U.S.C. §1395y(a)(1)(A) (emphasis added). Because this section contains
an express condition of payment ­- that is, "no payment may be made"
­- it explicitly links each Medicare payment to the requirement
that the particular item or service be "reasonable and necessary."
The Supreme Court has noted that this section precludes the government from
reimbursing a Medicare provider who fails to comply. See Heckler v.
Ringer, 466 U.S. 602, 605 (1984); see also United Seniors
Ass’n v. Shalala, 182 F.3d 965, 967 (D.C. Cir. 1999) ("If a service
is deemed not to have been reasonable and necessary, Medicare will not make
payment and the doctor generally is prohibited from charging the patient.");
Mount Sinai Hosp., Inc. v. Weinberger, 517 F.2d 329, 334 (5th Cir. 1975)
(explaining that §1395y controls whether particular services are covered
by Medicare). Since §1395y(a)(1)(A) expressly prohibits payment
if a provider fails to comply with its terms, defendants’ submission of the
claim forms implicitly certifies compliance with its provision.

Yet, Mikes’ insistence that defendants’
performance of spirometry was not reasonable and necessary is without support.
As set forth in our discussion of express certification, the requirement that
a service be reasonable and necessary generally pertains to the selection of
the particular procedure and not to its performance. See Goodman,
891 F.2d at 450-51. While such factors as the effectiveness and medical acceptance
of a given procedure might determine whether it is reasonable and necessary,
the failure of the procedure to conform to a particular standard of care ordinarily
will not. See id. at 450 (noting that under §1395(y)(a)(1)(A)
the Secretary of Health and Human Services prohibits "payment of benefits
for any experimental, investigational, or unproven treatment or diagnostic method
not yet generally accepted in the medical profession"). Since plaintiff
contends only that defendants’ performance of spirometry was qualitatively
deficient, her allegations that defendants falsely certified compliance with
§1395y(a)(1)(A) may not succeed.

b. §1320c-5(a). Plaintiff’s
implied false certification claims rely more heavily upon §1320c-5(a).
That section does mandate a qualitative standard of care in that it provides

It shall be the obligation of
any health care practitioner … who provides health care services for which
payment may be made … to assure, to the extent of his authority that services
or items ordered or provided by such practitioner …

(1) will be provided economically
and only when, and to the extent, medically necessary;

(2) will be of a quality which
meets professionally recognized standards of health care; and

(3) will be supported by evidence
of medical necessity and quality … as may reasonably be required by a reviewing
peer review organization in the exercise of its duties and responsibilities.

42 U.S.C. §1320c-5(a) (emphasis added).

Mikes avers that the ATS guidelines comprise
a "professionally recognized standard of health care" for spirometry,
and that defendants’ failure to conform to those guidelines violates the Medicare
statute. She believes defendants, by submitting HCFA-1500 forms for spirometry
tests that did not comply with the ATS guidelines, engaged in implied false
certification. But plaintiff’s allegations cannot establish liability under
the False Claims Act because ­- unlike §1395y(a)(1)(A) ­- the
Medicare statute does not explicitly condition payment upon compliance with
§1320c-5(a).

Instead, §1320c-5(a) simply states
that "[i]t shall be the obligation" of a practitioner who provides
a medical service "for which payment may be made … to assure" compliance
with the section. Hence, it may be seen that §1320c-5(a) acts prospectively,
setting forth obligations for a provider to be eligible to participate in the
Medicare program. See Fischer v. United States, 529 U.S. 667,
672 (2000) (describing §1320c-5(a) as a statutory obligation to qualify
to participate in the Medicare program); see also Corkill v.
Shalala, 109 F.3d 1348, 1350 (9th Cir. 1997) ("In order to qualify
for reimbursement under the Medicare program, a physician must comply with three
statutory requirements [including §1320c-5(a)].").

The structure of the statute further informs
us that §1320c-5(a) establishes conditions of participation, rather than
prerequisites to receiving reimbursement. The statute empowers peer review organizations
to monitor providers’ compliance with §1320c-5(a). See 42 U.S.C.
§1320c-3(a) (1994). If a peer review organization determines that a provider
has "failed in a substantial number of cases" to comply with the requirements
of §1320c-5(a) or that the provider has "grossly and flagrantly violated"
the section, the organization may ­- after reasonable notice and an opportunity
for corrective action ­- recommend sanctions. See id. §1320c-5(b)(1)
(1994 & Supp. V 1999). If the Secretary agrees that sanctions should be
imposed, and further finds the provider unwilling or unable substantially to
comply with its obligations, the Secretary may exclude the provider from the
Medicare program. See id.; see also Doyle v.
Sec’y of Health & Human Servs., 848 F.2d 296, 298 (1st Cir. 1988) (explaining
statutory and regulatory procedures).

