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Brenna Jenny

09 March 2015

District Courts Split Over Whether Relators Can be Original Sources of Claims Based on Misconduct Occurring After Employment Termination

Posted by Jaime L.M. Jones and Brenna Jenny

On March 4, 2015, the Central District of Illinois granted a defendant hospital’s motion to dismiss FCA claims based on “upcoding” allegations, holding the relator was not an original source of certain allegations and finding his remaining allegations insufficient to satisfy the requirements of Rule 9(b). U.S. ex rel. Gravett v. The Methodist Med. Ctr of Ill., No. 12-1008 (C.D. Ill. Mar. 4, 2015). In reaching its decision the court rejected relator’s argument that he could be the original source of allegations based on conduct that occurred after he left defendant’s employ, breaking with recent precedent out of the Eastern District of Pennsylvania. See U.S. ex rel Galmines v. Novartis Pharma. Corp., No. 06-cv-03213 (Feb. 27, 2015).

The relator in U.S. ex rel Gravett worked as an emergency room physician at Methodist Medical Center until January 1, 2007. According to his allegations, Methodist Medical Center employed coding software that it knew had a tendency to inflate the otherwise applicable CPT codes for physician and hospital services to codes associated with higher reimbursement. As a result, the relator alleged the submission of false claims for patients treated during the period 2006-2011. The defendant moved to dismiss relator’s claims under the public disclosure bar, arguing that it had disclosed the essential elements of the alleged fraud to the U.S. Attorney’s Office in the course of a government investigation beginning in 2010. Following Seventh Circuit precedent, the court held that relator’s allegations were publicly disclosed before proceeding to assess whether the relator qualified as an original source of those allegations. The court held that relator could not have direct knowledge of any alleged upcoding that occurred after his employment ended. As such, he could not be an original source of those allegations, which were barred.

The Central District of Illinois’ refusal to consider allegations of misconduct occurring after the relator’s employment was terminated stands in contrast to a recent order by the Eastern District of Pennsylvania in U.S. ex rel Galmines v. Novartis Pharma. Corp. Under an earlier ruling, the relator’s allegations—that during the time of his employment at Novartis, the company engaged in off-label marketing and entered into kickback arrangements with respect to the drug Elidel—had been deemed publicly disclosed. Nonetheless, the court concluded that the relator was an original source of those allegations. The relator subsequently moved to amend his complaint to extend the time period of the alleged misconduct past the termination of his employment. The court granted the motion, ruling that relators may “pursue the entire fraudulent scheme for which they have direct and independent knowledge of the operative substantive facts,” without limitation to the “specific time periods for which they have direct and independent knowledge.” The court viewed this conclusion as mandated by how the public disclosure and first-to-file rules have been interpreted. In particular, the court was concerned that constraining a relator to the time period of his direct involvement could create situations in which no relator could bring a lawsuit for a particular time period of a fraud. For example, this could arise where an original source who was the first to file lacked direct knowledge of a later portion of the scheme, but would-be relators with direct knowledge as to this later period would be barred from filing a suit under the first-to-file rule. The Galmines court further ruled that because the relator had sufficiently alleged a course of conduct continuing past his misconduct, he could amend his complaint and obtain discovery for conduct occurring after he filed earlier iterations of his complaint.

In contrast to the claims arising from conduct after his termination, the Gravett court held the relator was the original source of allegations related to upcoding he observed during his employment. As to that alleged upcoding, the court ruled that despite his direct knowledge relator failed to include any particulars regarding the false claims, such as invoices or requests for payment to a federal healthcare program that resulted from the alleged upcoding. Under well-established precedent, relators advancing upcoding allegations are only entitled to a relaxation of Rule 9(b)’s requirement to plead specific information of at least one submitted false claim if they are “in a special position of personal knowledge or involvement in the billing practices of the defendant that affords some indicia of reliability to the allegations.” The Gravett court determined that as a former emergency room physician, the relator was only involved in the delivery of care, and he lacked “first hand knowledge of Defendants’ actual billing practices, submission of claims for payment, or receipt of payments from the Government payors.” Absent actual involvement in claims or billing practices, the relator was effectively relying on “rumor or innuendo.” Thus, the court dismissed relator’s remaining claims pursuant to Rule 9(b).

