District Court Vacates $350M Jury Verdict Under Escobar For Failure to Prove the Government Would Have Denied Payment

As discussed here and here, courts continue to grapple with how to resolve qui tam cases where the government continued purchasing from the defendant even after being made aware of the relator’s allegations of fraud.  One judge recently vacated an “unwarranted, unjustified, unconscionable, and probably unconstitutional” $350 million jury verdict for the relator, finding the government’s continued payment of the defendants’ claims dispositive on the issue of materiality.  United States ex rel. Ruckh v. Salus Rehabilitation LLC, No. 11-cv-1303 (M.D. Fla. Jan. 11, 2018).  The case reinforces the important role that government purchasing histories play post-Escobar.


Professional Medical Society Files Qui Tam Against Physicians, Anesthesia Service Providers, and Surgery Centers

In what may be a first-of-its-kind suit, a professional medical association has filed a qui tam against physicians and other medical providers for allegedly engaging in a kickback scheme designed to divert referrals from the association’s members.  The complaint, filed by the Florida Society of Anesthesiologists, alleges that the defendants—a number of physicians, anesthesiology companies, and ambulatory surgical centers (“ASCs”)—violated the federal False Claims Act and the Florida False Claims Act by defrauding the Medicare and Medicaid programs.[1]   Citing the Department of Health and Human Services Office of Inspector General Advisory Opinion Number 12-06, the complaint and alleges that defendant anesthesiology companies and their physician owners, many of whom were gastroenterologists, allegedly paid kickbacks in the form of shared profits to ASCs that referred business to the anesthesiology companies and that were owned by the same physicians.


Statistical Sampling As A Means to Prove Liability Continues to Gain Traction

Posted by Scott Stein and Brenna Jenny

A court in the Middle District of Florida is the latest of a growing number of courts (as reported here and here) that has allowed relators to rely on statistical sampling in order to establish liability in FCA cases involving large numbers of claims. See United States ex rel. Ruckh v. Genoa Healthcare, LLC, No. 11-cv-01303 (M.D. Fla. Apr. 28, 2015).

The relator, a former employee of the defendant operators of a chain of nursing and rehabilitation centers, initially filed a qui tam suit alleging upcoding at two facilities where she had worked. After the court dismissed the initial complaint for failing to include sufficient details about the alleged fraudulent scheme, the relator filed an amended complaint citing upcoding at fifty-three facilities.

Following denial of the motion to dismiss the amended complaint, and “[c]iting the voluminous discovery in this action and arguing that producing and processing the relevant medical records at the ‘fifty-three . . . [medical] facilities and some fifty-three . . . off-site storage locations’ within a reasonable time is impossible,” the relator filed a motion in limine for permission to submit an export report that would use statistical sampling and extrapolation in order to estimate the volume of overpayments allegedly retained by the defendants.

The United States filed a Statement of Interest in support of the relator’s motion (accessible here). The government opposed the defendants’ argument that the FCA necessarily requires proof of individual false claims, particularly in cases, such as this one, involving allegations of medically unnecessary care. While medical necessity decisions would be based on unique determinations for the population of patients in the sample, the government argued that so long as the sample was representative, the extrapolated result would be valid, and the defendants should be relegated to attacking the weight of the inferences through competing testimony.

The court relied heavily on the District of Tennessee’s decision in U.S. ex rel. Martin v. Life Care Centers of America, Inc. (discussed here) in ruling that the relator could use statistical sampling to estimate the claimed overpayments. In concluding that there is “no universal ban” on sampling in qui tam suits, court emphasized in particular the Martin court’s observation that proceeding without extrapolation “would consume an unacceptable portion of the Court’s limited resources.”

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

District Court Rejects Default Judgment Based on Assumption That All Claims Submitted By Defendants Were False, Orders New Trial on Damages

Posted by Jaime L.M. Jones and Emily Van Wyck

A Florida federal district court granted a motion for a new trial on damages after an $89.6 million default judgment was entered for False Claims Act violations by a doctor and cancer treatment center. See United States ex rel. McBride v. Makar, No. 8:12-cv-792-T-27MAP, 2014 WL 5307469 (M.D. Fla. Oct. 15, 2014). The court entered a default judgment against the defendant physician and American Cancer Treatment Centers, Inc. (“ACTC”) after defendants failed to respond to the complaint. In calculating damages, the court relied on data compiled by the relator from Medicare records reflecting the total amount paid in reimbursement by the government for all claims submitted by defendants during the time period at issue.

