Sampling/Extrapolation

On April 2, 2018, the magistrate judge for the US District Court for the Southern District of Indiana issued an order refusing qui tam relators’ request to conduct discovery related to claims submitted to Medicare on a nationwide basis in an ongoing False Claims Act (FCA) case.  Importantly, the judge considered whether statistical sampling could be used to establish liability under the FCA for multiple entities affiliated with the defendant when the alleged false claims in the relators’ complaint originated from a single location. The US Department of Justice (DOJ) subsequently submitted a statement of interest defending relators’ discovery request and the use of statistical sampling to establish liability for false claims, which the court has not yet addressed.

In the underlying qui tam case, the relators alleged that Evansville Hospital, a long-term acute care hospital in Indiana, and a physician violated the FCA by submitting claims to Medicare for medically unnecessary lengths of stay in order to maximize Medicare reimbursement. Continue Reading Courts Weigh Appropriateness of Statistical Sampling in Ongoing Case

On January 23, 2018, the same judge who two weeks ago set aside a $350 million jury verdict against a nursing home operator denied a new emergency motion by relator to freeze the defendant’s assets pending the relator’s appeal of the court’s order granting judgment as a matter of law.

The relator argued that the defendant should be enjoined from engaging in transactions outside the ordinary course of business during the pendency of the appeal to protect “Relator’s, the United States’, and the State of Florida’s interests during the time the appeal is pending.”  Relator asserted that she has a “strong likelihood of success” on appeal and that the defendant could attempt to “thwart judgment” by transferring assets to related parties while the appeal is pending. Continue Reading Update: Judge Denies Relator’s Attempt to Freeze Nursing Home’s Assets Pending Appeal

In US ex rel. Michaels v. Agape Senior Community, the Department of Justice has assented to a $275,000 settlement after having rejected a $2.5 million settlement two years ago (despite declining to intervene in the case). This case garnered substantial attention because the relators sought to employ statistical sampling to establish liability on hundreds of millions of dollars of allegedly false claims to Medicare and Medicaid.

Previously, the Fourth Circuit heard–on interlocutory appeal–argument as to (1) whether statistical sampling could be used to establish liability in a False Claims Act case; and (2) whether the government could veto a False Claims Act settlement in a case in which the government declines to intervene. The Fourth Circuit ruled that the government did possess the authority to veto a settlement in a non-intervened case, and refused to address whether sampling could be used to establish liability. We discussed the Fourth Circuit’s decision here.

Although the Fourth Circuit declined to reach the question of whether False Claims Act plaintiffs can establish liability by using statistical sampling, the presiding district court judge had already concluded that plaintiffs could not do so. Having represented to the court that they could not marshal the resources to establish liability on a claim-by-claim basis, the court granted partial summary judgment on the vast majority of claims at issue. The relators subsequently settled for the value of the claims originally at issue: approximately one percent of the claims at issue in this case and 11 percent of what the relators and defendants previously agreed to.

The Fourth Circuit was to be the first appellate court to address the sampling issue, and this case demonstrates the importance of this issue. Where plaintiffs in this arena may lack sufficient resources to prove their cases on a claim-by-claim basis, the use of statistical sampling makes it far more cost-effective to prosecute their cases. If appellate courts rule on this issue in the future, and in favor of defendants, such rulings will deprive plaintiffs of this potential shortcut. This would appropriately limit plaintiffs’ recovery to claims plaintiffs actually prove are false by a preponderance of the evidence.

On February 14, 2017, after nearly two years of appellate proceedings, the US Court of Appeals for the Fourth Circuit declined to address the substance of an appeal related to the use of statistical sampling to prove liability in a False Claims Act (FCA) case in United States ex rel. Michaels, et al. v. Agape Senior Community, Inc., et al. (4th Cir., Case No 15-2145). In the same opinion, the appellate court affirmed the district court’s holding that the Attorney General has the power to veto settlements between relators and FCA defendants, even when the United States has elected not to intervene in the case.

