Court Rejects DOJ Attempt to Insulate Prior Payment Practices from Discovery

Historical government payment practices have gained new importance following the Supreme Court’s guidance in Escobar that such practices can preclude a finding that regulatory compliance was material to the payment of an allegedly false claim.  Evidence regarding the government’s prior knowledge of regulatory violations and continued payment can also bear on the mens rea element of an FCA claim.  Perhaps not surprisingly in light of the importance of this evidence, DOJ recently tried—unsuccessfully—to block a defendant’s efforts to discover information relating to historical payment determinations by CMS Medicare Administrative Contractors (“MACs”).  See United States ex rel. Ribik v. HCR ManorCare, Inc., No. 09-cv-13 (E.D. Va. Feb. 3, 2017).

The government partially intervened in the case, alleging that defendant HCR ManorCare committed billing fraud relating to SNF rehabilitation services.  In support, the government relied on an expert report drafted by a former physical therapist who reviewed a sample of HCR ManorCare patient medical records.  The company contended that MACs adjudicate claims quite differently than the government’s expert report suggests.  HCR ManorCare first served a Rule 30(b)(6) deposition notice on CMS seeking testimony on the practical application of the various CMS statutes, regulations, and guidance at issue.  After the first of two CMS deponents refused to testify about those issues, HCR ManorCare sought Rule 30(b)(6) testimony from four MACs.

Although one would expect MACs to be best positioned to discuss how they adjudicated HCR ManorCare’s claims, CMS insisted that its remaining 30(b)(6) deponent could speak with equal authority on the subject.  DOJ filed a motion to quash the HCR ManorCare subpoenas that had been served on the MACs and to obtain a protective order barring HCR ManorCare from conducting 30(b)(6) depositions of the MACs.  Lacking a legitimate basis to maintain that the subpoenas were unduly burdensome, the government instead argued that the requests duplicated the testimony of CMS’s remaining 30(b)(6) deponent and inappropriately attempted to bind CMS through the 30(b)(6) testimony of its agents.  The latter argument did not prevent DOJ from also arguing—without citing any authority—that because MACs are agents of the government, HCR ManorCare’s subpoenas to the MACs were equivalent to notices seeking additional Rule 30(b)(6) testimony from CMS.  The government portrayed HCR ManorCare as attempting to choose its own 30(b)(6) deponents because it was displeased with CMS’s selections.

The district court rejected DOJ’s arguments and ruled that MACs are distinct corporate entities who are appropriately deposed separately from CMS and that HCR ManorCare has “the right to explore whether the four contractors actually processed claims in the manner asserted as correct by the plaintiff.”

A copy of the government’s motion to quash and the defendant’s memo in opposition can be found here and here.