Permissibility of Using Statistical Sampling to Calculate Damages for Allegedly Medically Unnecessary Services and the Government’s Power to Veto a Proposed Qui Tam Settlement of Non-Intervened Claims
In U.S. ex rel. Brianna Michaels and Amy Whitesides v. Agape Senior Community, et al., the Fourth Circuit has been called upon to address two False Claims Act (FCA) issues of first impression: (1) whether statistical sampling can be used to calculate damages where the fraud alleged is the rendering of medically unnecessary services; and (2) whether FCA section 31 U.S.C. 3730(c)(2)(B) grants the Government an “absolute, [and] unreviewable veto over the settlement of False Claims Act cases for which the Government has declined to intervene.” U.S. ex rel. Michaels v. Agape Senior Community, Inc., 2015 WL 3903675, at *2 (D.Sc. 2015).
In the case, which began as a qui tam whistleblower claim, the relator-Plaintiffs allege that Defendant, a skilled nursing facility, submitted claims for services rendered to patients that were “medically unnecessary.” The District Court noted that determining medical necessity is a “highly fact-intensive inquiry involving medical testimony after a thorough review of the detailed medical chart of each individual patient.” Given that the case involved a “staggering” number of allegedly fraudulent claims, relator-Plaintiffs sought to vastly reduce the time and expense of determining the issue of medical necessity as to each claim by having an expert review only a small subset of claims and extrapolating from the expert’s findings the percentage of all claims that are likely to involve medically unnecessary treatment. The District Court denied this request, acknowledging that while there are cases in which statistical sampling is appropriate (e.g., cases involving spoliated or dissipated evidence), it would be inappropriate here, given the fact-intensive nature of determining whether a given claim involved a service that qualified as medically necessary.
This case is also unique procedurally in that while the Government ultimately decided not to intervene in the qui tam action, it nevertheless continued to monitor the progress of the case quite closely, even attending party mediations in an observer capacity. When the relator-Plaintiffs and Defendant were on the cusp of reaching a settlement, the Government interjected, exercising what it purports to be its absolute authority under the FCA to veto any proposed settlement notwithstanding the objection of the relator, because it found the proposed settlement amount to be too low. The novelty of the two issues presented coupled with their centrality to determining whether and how to proceed with a trial caused the District Court to hold that they “crie[d] out for interlocutory appeal” by the Fourth Circuit before the case could continue. These two issues remain pending before that Circuit.
Should the Fourth Circuit hold that statistical sampling is an appropriate method of calculating damages in this case, it will no doubt substantially increase the number of large-scale FCA cases based on the “medically unnecessary” theory of fraud espoused by the relator-Plaintiffs, in addition to greatly increasing the financial exposure for Defendants in such cases. And, if the Fourth Circuit sides with the Government on the issue of unchecked Government authority to veto proposed settlements in cases in which it chose not to intervene, this will expand the Government’s already vast authority under the FCA and fundamentally change the dynamics of settlement negotiations in FCA cases in which the Government did not intervene.
Healthcare providers of all kinds need to be fully abreast of all regulations relating to FCA compliance. Each month, more and more whistleblowers file qui tam cases on behalf of the government against healthcare providers, and the large recoveries continue to grow. Frier Levitt assists healthcare providers in developing uniquely-tailored procedures to ensure compliance with applicable laws and avoid FCA liability. If you are concerned about FCA exposure, or are facing a governmental investigation or qui tam suit, contact Frier Levitt today.