A copy of the opinion in U.S. ex rel. Gravett v. The Methodist Med. Ctr of Ill., No. 12-1008 (C.D. Ill. Mar. 4, 2015) can be found here.

A copy of the opinion in U.S. ex rel Galmines v. Novartis Pharma. Corp., No. 06-cv-03213 (Feb. 27, 2015) can be found here.

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23 February 2015

District Court: Government Need Not Provide Discovery on Allegedly False Claims Outside of the Government’s Selected Sample

Posted by Jaime L.M. Jones and Brenna Jenny

The Eastern District of Tennessee recently clarified the discovery implications of its September 2014 ruling (reported here) permitting the government to establish FCA liability based on a sampling of claims. See U.S. ex rel. Martin v. Life Care Centers of America, Inc., No. 08-cv-251 (E.D. Tenn. Feb. 18, 2015). In rejecting the defendant’s motion to compel discovery as to the allegedly false claims outside of the government’s sample, the court underscored the significance of its earlier ruling narrowing the evidence necessary to establish liability, and significantly constrained the government’s discovery obligations.

Well before the court’s September 2014 ruling, the defendant, a chain of skilled nursing facilities, had served on the government an interrogatory requesting that it “[i]dentify each false or fraudulent claim or false record or statement that you contend [defendants] knowingly presented or caused to be presented, or knowingly made, used, or caused to be made or used, in violation of the False Claims Act.” The government only provided claims information as to the ten patients identified in its complaint, and, following the court’s ruling, the government confirmed that it would only provide information relating to its sample of 400 patients. The defendant moved to compel the government to produce the information it had requested, arguing that, regardless of the government’s “trial strategy” to only present evidence as to a sample of patients, it was nonetheless entitled under the Federal Rules of Civil Procedure to “the foundational information on the claims it contends violated the FCA–and not just those that it has self-selected for proof at trial.”

The court denied the motion, ruling that the defendant was attempting to relitigate the same arguments regarding sampling that the court rejected in its September 2014 ruling and subsequent denial of the defendant’s motion to certify the decision for an interlocutory appeal. According to the court, allowing the defendant to conduct discovery as to claims outside of the government’s sample would require the very claim-by-claim review that the court previously determined to be unnecessary for establishing FCA liability. Thus, this court not only has lowered the government’s burden to establish liability for the submission of false claims but also has significantly lessened the government’s discovery obligations, particularly when alleging fraudulent schemes caused the submission of voluminous claims.

A copy of the court’s order can be found here.

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16 February 2015

CMS Delays Final Overpayments Rule Until 2016

Posted by Scott Stein and Brenna Jenny

On Friday, February 13, 2015, CMS announced that it needs at least one more year to finalize regulations governing the report and return of “identified” overpayments by Part A/B providers under section 6402 of the Patient Protection and Affordable Care Act (“PPACA”). As we previously reported, CMS published a proposed rule in February 2012 for Medicare Part A and B, but, despite subsequently finalizing overpayment regulations for Medicare Advantage (“MA”) organizations and Part D sponsors, has not yet finalized a version of its 2012 proposal.

Although agencies are generally expected to publish final rules within three years of the publication of a proposed rule, they can invoke “exceptional circumstances” and elect to file a notice of continuation. CMS described the exceptional circumstances at play here as the need to both resolve the “significant policy and operational issues” raised by stakeholders and to gather input from DOJ and OIG. In the notice, CMS states that notwithstanding the delay, it wants “to remind all stakeholders that even without a final regulation they are subject to the statutory requirements found in section 1128J(d) of the Act and could face potential False Claims Act liability, Civil Monetary Penalties Law liability, and exclusion from Federal health care programs for failure to report and return an overpayment.”

