Steven Hartpence v. Kinetic Concepts, Inc.
44 F.4th 838
9th Cir.2022Background
- KCI sold a VAC (negative-pressure wound therapy) device and billed Medicare Part B monthly for patients; DME MAC Local Coverage Determinations (LCDs) required documented month-over-month wound improvement and forbade use of the KX modifier if healing had stalled.
- The KX modifier signaled compliance with LCD criteria and, in practice, triggered automatic payment unless the claim was selected for case-specific review or audit.
- KCI developed a "risk-sharing" practice: it billed a stalled month and, if the following month showed improvement, submitted both months with the KX modifier to obtain payment; KCI discussed this practice with DME MACs but no LCD amendment was adopted.
- Relator Stephen Hartpence (former KCI executive) filed a qui tam FCA suit alleging KCI falsely certified compliance by using the KX/ZX modifiers on stalled-cycle claims; the United States declined to intervene.
- The district court granted summary judgment for KCI, finding Hartpence failed to raise genuine issues as to materiality and scienter; the Ninth Circuit reversed, holding triable issues exist on both elements and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Materiality of KX modifier use | KX falsely certified LCD compliance and was material because it caused automatic payment | KCI argued modifier misuse was immaterial because many claims were later audited and some were denied | Reversed: fact issue exists—KX typically triggered payment and avoiding case-specific review was material to payment decisions |
| Scienter (knowledge/reckless disregard) | KCI knew use of KX avoided reviews it often lost; internal emails show awareness of denial risks | KCI argued its discussions with DME MACs and inconsistent policies show lack of knowing falsity | Reversed: triable issue—reasonable jury could find KCI knowingly misused KX to obtain payment |
| Effect of case-specific review on materiality (were stalled-cycle claims routinely paid?) | Relator: case-specific review sometimes denied claims; audits/OIG report show meaningful denial rate | KCI: administrative/audit evidence shows many stalled-cycle claims were paid on review, so misstatement not material | Court: record shows hit-or-miss review (some denials, some allowances); evidence (ALJ/Appeals Council, audits, OIG) supports materiality inference |
| Applicability of Allina (challenge to using LCDs as FCA basis) | Hartpence did not press this below; primary claim relies on LCDs and modifier-driven payments | KCI argued Allina undermines using LCDs as basis for FCA liability | Not decided on appeal: Ninth Circuit declined to resolve Allina argument and remanded for district court to address if raised anew |
Key Cases Cited
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016) (establishes FCA materiality standard for implied-certification theory)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (evidence construed in favor of nonmovant at summary judgment)
- Azar v. Allina Health Servs., 139 S. Ct. 1804 (2019) (notice-and-comment rule for Medicare policy; raised by KCI as an alternative argument)
- United States ex rel. Hooper v. Lockheed Martin Corp., 688 F.3d 1037 (9th Cir. 2012) (elements of an FCA claim)
- United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir. 2017) (scienter and falsity standards under the FCA)