“Upcoding” in the Code: District Court Holds Software Billing Company Could Be Liable for Causing False Claims

In a recent decision, U.S. ex rel. Schieber v. Holy Redeemer Healthcare System, Inc., the U.S. District Court for the District of New Jersey declined to dismiss a federal qui tam case against Homecare Homebase, LLC (HCHB), the developer of what its website calls the “#1 software for home-based care,” for allegedly causing home health providers to submit false claims for Medicare reimbursement. In so doing, the court held that the billing software — by allegedly prompting users to “upcode” the number of necessary treatments — could itself cause the submission of false claims.

The relator alleged that HCHB intentionally designed its software application in a way that caused home health providers to inflate their service claims and thus increase their reimbursements. Specifically, the relator claimed that HCHB’s software automatically and repeatedly prompted providers assessing the number of necessary patient visits to select a number based on the relevant reimbursement thresholds. For example, if a provider determined 12 visits were medically necessary, the software would allegedly prompt the provider: “There are 12 therapy visits. The next level begins at 14. Are further edits needed?” It would similarly prompt a provider entering “too few” patient visits to increase the number to avoid triggering a reduction in the reimbursement level. The relator further alleged the software was marketed as a revenue raising tool. And according to the relator, HCHB’s home health provider co-defendant actually instructed its staff to submit false claims using the software.

In denying HCHB’s motion to dismiss, the district court held that the relator adequately pleaded violations of the federal False Claims Act. First, the court found the complaint properly alleged that HCHB caused the submission of false claims because of its software design. In particular, the court noted that (1) HCHB’s software only alerted home health providers of the number of additional visits needed to get a higher reimbursement (or to avoid a lower one), (2) the software prompted providers a second time if they declined to enter a higher number of visits after the first alert, and (3) the prompt appeared only after the medical professional entered the number of visits the provider thought appropriate (and presumably fewer visits than would trigger a higher reimbursement threshold).

The court rejected HCHB’s arguments that it could not be held liable because its software did not manipulate patient data and only provided objectively true statements about reimbursement thresholds. It held that even a party that did not itself submit false claims could be held liable if its conduct was a “substantial factor” in the submission of false claims. The allegations that the application was intentionally, or at least recklessly, designed to encourage upcoding were sufficient to meet this causation standard. And, upcoding to a higher number of therapy visits than was medically necessary to meet a billing threshold, the court easily found material.

Accordingly, this decision joins a handful of others in finding a software provider that itself does not bill the government nonetheless can be held liable for causing others to submit false claims based solely on its application design. Seemingly innocuous features built into the code to ensure providers know “where they fall within the billing framework” can cross the line from education to encouraging fraud. And this encouragement might be enough to put the software company on the hook for the submission of what could be thousands of false claims by its customers. Coder beware — bells and whistles meant to boost user revenue can backfire.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.