The fact that CMS has delayed the guidance for Medicare Part A and B, despite having previously finalized guidance for Medicare Part C and D, suggests that CMS does not necessarily intend to adopt a one-size-fits-all approach to the overpayment rules. The extent to which the Part C/D guidance should be applied to Part A/B is being argued in United States v. Continuum Health Partners (as reported here), in which DOJ is seeking to recover Medicaid overpayments. In its briefing, DOJ has argued that critical provisions from the MA/Part D final rule, such as when a payment has been “identified,” should be considered equally applicable in other contexts. CMS’s delay in finalizing regulations for Part A/B arguably undercuts that contention. Further, CMS’s notice of continuation likely reflects significant negotiations between various agency stakeholders as to how restrictive the regulations should be, since the extent of the flexibility given to providers will significantly impact the viability of future qui tam suits, including those that have already been filed but remain under seal. The delay heightens the consequences of the Southern District of New York’s ruling in Continuum, as CMS will likely have an opportunity to respond to the court’s approach in its final rule.

A copy of the text of CMS’s Federal Register notice can be found here.

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03 February 2015

DOJ Files Amicus Brief in Private Litigation Premised on Alleged Stark/AKS Violations

Posted by Scott Stein and Brenna Jenny

DOJ recently took the unusual step of filing an amicus brief in a private lawsuit alleging violations of the Lanham Act and various state laws, which resulted from violations of the Stark Law and the Anti-Kickback Statute (“AKS”). See Brief for the United States Supporting Appellee, Ameritox, Ltd. v. Millennium Labs., Inc., No. 14-14281 (11th Cir. Jan. 21, 2015). DOJ explained that it was filing an amicus brief to correct what it views as Millennium’s mischaracterizations of how CMS and the OIG interpret exceptions to the statutory definitions of remuneration under the Stark Law and the AKS. It emphasized the importance of a “proper interpretation” of these statutes, both because the laws independently are key mechanisms for preventing fraud and abuse, and because they serve as predicates for FCA liability.

By way of background, Ameritox filed suit against a competing clinical laboratory, Millennium, in April 2011, alleging that Millennium violated both the Stark Law and the AKS by providing free point-of-care testing cups (“POCT cups”) to physicians. POCT cups contain embedded immunoassay testing strips, which allow physicians to test urine samples and receive drug test results within minutes. Millennium entered into so-called “cup agreements” with physicians, whereby the company provided POCT cups free of charge, in exchange for the physician contractually agreeing not to bill any insurer (private or government) for the testing and to return the cups to Millennium for laboratory testing. Failure to uphold either obligation required a physician to remit the otherwise applicable price of the cup. Millennium argued that it had not provided any remuneration because physicians certified they were not billing for the testing, and therefore they received nothing of value from the cups. Ameritox, however, alleged that physicians were removing the test strips, batch testing them at the end of the day using a chemical analysis, and then submitting bills to insurers.

In May 2014, the district court ruled that the free POCT cups were remuneration where physicians could not otherwise bill for them, and that Millennium violated the Stark Law and the AKS by providing free POCT cups in these circumstances. However, the court determined it was a question of fact whether Millennium violated the law by providing POCT cups to physicians who could bill for them but contractually opted out of the opportunity to do so, in exchange for receiving the cup at no cost. Following the trial a month later, the jury found that Millennium had in fact violated the AKS and the Stark Law.

Millennium appealed to the Eleventh Circuit, arguing that provision of the free POCT cups did not constitute remuneration under either the Stark Law or the AKS. The crux of Millennium’s defense under the Stark law was that the POCT cups fell within a statutory exception to the definition of remuneration for laboratory supplies, i.e., “[t]he provision of items, devices, or supplies that are used solely to (I) collect, transport, process or store specimens for the entity providing the item, device, or supply.” 42 U.S.C. § 1395nn(h)(1)(C)(ii); 42 C.F.R. § 411.351.

