On March 31, 2023, the United States District Court for the Eastern District of Pennsylvania dealt a blow to a trio of nursing home providers by denying their motion to dismiss a False Claims Act (FCA) claim brought by the United States Department of Justice (DOJ) under a worthless services theory based on alleged substandard care provided to residents. See U.S. v. American Health Foundation Inc., Case No. 2:22-cv-02344, 2023 WL 2743563 (E.D. Pa. Mar. 31, 2023). Although the allegations raised appear quite serious, the ruling potentially provides a roadmap for relators to plead a worthless services FCA claim against nursing home operators based on the provision of medical services that falls below the applicable standard of care.

In American Health Foundation, the DOJ alleges that three nursing home operators provided “non-existent and grossly substandard nursing home services” to Medicare and Medicaid beneficiaries over a three-year period because, among other issues, the facilities lacked proper infection control and the residents did not receive adequate medical, dental, or psychiatric treatment, lived in dirty, unsanitary, and unsafe conditions, and were overmedicated. The complaint also alleges that two residents died because of inadequate supervision caused by staffing shortages. The DOJ asserts that the conduct resulted in the submission of false claims under the FCA because the services provided were non-existent, grossly substandard, or violated the Nursing Home Reform Act (NHRA).

The “worthless services” doctrine holds that a provider submits a factually false claim in violation of the FCA by providing services that are “so substandard as to be tantamount to no service at all.” United States ex rel. Jackson v. DePaul Health System, 454 F. Supp. 3d 481, 494 (E.D. Pa. April 15, 2020) (citations omitted). Under a worthless services theory, courts generally require that the services rise to the level of gross negligence. The line between negligence and gross negligence is critical because the FCA generally “centers on of allegations fraud, not medical malpractice.” Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176, 196 (2016).

The nursing home defendants challenged the adequacy of the DOJ’s worthless services allegations, arguing they do not establish gross negligence. The district court disagreed, concluding the allegations revealed that the care provided was grossly negligent and crossed “the proverbial line in the sand,” where “clearly” substandard services are considered worthless. American Health Foundation, 2023 WL 2743563, at *12 (citations omitted). The district court also rejected the defendants’ argument that the worthless services doctrine does not apply because they billed the government for a bundle of services and the government did not allege that each service in the bundle was worthless. Finally, the district court concluded that the DOJ adequately pled a false certification violation of the FCA based on its allegation that the defendants submitted claims for services that did not comply with the NHRA.

Although the allegations of substandard care in American Health Foundation are collectively severe, the line between negligent and grossly negligent medical care is not entirely clear, especially to test the sufficiency of allegations in a pleading challenge. In denying the motion to dismiss, the district court endorsed an approach that broadly evaluates whether the totality of the medical care provided to nursing home residents was grossly negligent. Such an approach could potentially expand the types of worthless service claims that relators bring against nursing home providers under the FCA.