On December 19, 2016, the US Department of Health and Human Services Office of Inspector General (OIG) posted a report examining the Centers for Medicare & Medicaid Services’ (CMS’s) “2-Midnight Rule.” The OIG concluded that although the number of inpatient stays decreased and the number of outpatient stays increased under the 2-Midnight Rule, Medicare paid nearly $2.9 billion in fiscal year 2014 for potentially inappropriate short inpatient stays. The OIG recommended that CMS improve oversight of hospital billing.
On October 28, 2016 in an unpublished opinion, the Fifth Circuit Court of Appeals affirmed the decision of the US District Court for the Southern District of Texas that granted summary judgment to Omnicare, Inc. in a qui tam action. We discussed the decision of the district court here.
The relator alleged, among other claims, that Omnicare violated the False Claims Act (FCA) by writing off debt owed by skilled nursing facilities (SNFs) and offering prompt-payment discounts in exchange for referrals to Omnicare’s pharmacy business, in violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b)(2) (AKS).
The Fifth Circuit agreed with the district court that the evidence offered by the relator regarding the debt write-off practices did not support a finding that Omnicare offered benefits to SNFs that were designed to induce Medicare and Medicaid referrals. The court found that, at best, the evidence, which consisted primarily of company emails, supported a finding that “Omnicare did not want unresolved settlement negotiations to negatively impact its contract negotiations with SNF clients” and was “avoiding confrontational collection practices that might discourage SNFs from continuing to do business with Omnicare.” In addtion, the court found no evidence that the SNFs were told that they were receiving special benefits, noting that if the “purported benefits were designed to encourage SNFs to refer Medicare and Medicaid patients to Omnicare, one might expect to find evidence showing that the SNFs at least knew about the benefits.”Moreover, the court found that the relator offered no evidence that prompt-payment discounts were offered to the SNFs for the “illegitimate purpose of inducing referrals rather than the legitimate purpose of inducing payments.”
The court invoked the principle that there is no AKS violation where “the defendant merely hopes or expects referrals from benefits that were designed for other purposes” and noted that “although Omnicare may have hoped for Medicare and Medicaid referrals, absent any evidence that Omnicare designed its settlement negotiations and debt collection practices to induce such referral, Relator cannot show an AKS violation.”
Although the Fifth Circuit’s decision was not published, it stands as an affirmation of the district court’s admonition that “an accusation of a multimillion-dollar fraud must be supported by more than a few ambiguous e-mails.”
Omnicare Decision Demonstrates that Relators Cannot Rely on Ambiguous Evidence of Intent to Survive Summary Judgment, and Should Exercise Caution
On September 3, the U.S. District Court for the Southern District of Texas granted summary judgment in favor of Omnicare in United States ex rel. Ruscher v. Omnicare, Inc., and in doing so, made clear that in order to get to a jury, relators must come forth with evidence of intent that is more than merely ambiguous.
The relator alleged that Omnicare violated the False Claims Act (FCA) by writing off debt owed by skilled nursing facilities (SNFs) in exchange for referrals to Omnicare’s pharmacy business, in violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b)(2) (AKS). An AKS violation requires a showing that the defendant intended to induce referrals, and the court’s opinion centered on that issue. Omnicare argued that the write-offs were not done in order to induce referrals, but instead were the resolution of legitimate billing disputes with the SNFs.
The court reviewed in detail the evidence the relator claimed supported her allegations of fraudulent intent, many of which were e-mails from Omnicare personnel. For example, one e-mail, concerning one of the eight SNFs at issue, stated that “it behooves [Omnicare] to get [the billing dispute with Avamere] resolved ASAP” because “Avamere has indicated that they will not consider renewal with Omnicare unless this billing reconciliation is complete and they will not pay us either.” The court held that while the e-mail reflected a desire to quickly resolve the billing dispute “to preserve the parties’ business relationship,” it did not evidence an intent to forgive a debt in order to induce referrals.