<p&ggt;DOJ pointed out that the test strips served the purposes of the physicians testing the specimens, and therefore even if the rest of the cup did transport specimens to Millennium—the entity providing the item—the POCT cups were not solely used for Millennium’s purposes. Likening the insertion of the immunoassay strips into the POCT cups to taping five-dollar bills to the inside of test cups, DOJ reiterated that under CMS’ guidance, benefits conferred on physicians that fail to meet a Stark Law exception can still be remuneration, even if the value is small and cannot be separately billed.

As to whether the POCT cups constituted remuneration under the AKS, Millennium cited recurrent OIG guidance that “free items and services that are integrally related” to the offering supplier’s services are not considered remuneration. See, e.g., OIG, Adv. Op. No. 12-10 (Aug. 23, 2012). However, DOJ averred that from the OIG’s perspective, “integrally related” means that the item is so intertwined with the underlying service that it can only be used as part of that service and as such has no independent value apart from the service. DOJ did acknowledge that the OIG has recognized the potential permissibility of incidental benefits to physicians, so long as they are narrowly linked to the provision of the services. Yet DOJ insisted that the free POCT cups in fact conferred substantial benefits distinct from Millennium’s laboratory testing services, and therefore rose to the level of remuneration.

A copy of DOJ’s amicus brief can be found here.

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08 January 2015

Court Rejects False Statements to FDA Regarding cGMP Compliance as Basis for FCA Liability

Posted by Jaime L.M. Jones and Brenna Jenny

In a remarkable opinion sure to be cited by FCA defendants facing FCA claims premised on alleged regulatory non-compliance, on January 7 the Northern District of California granted defendant Gilead’s motion to dismiss FCA claims premised on alleged violations of current Good Manufacturing Practices regulations (“cGMPs”), holding that fraudulent conduct directed at FDA standing alone cannot render subsequent Medicare or Medicaid reimbursement requests false under the FCA. See U.S. ex rel. Campie v. Gilead Sciences, Inc., No. 11-cv-00941 (N.D. Cal. Jan. 7, 2015). The ruling expands on the reasoning of the Fourth Circuit’s decision last year in Rostholder (as reported here) and reiterates the judiciary’s hesitancy to permit the FCA to displace FDA’s institutional capacity to enforce its own regulatory scheme.

Two former Gilead employees with quality control responsibilities filed a qui tam suit against their previous employer, alleging various violations of cGMP requirements. The relators asserted these regulatory issues gave rise to FCA liability because had FDA been aware of the them it would not have approved the affected drugs or would have withdrawn approval; as a result, relators claimed that all claims for payment submitted to Medicare and Medicaid for these drugs were false under the FCA. The government declined to intervene in the suit but did file a statement of interest on these issues, which the court cites in its opinion.

The court first dispensed with relators’ claim that allegedly false certifications to FDA or other allegedly fraudulent conduct during the drug approval process could give rise to FCA liability. Although FDA’s New Drug Application (“NDA”) form requires manufacturers to certify compliance with cGMP regulations, the court found the fact that manufacturers make this statement to FDA, and not to CMS for the purpose of securing payment, to be critical to the viability of relators’ claims. The court ruled that “FCA liability cannot be based on fraudulent statements made before one regulatory agency and from that implying a certification putatively made to the payor agency where there is neither an express certification nor condition of payment.” As even relators conceded during a hearing, Gilead never made any direct misrepresentations to a payor.