The fact that §1320c-5(b) permits
sanctions for a failure to maintain an appropriate standard of care only where
a dereliction occurred in "a substantial number of cases" or a violation
was especially "gross[] and flagrant[]" makes it evident that the
section is directed at the provider’s continued eligibility in the Medicare
program, rather than any individual incident of noncompliance. See Fabrikant
& Solomon, supra, at 122-23 (arguing that quality of care standards
are conditions of participation in the Medicare program and not conditions of
payment). This conclusion is reinforced by the ultimate sanction provided by
§1320c-5(b)(1): exclusion of the provider from Medicare eligibility. Further,
the section explicitly provides that the Secretary may authorize an alternate
remedy ­- repayment of the cost of the noncompliant service to the United
States ­- "as a condition to the continued eligibility" of the
health care provider in the Medicare program. 42 U.S.C. §1320c-5(b)(3).
Accordingly, §1320c-5(a) is quite plainly a condition of participation
in the Medicare program.

Since §1320c-5(a) does not expressly
condition payment on compliance with its terms, defendants’ certifications
on the HCFA-1500 forms are not legally false. Consequently, defendants did not
submit impliedly false claims by requesting reimbursement for spirometry tests
that allegedly were not performed according to the recognized standards of health
care.

Finally, our holding ­- that in submitting
a Medicare reimbursement form, a defendant implicitly certifies compliance with
§1395y(a)(1)(A), but not §1320c-5(a) ­- comports with Congress’
purpose as discussed earlier in this opinion. Section 1395y(a)(1)(A) mandates
that a provider’s choice of procedures be "reasonable and necessary";
it does not obligate federal courts to step outside their primary area of competence
and apply a qualitative standard measuring the efficacy of those procedures.
The quality of care standard of §1320c-5(a) is best enforced by those professionals
most versed in the nuances of providing adequate health care.

III Worthless Services Claim

The government in its amicus brief
and plaintiff at oral argument argue that the district court erred by not considering
whether the defendants’ submission of Medicare claims for substandard spirometry
essentially constituted requests for the reimbursement of worthless services.
An allegation that defendants violated the Act by submitting claims for worthless
services is not predicated upon the false certification theory. Instead, a worthless
services claim asserts that the knowing request of federal reimbursement for
a procedure with no medical value violates the Act irrespective of any certification.

The Ninth Circuit’s recent decision in
United States ex rel. Lee v. Smithkline Beecham, Inc., 245 F.3d 1048
(9th Cir. 2001), is the leading case on worthless services claims in the health
care arena. In Lee, the relator alleged that defendant, an operator of
regional clinical laboratories, falsified laboratory test data when test results
fell outside the acceptable standard of error. Id. at 1050. The Ninth
Circuit held that the false certification theory addressed in Hopper,
91 F.3d 1261, was only one form of action under the Act, and that the district
court should have considered the distinct and separate worthless services claim.
Lee, 245 F.3d at 1053. As the Ninth Circuit explained, "[i]n an
appropriate case, knowingly billing for worthless services or recklessly doing
so with deliberate ignorance may be actionable under §3729 [of the False
Claims Act], regardless of any false certification conduct." Id.

We agree that a worthless services claim
is a distinct claim under the Act. It is effectively derivative of an allegation
that a claim is factually false because it seeks reimbursement for a service
not provided. See Fabrikant & Solomon, supra, at 111-12. In
a worthless services claim, the performance of the service is so deficient that
for all practical purposes it is the equivalent of no performance at all.

We nevertheless find no liability in the
instant case because plaintiff makes no showing that defendants knowingly ­-
as the Act defines that term ­- submitted a claim for the reimbursement
of worthless services. We have adopted the Ninth Circuit’s standard that the
"requisite intent is the knowing presentation of what is known to be false"
as opposed to negligence or innocent mistake. Hagood v. Sonoma County Water
Agency, 81 F.3d 1465, 1478 (9th Cir. 1996) (quoted in United States ex
rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148, 1156
(2d Cir. 1993)).

Plaintiff fails to substantiate that defendants
knew their Medicare claims for reimbursement were false. At best, plaintiff
urges that defendants submitted Medicare claims knowing they did not conform
to the ATS guidelines. This allegation alone fails to satisfy the standard for
a worthless services claim. The notion of presenting a claim known to be false
does not mean the claim is incorrect as a matter of proper accounting, but rather
means it is a lie. See id. Defendants have presented such overwhelming
evidence of their genuine belief that their use of spirometry had medical value,
we conclude as a matter of law they did not submit their claims with the requisite
scienter.

