In January, the US District Court for the Northern District of New York dismissed a False Claims Act (FCA) case brought by a whistleblower against Dialysis Clinic Inc. (DCI). The dismissal was based on the relator’s failure to plead fraud with particularity. But the court didn’t stop with the dismissal, deciding instead to signal its view that the allegations that DCI failed to abide by the health, safety, and quality of care standards set forth in Medicare’s ESRD Conditions for Coverage should not be actionable under the FCA.

The decision in U.S. ex rel. Blundell v. Dialysis Clinic Inc., 2011 WL 167246 (NDNY Jan. 19, 2001), is the latest in a string of recent defense victories on the question of whether Medicare conditions of participation should be considered conditions of payment with which health care providers impliedly certify compliance each time they submit a claim for payment.

The relator, a former DCI charge nurse, relied on a laundry list of DCI’s purported deficiencies vis-à-vis the ESRD Conditions for Coverage, including serious allegations that the company failed to provide adequate and appropriately qualified personnel, failed to prevent cross-contamination, permitted Patient Care Technicians to perform nursing functions and administer medications, and falsified records. The relator also included some allegations of a seemingly less serious nature, including that DCI failed to provide comfortable temperatures within the facility. The relator argued that, by submitting claims for services rendered in violation of each of these regulatory requirements, DCI violated the FCA.

Relying heavily on the analytical framework set forth in the Second Circuit’s 2001 decision in Mikes v. Strauss and the Tenth Circuit’s 2008 Decision in U.S. ex rel. Conner v. Salina Reg’l Health Ctr., the DCI court concluded that the ESRD Conditions for Coverage are conditions of participation, not prerequisites to receiving reimbursement from the government. As a result, failure to comply with the requirements cannot supply the basis for an implied certification claim. In so finding, the court focused on the fact that the ESRD Conditions for Coverage are quality of care standards that, when they are not met, may be sanctioned by expulsion from the Medicare program but not recoupment of particular payments. The court also rejected the relator’s “worthless services” claim because the allegations of deficient care fell well short of pleading that DCI failed to provide any service to their patients.

The court’s decision is welcome news for health care providers who are concerned that the FCA may be used to federalize malpractice liability. However, in the long run, the case and others like it may provide little protection given the ease with which CMS can eliminate the regulatory distinction between conditions of participation and conditions of payment. In fact, in the ESRD context, CMS may have already accomplished this by adding the following provision at the tail-end of the recently released final rule implementing the ESRD bundled payment system: “Qualification for Payment. To qualify for payment, ESRD facilities must meet the conditions for coverage in part 494 of this chapter.” Thus, going forward and in light of the deference courts are likely to pay to CMS’s interpretation of its own regulatory scheme, ESRD facilities may face difficulty in combating a quality-of-care false certification allegation by arguing that ESRD Conditions for Coverage are not conditions of payment.