In an attempt to avoid this result, relators had argued in supplemental briefing that FDA served as a “gatekeeper” for CMS, with both entities standing as “two arms of the same federal department,” and thus fraudulent conduct directed toward one arm and a request for payment directed toward another arm could be synthesized so as to have a sufficiently direct nexus. The court disagreed, distinguishing between “Gilead’s non-disclosure and misrepresentations . . . [made] during the FDA approval process” and the “subsequent reimbursement requests to CMS,” and rejecting relators’ invitation to rule that a false statement to one regulatory agency “can form the basis of FCA liability simply because the fraudulently induced action of that agency was part of a causal chain that ultimately led to eligibility for payment from the payor agency.”

In similarly dismissing relators’ claims that Gilead had also made false implied certifications of compliance to CMS, the court then adopted the reasoning of the Fourth Circuit in Rostholder that the mere assertion of drugs being adulterated or misbranded as a result of a manufacturer violating cGMP requirements falls short of articulating a claim under the FCA, because Medicare and Medicaid do not condition reimbursement on compliance with cGMP regulations. Instead, payment is conditioned on a drug receiving FDA approval, which Gilead’s products had undisputedly obtained. Accordingly, the relators’ claims were held to be fundamentally flawed.

The court’s opinion generally addresses the heightened policy concerns generated by the proposition that regulatory non-compliance, particularly within the complex FDA regime, can trigger a cognizable FCA claim. If false statements made during the FDA approval process could serve as the basis for FCA liability, then courts would have to determine whether, but for the fraudulent conduct, the agency would have denied approval of the drug. Delving into the nuances of the FDA approval process, the court explained, would be a task the courts lack the expertise to execute. The court also echoed Rostholder‘s concern with using the FCA to short-circuit FDA’s own enforcement powers. Notably, however, the language and the logic of the Campie court’s opinion sweeps much broader than allegations focused on compliance with FDA regulations, and bear relevance on all FCA claims premised on alleged fraudulent conduct directed at a regulatory agency other than the one which pays the affected claims.

Finally, the court addressed the relators’ alternative theory of FCA liability, namely that the manufacturing defects were so significant they rendered the resulting product “worthless.” As we previously reported here, and as the Campie court observed, the Seventh Circuit recently constrained the viability of FCA suits premised on a theory of “worthless services,” ruling that a product or service’s diminished value must not be simply “worth less,” but rather must be truly “worthless.” Although the government has argued through statements of interest in both this case and Rostholder that some cGMP violations may so affect a drug “that the drug is essentially ‘worthless’ and not eligible for payment by the government,” the court ruled that the Campie relators had not alleged facts meeting the requirements of “the narrow ‘worthless services’ theory.”

The court granted the relators an opportunity to amend their complaint and either articulate a worthless services theory or a direct misrepresentation made during the payment process. We will continue to monitor any developments in this case, which is sure to be cited by defendants facing a broad range of FCA claims based on alleged regulatory non-compliance, and not just by defendants in FCA cases premised on alleged violations of cGMP and other FDA requirements. A copy of the district court’s opinion can be found here.

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22 December 2014

Court Rules Corporate Parent Not Liable for Subsidiary’s Alleged FCA Violations

Posted by Scott Stein and Brenna Jenny

On December 8, 2014, a district court in the Southern District of Georgia dismissed FCA claims brought against the corporate parent and affiliates of a hospital, rejecting the government’s attempt to hold these associated corporations liable for the hospital’s alleged reverse false claims violations. See U.S. ex rel. Schaengold v. Mem’l Health, Inc., No. 11-cv-0058 (S.D. Ga. Dec. 8, 2014).

The government intervened as to one count of the relator’s qui tam action, which alleged that defendant Memorial Health, Inc., its wholly-owned subsidiary Memorial Hospital, and a physician group (“MHUP”) wholly-owned by another Memorial Health subsidiary, violated the FCA by failing to timely return overpayments received by Memorial Hospital. According to the relator (the former CEO of Memorial Health and Memorial Hospital), Memorial Health and affiliated entities (collectively, “Memorial System”) employed the physicians of MHUP and paid compensation at levels above fair market value rates. As a result, these compensation arrangements between referring physicians and healthcare entities could not meet the Stark Law’s exception for “bona fide employment relationships,” which requires fair market value compensation. The Stark Law requires any funds received in violation of the law to be refunded within sixty days of collection. Under this theory, by submitting a cost report including services obtained in violation of the Stark Law, yet certifying that the services identified in the report complied with all applicable laws, the hospital concealed an obligation to refund overpayments to the government.