Initially, the defendants claim to have
relied upon the spirometers’ instruction manual which ­- contrary to the
ATS guidelines ­- indicates that daily calibration is not required. Beside
the heading "calibration," the manual provides that "[t]he equipment
is properly calibrated at the time of shipment so that no calibration is required
except for periodical checks." Norman Levine, the defendants’ former chief
medical assistant and a non-party to this action, testified that he reviewed
the spirometers’ instruction manual at the time of purchase. A separate product
information booklet states without qualification that the spirometer conforms
to the ATS guidelines and controlling federal regulations. The booklet identifies
a three liter calibration syringe as only an "optional item."

Moreover, Levine testified that the individual
spirometers were sent out for periodic servicing, at which time the practice
would use loaner machines. Defendant Friedman confirmed that on occasion he
would direct Levine to send a spirometer out for recalibration. Levine also
averred that he received practical training on the operation of the machine
from the sales technicians who sold the spirometers. Finally, defendant Straus
claims that, shortly after the confrontation with plaintiff, he requested that
Levine pursue Mikes’ complaints regarding the spirometers to see if anything
could be done to rectify the alleged problem. Levine asserts that in response
he thoroughly reviewed the practice’s spirometry procedures and found no fault.

Defendants have thus proffered ample evidence
­- most of which derives from disinterested non-party witnesses ­-
supporting their contention that they held a good faith belief that their spirometry
tests were of medical value. In light of this evidence, plaintiff’s unsupported
allegations to the contrary do not raise a triable issue of fact sufficient
to bar summary judgment. See Lipton v. Nature Co., 71 F.3d 464,
472 (2d Cir. 1995) (summary judgment is appropriate even when mental state is
at issue, so long as there are sufficient undisputed material facts); see
also Skouras v. United States, 26 F.3d 13, 14 (2d Cir. 1994) (per
curiam) (record justified district court’s determination at summary judgment
stage that defendants acted willfully).

IV Attorneys’ Fees

Both parties appeal aspects of the district
court’s award of attorneys’ fees to the defendants on plaintiff’s withdrawn
MRI claims. Mikes challenges the court’s holding that the MRI claims were frivolous,
while defendants object to the decision to limit the award to a default fee
of $5000. We review for abuse of discretion both the decision to grant attorneys’
fees under §3730(d)(4) of the False Claims Act and the amount. See
Orchano v. Advanced Recovery, Inc., 107 F.3d 94, 99 (2d Cir. 1997) (reviewing
award of attorneys’ fees under 42 U.S.C. §1988); Caisse Nationale de
Credit Agricole-CNCA v. Valcorp, Inc., 28 F.3d 259, 264, 266 (2d Cir. 1994)
(holding that abuse of discretion standard applies to all aspects of a decision
to impose sanctions under Fed. R. Civ. P. 11). In our review, we bear in mind
that an award of attorneys’ fees is well suited to the daily operations of the
district court because such a decision may ultimately combine extensive factfinding
ability with a large degree of discretion. Dague v. City of Burlington,
976 F.2d 801, 803 (2d Cir. 1992), rev’d in part on other grounds, 505
U.S. 557 (1992).

A. Decision to Award Attorneys’ Fees

Plaintiff’s principal objection derives
from the court’s decision to preclude all testimony regarding "Mrs. D,"
defendants’ former patient who Mikes alleged was improperly examined by use
of an MRI rather than by x-ray. Mikes had contended that defendants ­-
who held a financial interest in an MRI facility ­- received illicit remuneration
through referrals to this facility in violation of §1320a-7b of the Medicare
statute and in turn the False Claims Act. Mikes apparently sought to proffer
evidence regarding Mrs. D ­- mistakenly believing she was a Medicare patient
­- to prove that Mikes’ MRI claims were brought in good faith. But the
district court reasoned that Mrs. D’s testimony should be disallowed because,
as a patient under 65 years of age, she was not Medicare eligible and thus plaintiff
could not rely upon Mrs. D’s treatment to plead a violation of the Medicare
statute.

We have not had occasion to analyze §3730(d)(4)
of the Act, which provides that a district court may award a defendant reasonable
attorneys’ fees against a qui tam relator "if the defendant
prevails in the action and the court finds that the claim of the person bringing
the action was clearly frivolous, clearly vexatious, or brought primarily for
purposes of harassment." Any one of these three conditions is sufficient
for an award of attorneys’ fees.