We have been reporting on the developments in this high-profile FCA case as it has proceeded in the Fourth Circuit. From the Court’s acceptance of the appeal, to a summary of opening briefs, to amicus briefs filed by hospital trade associations, to the oral arguments last fall, we have keenly followed this case because of its potentially far-reaching implications for FCA defendants. Continue Reading Fourth Circuit Declines to Address FCA Sampling Dispute as “Issue of Fact” While Affirming That United States Has “Unreviewable Veto Power” to Deny Settlements

On October 26, 2016, the US Court of Appeals for the Fourth Circuit held oral arguments in United States ex rel. Michaels v. Agape Senior Community, Inc. In this case, the relators alleged that the defendants caused the submission of false claims for hospice reimbursement. The Medicare regulations governing the hospice benefit require physicians to certify that the patient seeking the benefit have a terminal illness with a prognosis of six months or fewer. The relators allege that those certifications were false.

At the district court, the relators had sought to use statistical sampling to establish liability. After the district court concluded—in the context of a discovery dispute—that it would not permit the relators to use statistical sampling to prove their case, the parties engaged in mediation efforts. The relators and defendants reached a settlement, but the government objected. The district court then certified for interlocutory appeal two issues: (1) whether the government has an unreviewable power to veto a False Claims Act settlement; and (2) whether statistical sampling can be used to establish liability.

At the oral arguments, the Fourth Circuit panel was somewhat skeptical to the notion that it could even conduct an interlocutory review the district court’s ruling on statistical sampling, noting that the district court made an evidentiary ruling that it could have revisited later in the proceedings, including at trial.

Continue Reading Oral Arguments Held In Closely Watched Agape Case

On June 20, 2016, the United States District Court for the Northern District of Texas granted summary judgment in defendants’ favor on all but her retaliation claims in relator’s False Claims Act (FCA) suit against defendants Vista Hospice Care, Inc. and VistaCare, Inc.  The court found that the relator, a former social worker at Defendants’ facility, failed to provide any evidence of a corporate scheme to admit Medicare beneficiaries before they were eligible.  The decision echoed principles announced by the United States District Court for the Northern District of Alabama in US ex rel. Paradies v. AseraCare, Inc., which we have been following on this blog (and which is now on appeal to the Eleventh Circuit).

The relator relied on two types of evidence: (1) expert testimony that physicians incorrectly certified certain patients’ eligibility; and (2) Defendants’ implementation of corporate policies designed to incentivize improper admissions.

The relator’s expert identified a population of 12,000 patients who had been discharged in the relevant period and were on hospice for a total of at least 365 days.  The expert then selected a stratified sample of 291 patients for evaluation by a second expert.  The first expert then extrapolated the second expert’s analysis to form an opinion as to the total number of claims submitted for the 12,000 patients that were allegedly false.

The court rejected this approach.  First, the court cast doubt on extrapolation evidence, refusing to find it reliable.  The court stated that “[i]n this context, statistical sampling of the type done by [the expert] . . . cannot establish liability for fraud in submitting claims for ineligible patients, as the underlying determination of eligibility for hospice is inherently subjective, patient-specific, and dependent on the judgment of involved physicians.”  The court concluded that “proof regarding one claim does not meet Relator’s burden of proof regarding other claims involving different patients, different medical conditions, different caregivers, different facilities, different time periods, and different physicians.”

Second, the court found that the manner in which the expert chose the stratified sample of 291 patients was “fundamentally flawed” because the sample the expert relied on was not randomly selected and did not control for variables the expert identified as important, such as geographical differentiation, different clinical staffs and doctors or disease type.  Thus, the court prohibited the relator from presenting evidence beyond the 291 patients.

The court also rejected the evidence the relator presented as to these 291 patients.  The court concluded that the relator’s expert’s mere disagreement with a certifying physician’s assessment of hospice eligibility was insufficient to prove a violation of the FCA.  Rather, “[b]ecause a physician must use his or her clinical judgment to determine hospice eligibility, an FCA claim . . . must be predicated on the presence of an objectively verifiable fact at odds with the exercise of that judgment, not a matter of questioning subjective clinical analysis.”  For example, a relator must show that a physician “never reviewed the patient’s medical condition nor saw the patient, or that the physician did not actually believe that if the patient’s disease ran its normal course, the patient had a prognosis of six months or less.”  Here, the fact that the expert simply reached different conclusions than the certifying physicians as to the necessity of admitting certain patients was insufficient.