Another e-mail stated, “I cannot assure Omnicare that we will win the Seacrest business if we reach agreement [on accounts receivable negotiations] but I can assure that we will not win Seacrest if we fail to reach compromise….” While the court observed that this was among the e-mails “coming closest to creating a question of material fact,” the court nonetheless held that it and others could not “be read to suggest a bad purpose, as opposed to an honest, if business-minded, desire to maintain good customer relationships.”
Among other arguments, relator also alleged that prompt-pay discounts that Omnicare had negotiated with many of its customers, including those whose payments had been late in the past, were evidence of fraudulent intent. The court rejected this argument because “a customer would be entitled to take the discounts only for future, timely payments. This seems to the court to be a completely reasonable effort to reduce Omnicare’s future collections costs by encouraging previously delinquent customers to make timely payments.”
In the end, the court held:
In order to reach a jury, an accusation of a multimillion-dollar fraud must be supported by more than a few ambiguous e-mails. An accusation of fraud should be made cautiously, and only when there is evidence to support it.
Omnicare is a somewhat lengthy decision and it covers more than the issues set forth above. But the court’s willingness to dig into the evidence and grant summary judgment on the question [...]
The decision last fall in United States ex rel. Martin v. LifeCare Centers of America, Inc., No. 08-cv-251, 2014 WL 4816006 (E.D. Tenn. Sept. 29, 2014), has led to considerable discussion among lawyers who litigate claims arising under the False Claims Act (FCA). This decision represents the first time any court has found statistical sampling and extrapolation sufficient to establish FCA liability. Some courts had previously endorsed the use of sampling to demonstrate damages once liability has been established. Other courts had affirmed Department of Health and Human Services (HHS) administrative decisions that applied sampling in concluding that Medicare had overpaid government contractors. But the LifeCare decision went further, denying the defendant’s motion for summary judgment relating to the government’s use of statistical sampling to show falsity – the very essence of a false claim for payment by the government.
What is particularly noteworthy about the LifeCare decision is the nature of the government’s allegations for which the Court found extrapolation appropriate. In LifeCare, the government has alleged that LifeCare, a company that operates skilled nursing facilities, billed Medicare for medically unnecessary rehabilitation therapy services. A determination of medical necessity as to each of the services billed to Medicare turn on the individualized (and not collective) decisions of clinicians. The defendant argued that individualized decision-making cannot be demonstrated accurately through collective proof. Nevertheless, the court in LifeCare concluded that this argument “highlights the very nature of statistical sampling: that a smaller portion of claims will be used to draw an inference about a larger, not entirely identical, population of claims.” Some commentators have reacted to this reasoning by concluding that LifeCare gives the government and relators license to sidestep proof of falsity for each alleged claim for payment.
Another recent decision, United States v. AseraCare, Inc., No. 2:12-CV-245-KOB, 2014 U.S. Dist. LEXIS 167970 (N.D. Ala. Dec. 4, 2014), illustrates a similar conclusion. In that case, the court denied the defendant’s motion for summary judgment on the element of falsity where the government solely relied upon a sampling of claims reviewed by an expert. In its decision, the court concluded that statistical evidence was sufficient evidence of falsity to defeat summary judgment.
However, a close reading of both LifeCare and AseraCare demonstrates that these cases contain important limitations. First, the LifeCare court recognized that its decision was the first of its kind. Other courts are not bound to follow its reasoning. Second, both courts noted that plaintiffs seeking to use sampling would still be subject to Daubert challenges. Moreover, LifeCare does not stand for the proposition that a plaintiff can prove FCA elements other than falsity by virtue of presenting a valid sample. In opposing summary judgment, the government represented that it intended to establish scienter by evidence of “corporate practices and pressure, and that LifeCare knew those practices likely caused the submission of false claims given the complaints it received nationwide from its employees and others.” The court approved of the manner in which the government proposed to establish scienter, [...]