The Act’s legislative history suggests
that the standard of §3730(d)(4) is analogous to that used for claims for
attorneys’ fees brought under 42 U.S.C. §1988. See S. Rep. No. 99-345,
at 29, reprinted in 1986 U.S.C.C.A.N. 5266, 5294. It is noteworthy that
a plaintiff’s subjective bad faith is not an element under §1988. See
Davidson v. Keenan, 740 F.2d 129, 132-33 (2d Cir. 1984). Accordingly,
there could be an award for attorneys’ fees upon a finding that the MRI claims
were objectively frivolous, irrespective of plaintiff’s subjective
intent. A claim is frivolous when, viewed objectively, it may be said to have
no reasonable chance of success, and present no valid argument to modify present
law. See Caisse Nationale, 28 F.3d at 264; see also
Maglione v. Briggs, 748 F.2d 116, 118 (2d Cir. 1984) (per curiam) (whether
claim is frivolous under §1988 is an objective inquiry).

The district court was well justified in
finding that plaintiff’s MRI claims were objectively vexatious. The consulting
agreement between the defendants and the MRI facility in which they held a financial
interest provided for a flat consulting fee. Mikes, 98 F. Supp. 2d at
524. As the defendants’ remuneration would not vary with the number of patients
they referred, little incentive existed to refer extra patients to the facility.
Further, Judge McMahon found no evidence that any Medicare patient inappropriately
received an MRI and rejected plaintiff’s reliance on the case of Mrs. D, finding
such reliance objectively unreasonable. See id. at 524-25 ("Mrs.
D … was in fact in her late forties when she was seen at [defendants’ office]
­- a fact that should have been apparent to Dr. Mikes, and that could easily
have been ascertained during discovery."). Since plaintiff’s allegations
were bereft of any objective factual support, they clearly had no chance of
success. Hence, an award of attorneys’ fees to defendants was fully justified.

B. Amount of District Court’s Award

Defendants challenge the directive from
the trial court that they differentiate between those legal services expended
on the MRI and the spirometry claims. They further argue that the default attorneys’
fee award of $5000 was grossly inadequate in light of the alleged $437,000 spent
to defend against Mikes’ action.

It was not an abuse of discretion to limit
the award. The Supreme Court has held that where a lawsuit presents "distinctly
different claims for relief that are based on different facts and legal theories"
the claims should be parsed out and attorneys’ fees granted to a plaintiff only
on successful claims. Hensley v. Eckerhart, 461 U.S. 424, 434-35 (1983).
Similarly, a defendant is entitled to attorneys’ fees for only those particular
claims of a plaintiff deemed to be frivolous. See Simon DeBartolo
Group, L.P. v. Richard E. Jacobs Group, Inc., 186 F.3d 157, 177-78 (2d Cir.
1999).

Plaintiff’s MRI claims are severable from
her spirometry claims. They do not have the same factual core and are not premised
on related legal theories. See Quaratino v. Tiffany & Co.,
166 F.3d 422, 425 (2d Cir. 1999). The MRI claims alleged that defendants improperly
referred patients to a facility in which they held a financial interest, relying
principally upon the Medicare statute’s self-remuneration provisions. The spirometry
claims, conversely, alleged substandard performance of a medical procedure,
relying principally upon §1320c-5(a) of the Medicare statute. The fact
that both claims were brought pursuant to the False Claims Act does not justify
treating them as one for purposes of an award of attorneys’ fees.

Since defendants were entitled to attorneys’
fees only on the MRI claims, they were required to provide those contemporaneous
time records that would allow the district court to determine the amount of
time spent litigating those claims. These records are required to specify the
name of each attorney working on the file, the date the work was done, the hours
spent, and the nature of the work performed. See New York State Ass’n
for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1147-48 (2d Cir. 1983).

Instead, defendants’ documentation calculated
their attorneys’ fees by taking the total costs of the litigation to date and
subtracting those billing entries that specifically referred to spirometry.
This figure was then divided in half, reflecting the district court’s holding
that, of the two types of claims, only the MRI claims were frivolous. As the
district court ruled, defendants failed to establish that their attorneys actually
expended half of their efforts on the MRI claims. If defendants’ attorneys spent
the great majority of their time on the spirometry claims, they clearly would
be entitled to receive less than half of the legal expense incurred. Consequently,
awarding the $5000 default attorneys’ fee was not an abuse of the district court’s
discretion.

CONCLUSION

We have considered the remainder of the
parties’ arguments on appeal and find them unpersuasive. Accordingly, the judgment
of the district court is affirmed.

—- Begin EndNotes —-

1
In addition to the extensive briefs submitted by the parties, we have before
us a number of amicus briefs submitted by the American Association for
Respiratory Care and Taxpayers Against Fraud in support of plaintiff, by a coalition
of Medical Societies (including the American Medical Association) in support
of defendants, and by the United States urging vacatur and remand. In the discussion
that follows we have considered the various arguments raised in these briefs.

---