Although this theory of FCA liability is premised on the submission of cost reports, the government and the relator attempted to impute liability on additional corporate entities that did not submit any cost reports for these physicians’ services. Memorial System’s Board of Directors had previously discussed potential fair market value concerns with their compensation arrangements with MHUP. The government argued that because Memorial Health and all other relevant subsidiaries operated as a unitary health system controlled by a centralized management team, which was aware of the alleged Stark Law violations, all of the related entities were liable for the hospital’s submitted claims.

The court rejected the proposition that “merely being a parent, or an associated corporation, of a subsidiary that commits an FCA violation” can be sufficient to support FCA liability for a subsidiary’s violations. Instead, related entities can only be liable if they were directly involved in the submission of claims, or if veil-piercing is appropriate. The court quickly concluded that, although the other entities were involved in arrangements that ultimately culminated in the submission of allegedly false claims to the government, the absence of any allegations that they were directly involved in causing the submission of falsely certified cost reports warranted dismissal. The court also concluded that veil-piercing was inappropriate. Noting that overlapping management generally does not merit veil-piercing, the court ruled that even if all entities could be considered “alter egos,” there as no allegation that failure to pierce the corporate veil would result in injustice. The government was granted twenty days to amend its complaints and replead its claims against the hospital’s affiliated entities.

A copy of the court’s decision is available here.

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17 December 2014

Reply Briefs in Continuum Litigation Continue Debate Over Nature of an “Obligation” Under FCA

Posted by Scott Stein and Brenna Jenny

The parties in a closely watched reverse false claims case, United States v. Continuum Health Partners, continued their dispute over when an “obligation” to repay the government arises under the FCA’s reverse false claim provision. (For previous coverage, see here, here, and here). Continuum’s reply brief in support of its motion to dismiss focuses on the government’s assertion that a “potential” overpayment creates an obligation to repay sufficient to trigger the FCA.

Continuum’s reply brief points out an inconsistency between the government’s legislative history arguments and the text of the statute as enacted. In its opposition brief, the government frequently cited a Senate Report of an earlier version of the bill that became the Fraud Enforcement and Recovery Act (“FERA”). The Report states, as the government quoted in its brief, that the term “obligation” for FERA purposes “includes fixed and contingent duties.” However, as Continuum points out, while the text of the bill that was the subject of the Senate Report defined an obligation as “a fixed duty, or a contingent duty arising from…,” the text of FERA, as enacted, does not contain any reference to contingent duties. Rather, the FCA as amended by FERA defines “obligation” as “an established duty, whether or not fixed, arising from….” 31 U.S.C. § 3729(b)(3). Under Continuum’s interpretation, this alteration deliberately narrowed the scope of statutory “obligations” by eliminating contingent duties. Even an “inadequate review of potential overpayments” still equates to only a contingent duty or a potential liability, rather than an established duty to repay.

Continuum also attacks one of the central premises in the government’s opposition brief, namely that the definition of an identified overpayment in the Part C/Part D context—as set forth in the 2014 CMS Medicare Advantage and Part D Plan Sponsor final rule (“MA/Part D Final Rule”)—should apply to this case. Two years earlier, CMS proposed a distinct rule that would have applied to Medicare Part A and Part B providers, but the agency has not yet finalized this rule. Continuum emphasizes the government’s failure to justify its assumption that the policy judgments generating the overpayment regulations in the MA/Part D Final Rule would lead to the same interpretation in the Part A/Part B context, or even in the Medicaid context, which is one step further removed from the purview of the MA/Part D Final Rule.