As to Defendants’ alleged improper implementation of certain corporate policies, the relator pointed to those policies (1) encouraging admission of patients earlier than competitors and before determining eligibility, (2) requiring multiple layers of review before discharging patients, and (3) instructing staff to document evidence supporting eligibility for eligible patients.  According to the relator, these policies supported an inference that Defendants billed for ineligible patients.  But the court found that making that inference would be improper, finding that “[w]hat Relator is missing here is a causal link between Defendants’ policies, a few instances where medical information was allegedly falsified, and actual false or fraudulent certifications and claims.”

As this case underscores, FCA claims dependent on issues of clinical judgment are met with skepticism by the courts, in recognition of the fact that the FCA is not a tool to arbitrate good faith clinical disputes.  Attempts by FCA plaintiffs to extrapolate to prove broad liability are also being closely scrutinized, particularly where, as here, the unique clinical elements underlying each claim are not generalizable across a broad universe.

 

On May 27, 2016, the US Department of Justice said it will appeal to the Eleventh Circuit its loss in the False Claims Act (FCA) case against hospice chain AseraCare Inc. The government’s decision to appeal comes as no surprise, and it means that the substantial attention this case has received will continue.

As a reminder, this case, U.S. ex rel. Paradies v. AseraCare, Inc., focused on whether AseraCare fraudulently billed Medicare for hospice services for patients who were not terminally ill. AseraCare argued (and the district court ultimately agreed) that physicians could disagree about a patient’s eligibility for end-of-life care and such differences in clinical judgment are not enough to establish FCA falsity.

The government appealed three orders issued by the US District Court for the Northern District of Alabama. We previously posted about each of these three orders.

The first order on appeal is the district court’s May 20, 2015 decision bifurcating the trial, with the element of falsity to be tried first and the element of scienter (and the other FCA elements) to be tried second. The government had unsuccessfully sought reconsideration of this decision.  This is the first instance in which a court ordered an FCA suit to be tried in two parts.

The second order on appeal is the district court’s October 26, 2015 decision ordering a new trial, explaining that the jury instructions contained the wrong legal standard on falsity. This order came after two months of trial on the element of falsity and after a jury verdict largely in favor of the government.

The third order on appeal is the district court’s March 31, 2016 decision, after sua sponte reopening summary judgment, granting summary judgment in favor of AseraCare. In dismissing the case, the court explained that mere differences in clinical judgment are not enough to establish FCA falsity, and the government had not produced evidence other than conflicting medical expert opinions.

The government must file its opening brief 40 days after the record is filed with the Eleventh Circuit. We will be watching this case throughout the appellate process.

In late March, three major health care trade associations filed amicus briefs in support of the defendant-appellees in U.S. ex rel. Michaels v. Agape Senior Community, et al., Record No. 15-2145 (4th Cir.).  As we have previously reported, the relator in Agape is pursuing an interlocutory appeal to the U.S. Court of Appeals for the Fourth Circuit regarding the use of statistical sampling to prove False Claims Act (FCA) liability.  In their respective briefs, the American Hospital Association (AHA), Catholic Health Association (CHA) and American Health Care Association (AHCA), did not mince words – a reversal of the District Court’s ruling that sampling cannot be used to prove FCA liability would have catastrophic consequences for the thousands of hospitals and health care providers throughout the United States.

In their joint brief, AHA and CHA noted that their member hospitals “submit thousands of claims to Medicare and Medicaid every day based on physicians’ medical judgments about patient conditions and courses of treatment.”  On behalf of its members, AHA and CHA affirmed that “statistical analyses are no substitute for the on-the-ground medical context a treating physician knows, understands, and relies upon in making treatment decisions for a given patient.” The crux of the AHA/CHA argument is as follows: if the government and relators want to benefit from the treble damages and statutory penalty provisions of the FCA, then they must accept the “essential safeguard against its abuse: each claim must be separately proved.”  The alternative, suggested AHA/CHA, is a “Trial by Formula” approach that was firmly rejected by the Supreme Court of the United States in Wal-Mart Stores v. Dukes, 131 S. Ct. 2541 (2011), and further explained just last month in Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (Mar. 22, 2016).  With the majority of FCA qui tam cases being handled by relators directly—with limited oversight from a non-intervening United States—AHA/CHA argue that allowing statistical sampling to prove FCA liability would “shortcut” a physician’s clinical judgment.  Moreover, they observe that “[p]erversely, the bigger the relator’s allegations, the lower his burden of proof would become; the result would be more health care providers forced into costly defense of meritless FCA suits and more in terrorem settlements,” diverting resources from patient care and increasing health care costs for everyone.

