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 [...]