Finally, Continuum contests the government’s interpretation of the term “avoid an obligation” as being satisfied by one who “refrains from an obligation to pay money to the government.” Continuum criticizes the government’s further reliance on the Senate Report for the un-enacted version of FERA, which stated that the reverse false claims provision is violated “once an overpayment is knowingly and improperly retained, without notice to the Government about the overpayment.” Continuum maintains that an obligation can only be avoided through affirmative action by the defendants. Because the government alleges only that Continuum failed to act by promptly repaying the government, i.e., through inaction, Continuum argues that the reverse false claims provision is not implicated.

A copy of the reply brief can be found here. A decision on Continuum’s motion to dismiss is expected in early 2015.

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12 December 2014

Citing Role of Statistics in Title VII Litigation, Court Rules Sampling Provides Evidence of Broader FCA Falsity

Posted by Jaime L.M. Jones and Brenna Jenny

Yet another district court has joined recent opinions (as reported here and here) permitting relators and the government to proceed to trial on the basis of extrapolations of FCA liability from a sample of submitted claims. See United States v. AseraCare Inc., No. 12-cv-00245 (N.D. Ala. Dec. 4, 2014). Following the government’s intervention in a suit against hospice care provider AseraCare, it submitted an expert witness opinion based on a review of a sample of 233 claims. The expert concluded that the patients in 124 of the claims failed to meet the criteria for medically indicated hospice care. The government then sought to extrapolate this finding to the full universe of 2,181 claims submitted by AseraCare.

AseraCare filed a motion for partial summary judgment, arguing that the government had failed to introduce any evidence regarding any of the claims other than the 124 that its expert testified were unsubstantiated. These remaining claims broadly fell into three categories: those the expert agreed were substantiated; those the Medicare Administrative Contractor or ALJ had found to be substantiated (regardless of the expert’s opinion); and those claims which were signed by a physician attesting to the medical necessity of the hospice care. The court disagreed that the government had failed to produce any evidence regarding these claims. Noting that “statistical evidence is evidence,” the court ruled that the 124 claims would serve as statistical evidence of the falsity of the remaining claims in the pool, and left it to the jury to decide the relative weight properly applied to the government’s statistical evidence and AseraCare’s evidence related to the circumstances of individual claims.

The court’s decision to allow the jury to weigh the government’s statistical evidence was premised only on a Supreme Court case relating to the type of statistical regression analyses sufficient to allow a court to infer a pattern or practice of racial discrimination under Title VII. In doing so, the court did not distinguish that case on the basis that the means appropriate for proving classwide liability for a pattern or practice of discrimination under Title VII do not necessarily transfer to the still novel use of statistical sampling to establish liability under the False Claims Act, which attaches only to the submission of individual false claims.

A copy of the court’s opinion can be found here.

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13 November 2014

DOJ Elaborates on Legal Theories Underlying “Untimely Refund” Overpayments Suit

Posted by Scott Stein and Brenna Jenny

As we previously reported, the Department of Justice (“DOJ”) recently filed its first FCA suit premised solely on the untimely return of overpayments. DOJ’s November 10, 2014 memorandum in opposition to defendants’ (“Continuum’s”) motion to dismiss (which we discussed here), confirms that DOJ seeks to stake out an expansive argument for such claims.