In the order granting a new trial, the court concluded that the damages award was calculated based on allegedly fraudulent claims that were outside the scope of the original complaint. The complaint alleged that the defendant physician submitted false claims for radiation therapy services performed at ACTC that were unnecessary, never performed, or improperly administered. The court noted that these allegations did not support the conclusion that all claims made during this period were false because the existence of some fraudulent billing practices “does not necessarily taint each claim for every patient.” Makar, 2014 WL 5307469, *4. Indeed, as the court recognized, some of the procedures submitted during this period may have been properly supervised and administered.

In reaching its decision, the court distinguished the fraudulent claims submitted in this case from those addressed in United States v. Rogan, 517 F.3d 449 (7th Cir. 2008). In Rogan, the court awarded damages for all claims submitted for patients referred to the defendant through an illegal kickback scheme even if those patients received medical services. Id. at 453. By contrast, the Makar defendants were not alleged to have engaged in illegal conduct that would necessarily taint all claims submitted by the defendants. Therefore, the court ruled that the damages calculation must be based only on those claims determined to be false; specifically, those claims submitted for unnecessary, never performed, or improperly administered services. The court’s order requires additional discovery and a new trial to establish the amount of damages associated with such fraudulent claims.

Court Affirms Relator’s Standing to Pursue Civil Penalties In The Absence of Damages

In many FCA cases, the potential liability for civil penalties is vastly higher than potential damages, even after trebling. For that reason, defendants have asserted various challenges, including Constitutional challenges, to the applicability or imposition of civil penalties. In a February 6 opinion, U.S. ex rel. Baklid-Kunz v. Halifax Hospital Medical Center, a district court in Florida rejected the argument that a relator who foregoes a claim for damages, and seeks only civil penalties under the FCA, lacks Article III standing. Relying primarily on the Supreme Court’s 2000 opinion in Vermont Agency of Natural Resources</em&ggt;, the district court concluded that the long tradition of qui tam actions – including those for recovery of civil penalties – dating back centuries, which was cited in Vermont Agency, supported the conclusion that qui tam suits seeking recovery of civil penalties only are properly understood to be “cases” or “controversies” within the meaning of Article III. The district court also cited in support the December 2013 opinion in U.S. ex rel. Bunk v. Gosselin World Wide Moving, N.V., in which the Fourth Circuit held that relators have standing to pursue qui tam claims for civil penalties, even in the absence of any claim for damages. As we previously reported, the Fourth Circuit in that case also rejected Constitutional challenge to imposition of civil penalties under the Eighth Amendment, holding that imposition of $24 million in civil penalties in the absence of any damages did not violate the Eighth Amendment’s prohibition against excessive fines.

Court Rejects Argument That Contracts Were Too Vague To Satisfy AKS Safe Harbors

A federal district court in Tampa recently rejected a relator’s argument that regulatory safe harbors to the Anti-Kickback Statute (AKS) concerning rental and service arrangements were inapplicable to certain contracts governing the provision of space, equipment, and services on the ground that the contracts were not specific enough.

At issue in United States ex rel. Armfield v. Gills, Case No. 8:07-cv-2374-T-27TBM (M.D. Fla.) is the relationship between an ophthalmologic surgical center and a physician providing preoperative eye examinations within the surgical center complex. The relator contends that the rental, equipment, and services agreements between the center and the leasing physician were intended to induce referrals to the physician, including the relator’s referral for a preoperative examination, in violation of the AKS and False Claims Act. The opinion arose out of the relator’s motion for summary judgment on the defendants’ affirmative defense that the arrangements at issue fall within the AKS regulatory safe harbors governing space and equipment rental and personal services. 42 C.F.R. § 1001.952.

The relator did not dispute the agreements met the basic requirements of the safe harbors. Each challenged arrangement was the subject of a written agreement signed by the parties, negotiated in an arm’s length transaction for a period of not less than a year, and established payments that were set in advance without regard to referrals. Nevertheless, the relator argued that the safe harbors are inapplicable because the descriptions of the space, equipment, and services contained in the agreements are not specific enough. For example, the provided-for space is described within the agreement as “sufficient Space for the rendering of medical services and administration of [the leasing physician’s practice] located at [address],” with Space defined as “exclusive use of private office space sufficient for physician and office manager; exclusive use of an examination area to perform preoperative clearances on Surgery Center patients; exclusive use of an area for the storage of medical records [of the leasing physician’s practice]; and non-exclusive use of common areas including, but not limited to, hallways, waiting areas, rest rooms and kitchen facilities.”