Continue Reading Hospital Trade Associations Side with Agape in Fourth Circuit Appeal, Urging the Court to Reject Use of Statistical Sampling to Prove Liability in FCA Cases

As we previously reported in October 2015, the U.S. Court of Appeals for the Fourth Circuit is considering an interlocutory appeal regarding the use of statistical sampling to prove liability under the False Claims Act (FCA).  The Fourth Circuit’s resolution of this case, U.S. ex rel. Michaels v. Agape Senior Community, et al., Record No. 15-2145 (4th Cir.), could have broad-sweeping implications for FCA defendants.  In short, while courts have regularly permitted the use of statistical sampling to determine damages in FCA cases, the use of sampling to prove FCA liability is a relative rarity and the question has never been considered by a circuit court.  The first question on appeal goes directly to this point.  The second question on appeal—which could also have a significant impact on the FCA landscape—is whether the United States has unreviewable “veto authority” under 31 U.S.C. § 3730(b)(1) to reject a settlement in FCA cases where it has elected not to intervene.

In opening briefs filed last week, the relators expound upon a cross-section of cases where statistical sampling has been permitted to prove damages.  Then, citing to the Supreme Court’s touchstone Daubert opinion, the relators seek to stretch the use of sampling beyond damages and directly to the issue of FCA liability, asserting that the question is not “whether statistical sampling and extrapolation, in and of itself, is appropriate, but whether the statistical sampling is conducted in a scientifically proven and accepted manner . . . .”  The relators’ position throughout the case has been that the sheer volume of claims at issue—approximately 50,000–60,000 claims across 10,000–19,000-plus patients—could not be individually reviewed by an expert to determine medical necessity without incurring exorbitant costs that exceed the estimated damages in the case.  The relators pinned that cost at upwards of $35 million based on each of their experts spending “four to nine hours reviewing each patient’s chart.”

With top-end estimated damages of $25 million, the relators argued that they should be permitted to review a sample of claims, extrapolate across the universe, and draw inferences about FCA liability from the results.  Agape firmly rejected the relators’ position, contending that “determining eligibility for hospice care requires an exercise of subjective clinical judgment that takes into account a myriad of facts and circumstances unique to each patient.”  The district court agreed, leading the relators to proceed forward based on the ruling that sampling could not be used to prove liability, including preparations for an “informational bellwether” trial (over Agape’s objections) to present evidence regarding a small sample of claims.  At the same time, the parties engaged in a series of mediation sessions.  In the first two sessions, the United States participated and a resolution was not reached.  At the mediator’s request, the third session excluded the United States and resulted in Agape obtaining a settlement agreement to resolve all of the relators’ claims for $2.5 million.

With the district court set to approve Agape’s settlement, the United States objected on the basis of its 31 U.S.C. § 3730(b)(1) authority, which provides that a qui tam action “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.”  While the district court noted that “a compelling case could be made here that the Government’s position is not, in fact, reasonable,” it was “constrained to deny the motion to enforce the settlement” based on the plain language in 31 U.S.C. § 3730(b)(1).  Both Agape and the relators are aligned in their rejection of the district court’s ruling on this settlement-related question.

With a significant number of qui tam cases added to the books each year, resolution of this settlement-related issue will be instructive for parties navigating non-intervened whistleblower suits.  Together with the overarching question of whether statistical sampling can be used to prove FCA liability, the Fourth Circuit’s ruling on the issues presented in Agape could change the way that qui tam cases are litigated (and resolved pre-trial) going forward.