DOJ’s claims arise out of the alleged failure to timely refund certain payments that Continuum received from Medicaid. The Center for Medicare and Medicaid Services (“CMS”) has not issued any guidance concerning refund of overpayments to Medicaid. CMS likewise still has not finalized its 2012 proposed rule implementing the overpayments provision of the Affordable Care Act (“ACA”) for payments to providers and suppliers under Medicare Parts A and B. This remains true despite CMS’ subsequent finalization, earlier this year, of a rule regarding overpayments to Medicare Advantage organizations and Part D Plan Sponsors. Nevertheless, in its recent filing, DOJ takes the position that CMS’s guidance to Medicare Part C and Part D participants should be applied to Medicaid providers. Specifically, DOJ argues that a provider should be deemed to have “identified” an overpayment where it “has determined, or should have determined through the exercise of reasonable diligence, that [it] has received an overpayment.” Br. at 5 (quoting 42 C.F.R § 422.326). According to DOJ, the government adequately alleged a violation of the reverse false claims provision by alleging that “Continuum learned that it had received such overpayments, became aware of the scope of these overpayments and nonetheless failed to take remotely reasonable steps to return those funds to Medicaid.” Br. at 18–19. Although Continuum had criticized relator’s admittedly “preliminary” report as being insufficient to identify overpayments, DOJ portrayed Continuum’s “fraudulent[] delay[]” in repaying as an effort to “sidestep” its obligations by “ignoring clear evidence of overpayments.” Br. at 21.

DOJ also advocates an aggressive position as to the meaning of the word “overpayment.” The ACA includes a provision requiring recipients of Medicare and Medicaid payments to report and return overpayments within 60 days of identification. The ACA further states that failure to return overpayments within such time is an “obligation” under the reverse false claims provision of the FCA, which prohibits knowingly concealing, or avoiding or decreasing, an obligation to pay money to the government. FERA amended the FCA by defining “obligation” as “an established duty, whether or not fixed, arising . . . from the retention of any overpayment.” Emphasizing the phrase “whether or not fixed,” and relying on legislative history surrounding the FERA amendments, DOJ maintains that an “obligation” can exist “whether or not the amount owed is yet fixed.” Br. at 11–12 (quoting Brief for United States at 24, United States v. Bourseau, No. 06-56741 (9th Cir. July 14, 2008)). DOJ sidesteps the problematic implications that flow from its interpretation. If an “obligation” to repay can arise even absent a fixed amount owed, it seems unrealistically rigid to expect providers and suppliers to calculate and return such amounts to the government in a mere sixty days. Internal investigation and analysis as to the amount of overpayments owed can be portrayed as ostensible footdragging and “fraudulent delaying,” as DOJ has done in this case.

A copy of DOJ’s memorandum is available here. We will continue to monitor developments in the case.

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12 November 2014

Another District Court Expresses Interest in Expanded Use of Statistical Sampling

Posted by Scott Stein and Brenna Jenny

We recently reported on several decisions supporting the expanded use of statistical sampling in FCA cases to support liability determinations. On November 5, 2014, a federal district court in Nevada joined the recent opinions of other courts in expressing receptiveness to the expanded use of statistical sampling beyond the context of establishing damages. The relator, who formerly worked for the defendant hospital system (“Renown”) as its director of clinical documentation, brought a FCA suit alleging that Renown improperly submitted claims for short-stay inpatient admissions that should have been billed as outpatient claims. In June 2014, Renown produced data on claims for short-stay admissions spanning three-and-half years and several diagnosis-related group (“DRG”) codes. Relator, however, argued that Renown should be ordered to produce all Medicare claims data necessary to enable her to develop a statistical sampling plan capable of estimating the false claims submitted by Renown during the full course of the alleged upcoding scheme.

In an unusual step, the district court held an evidentiary hearing on the motion to compel during which statistical experts from both sides testified. Following supplemental briefing, the court ruled that Renown must produce claims data for all 28 DRGs implicated by relator’s upcoding allegations for the six years prior to relator’s filing of her complaint, i.e., the maximum time period allowed under the FCA statute of limitations. The court concluded that the “discovery is permissible pursuant to Fed. R. Civ. P. 26(b), it will insure thoroughness and transparency of the data universe, and it will result in the development of a valid and reliable statistical sampling plan.” The court expressly declined to rule on the ultimate admissibility of evidence, deferring those issues until the pre-trial stage.

A copy of the court’s decision can be found here.

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