The court found the relator’s contention that the space rental safe harbor requires greater specificity than this unavailing. The same proved true for similarly general descriptions in the equipment and services agreements. In the first instance, the court cited the relator’s own understanding of the financial arrangements and the provided for space, equipment, and services as evidence that they were sufficient. Further, while the court admitted that lesser language might arguably be inadequate, it held, “[n]othing in the regulation requires any more than what is contained” in the agreements. In the absence of any authority to support the relator’s call for more detail, the court concluded that the safe harbors are intended to ensure arrangements that offer “transparency and verifiability,” and the agreements in this case fulfill that purpose. A contrary ruling would have been cause for concern, given that the kind of general language challenged in Gills is not uncommon in these types of contracts.

The court’s order denying summary judgment can be found here.

Court Holds Relator’s Settlement and Release of FCA Claims Unenforceable

In a recent decision that exemplifies the difficulties in settling a qui tam in which the United States has declined to intervene, a federal district court in Florida recently held that a settlement agreement in which a relator falsely represented that she had not filed any action against the Defendant, and released her qui tam claim, was unenforceable. U.S. ex rel. Scott v Cancio, No. 8:10-cv-50-T-30TGW (M.D. Fla.), November 28, 2011 Slip Op. The plaintiff sued her former employer, a medical practice, for discrimination and retaliation. While the employment case was still pending, the plaintiff filed a qui tam under the False Claims Act (“FCA”) against the same defendant. Three weeks after filing the qui tam under seal, the plaintiff and defendant executed a settlement agreement in connection with the employment case in which the employee represented that she had not filed any “complaint, claim or charge” against the Defendant in any “state or federal court.” The agreement also contained a broad release of any and all claims the plaintiff had against the defendant.

After the qui tam was unsealed and the United States declined to intervene, the defendant moved to dismiss on the ground that the plaintiff was barred by the settlement agreement from pursuing the case. Notably, the United States took no position on the Defendant’s motion to dismiss the case. Yet the court denied the motion to dismiss and held the release unenforceable. The court noted that while in a “typical case, the release would preclude” the qui tam, the FCA provides an “action” under the FCA “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting,” quoting 31 U.S.C. 3730(b)(1). Acknowledging that several cases have held that pre-filing releases of qui tam actions may be enforceable, the court distinguished those cases on the ground that when the release precedes the filing of a qui tam, there is no “action,” and therefore section 3730(b)(1) is not implicated.

The defendant noted that it was seeking dismissal only of the plaintiff’s relator interest, and not any claims that could be asserted by the United States – which, as noted above, did not oppose the motion to dismiss. But the court held that “the plain language of section 3730(b)(1) requires the Attorney General’s written consent to a qui tam action’s dismissal and does not make a distinction based on whether the dismissal is without prejudice to the Government’s interest.” The court concluded with a bit of cold comfort, noting that the defendant was free to “seek appropriate relief in the separate employment action to set aside the Settlement Agreement it entered into with Scott based on any misrepresentations or fraud on the part of Scott.”

While the Cancio decision is consistent with other cases that have drawn the “pre-filing/post-filing” distinction in evaluating the enforceability of releases of FCA claims, it is a good example of why that distinction reflects both bad law and bad policy. While the statute states that the consent of the Attorney General is required for dismissal of a qui tam, when the government takes no position on – i.e., has not opposed – the motion to dismiss, it is difficult to see why such silence should not be interpreted as consent. Moreover, there are no compelling public policy reasons for linking enforcement of the release to the timing of its execution. Courts that have enforced pre-filing releases of qui tams have done so in situations in which they have emphasized that the United States was otherwise aware of the relator’s allegations, so that enforcement of the release would not raise a concern that evidence of the defendant’s alleged wrongdoing might never come to light. See, e.g., U.S. ex rel. Radcliffe v. Purdue Pharma L.P., 600 F.3d 319 (4th Cir. 2010); U.S. ex rel. Richie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir. 2009). Yet when a relator releases a qui tam claim after filing, he already will have apprised the United States of both the specific allegations and the “material evidence” supporting them. 31 U.S.C. 3730(b)(2). Accordingly, the same public policy reasons that support enforcement of settlement agreements and releases in the pre-filing context are equally as strong, if not stronger, in the post-filing context.