We will closely monitor this case and continue to report on further developments.

Two decisions from the US District Court for the Southern District of Texas limit the extent to which relators can stretch the use of circumstantial evidence to support a False Claims Act case based on an anti-kickback or off-label marketing theory. In two separate decisions on December 10 and December 14 in US ex rel. King v. Solvay Pharmaceuticals, Inc. (SPI)., the court granted SPI’s summary judgment motion finding insufficient evidence for a reasonable juror to support either theory.

For the anti-kickback claim, relators alleged that SPI engaged in a number of activities, such as speaker programs, preceptorships, honorariums, free continuing medical education, and provided gifts such as dinners and event tickets, as part of a national scheme to illegally induce physicians to prescribe SPI’s drugs. In dismissing this claim on December 10, the court first found that the allegations of a nationwide scheme were unsupported because in relator’s response to interrogatories and expert report, only 46 Texas-based physicians were identified as having prescribed SPI’s drugs and as having allegedly received remuneration from SPI. The court observed:

[t]heoretically Relators could survive summary judgment with examples, the examples would have to be linked to remuneration from SPI, some evidence of intent that the remuneration would lead to claims, and claims for prescriptions written by these physicians that a reasonable juror could believe resulted from the unlawful remuneration.  Additionally, to continue a claim on a national-level scheme, Relators would need to demonstrate that kickbacks were provided to physicians in different areas of the country as part of a nationwide scheme to increase prescriptions of the specific Drugs at Issue to patients who are on Medicaid or part of some other government prescription program.

Since relators provided no physician examples outside of Texas, the court ruled the multi-state claims failed.

The court then examined each of the alleged forms of remuneration and found that the evidence was insufficient to find SPI had the requisite “knowing and willful” intent to induce referrals to support an anti-kickback claim under federal or Texas law. For example, the “physician profile interview program” involved sales representatives interviewing physicians prior to the launch of the drug Aceon to obtain information about the physicians’ practice and treatment of hypertension. Physicians were paid $100 for participating in this 30 minute interview. Sales reps were instructed to not mention Aceon during these interviews. Relators offered no evidence that sales reps failed to follow this instruction. Not surprisingly, the court found that the evidence failed to show that SPI intended the program to induce physicians to write prescriptions for a drug they were not told about. For other forms of remuneration, the court found that relators offered no proof that the physicians who received the remuneration actually prescribed SPI’s drugs.

In a separate ruling on December 14, the court granted SPI’s summary judgment motion dismissing relators’ “fraud-on-DrugDex” theory. To be eligible for government reimbursement for an off-label use of a drug, relators alleged that off-label use has to be listed in one of several drug compendia that evaluate whether sufficient clinical research supports that off-label use (see 42 U.S.C. §§ 1396r-8(d)(1)(B)(I); 1396r-8(k)(6)). DrugDex is one of those compendia. Relators alleged that SPI inappropriately influenced and misled DrugDex to include certain uses for Aceon, AndroGel, and Luvox as medically accepted by allegedly suppressing publication of negative research papers and only publishing “smaller” studies. Relators also alleged that SPI “colluded with” DrugDex “so that the uses listed might be deemed eligible for reimbursement under various government health programs.”

The court, however, found no evidence that SPI had a duty to publish negative studies, much less that the evidence showed SPI suppressed their publication. As far as the “collusion” allegation, relators admitted that they did not have evidence of communications between SPI and DrugDex, but rather that “DrugDex invited undue influence and SPI took advantage” of this invitation. While “relators had substantial time to conduct discovery and obtain proof that SPI and DrugDex communicated and that SPI somehow influenced DrugDex,” the court found no such sufficient evidence in the record to put the question to a jury.

These decisions provide some comfort to defendants, including but not limited to pharmaceutical companies and healthcare providers, that courts will require relators to offer more than innuendo and assumptions to support an FCA claim — a serious allegation with potentially significant consequences. The ability of relators to pursue cases through the costly and lengthy discovery process on flimsy allegations takes some of that comfort away. In this case, the relators filed their original complaint in 2003 — 12 years ago. The Department of Justice decided to decline in 2011.