4th Circuit May Not Judge Sampling Validity in Medicare Fraud Case

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By Matthew Loughran

Oct. 27 — A federal appeals court might not even address the use of statistical sampling in proving Medicare fraud allegations under the False Claims Act, if the questioning by the panel of judges at oral arguments Oct. 26 is any indication ( United States ex rel. Michaels v. Agape Senior Cmnty., Inc. , 4th Cir., No. 15-2147, oral arguments 10/26/16 ).

A panel of the U.S. Court of Appeals for the Fourth Circuit led by Judge Robert B. King peppered attorneys with questions about whether a lower court’s ruling was even properly before the appeals court. King repeatedly asked the counsel for the whistle-blowers to explain why the district court’s refusal to allow the use of statistical sampling evidence wasn’t just a fact-driven ruling within the discretion of a district court judge.

“Based on the questions, it looks like the ruling may be anti-climactic for those of us looking forward to an appellate court ruling on the issue of statistical sampling,” Jesse A. Witten of Drinker Biddle & Reath LLP in Washington told Bloomberg BNA. Witten represents health-care providers in FCA matters.

If the court refuses to take up this issue, it will continue the frustration for attorneys involved in FCA cases who have waited for a federal appeals court to weigh in on the use of statistical sampling to prove FCA violations. Federal district courts have been split on the issue, with multiple courts ruling both ways in the past several years.

Attorneys Hoped for Clarity

When the appeals court first took on the appeal, attorneys who represent both whistle-blowers and corporations in false claims litigation expressed their hope that the court's decision would provide clarity on the use of statistical sampling to assess FCA cases with massive liability stakes.

Whistle-blower attorneys argued the method's use could allow their clients to bring claims that might otherwise be financially prohibitive to prove on a claim-by-claim basis. However, attorneys who represent targets of FCA actions warned the use of statistical sampling could result in a flood of newly filed litigation and an intense pressure on providers to settle claims.

In addition to their apparent stand on their ability to address the statistical sampling issue, the judges seemed to support the federal government’s position that it had an absolute right to veto a settlement of the underlying FCA claims in which it had chosen not to intervene. The case originally was brought by a pair of former nursing home employees in South Carolina who claimed their employer submitted thousands of false claims for Medicare hospice care benefits.

After the lower court denied the whistle-blowers’ attempt to use statistical sampling to prove their claims, the whistle-blowers tried to settle with the nursing home for $2.5 million. However, the federal government vetoed the settlement, claiming the amount recovered paled in comparison to the $25 million garnered under the allegedly fraudulent scheme.

Interlocutory Appeal

The case was brought to the Fourth Circuit as an interlocutory appeal of two nonfinal orders by the trial court. An interlocutory appeal questions a trial court’s ruling on a controlling question of law that could have a bearing on the ultimate outcome of the case and that needs the immediate attention of an appeals court.

Judge Joseph F. Anderson of the U.S. District Court for the District of South Carolina ruled in March that the whistle-blowers couldn’t use a statistical analysis of approximately 61,643 allegedly false claims made by Agape Senior Community Inc. for reimbursement under the Medicare hospice care provisions to prove their claims.

Three months later, the judge allowed the federal government to assert its absolute right to veto a settlement in the case, despite the fact that it hadn't intervened in the case. In the same order, the judge certified both issues for appeal to the Fourth Circuit, noting the government was using the same method of statistical sampling in its valuation of the alleged fraud.

As a result, the court ruled, the admissibility of statistical sampling was intertwined with the question of whether the government could veto a settlement and that one issue couldn’t be addressed by the appeals court without also addressing the other.

Sampling Appeal Questioned

However, from the beginning of the arguments, King seemed to disagree with the trial court's certification of the issues and indicated the only issue that should be before the court was the question of whether the government could object to a settlement.

Mario A. Pacella of the Strom Law Firm in Brunswick, Ga., argued the case for the whistle-blowers. He began his presentation with a description of the statistical sampling issue but was quickly interrupted by King, who asked him to skip ahead to the government veto question.

“It looks to me like it is an evidentiary ruling that’s commended to the discretion of the district judge and is fact-driven,” King said of the statistical sampling order. The judge added that he thought that the issue probably shouldn’t have been certified in the first place.

Judge Barbara Milano Keenan followed up, pointing out that the statistical sampling method hadn’t been fully vetted and that the Fourth Circuit couldn’t issue a ruling approving the method without a more fully developed record.

“We can’t do anything in the blind here, can we? And say that statistical sampling in certain circumstances may be admissible?” she asked.

Pacella seized on this point and argued the judges were providing reasons to vacate and remand the trial court’s ruling for a full hearing on the issue.

Settlement Veto Power

The panel also challenged the parties on whether the federal government has the right to veto a settlement in an FCA case even if it previously had declined to intervene.

In this case, the government was left out of a second mediation that arrived at the eventual $2.5 million settlement. According to William W. Wilkins, who argued the case for Agape, an initial mediation that involved the government failed to resolve the case. As a result, he said, the mediator requested that only the representatives for Agape and the whistle-blowers participate in the second session, which resulted in the settlement. Wilkins is with Nexsen Pruet in Greenville, S.C.

King again seized on a term of the settlement that proposed to settle even potential criminal charges against Agape. “How were they proposing to settle criminal proceedings or future criminal proceedings?” he asked Wilkins, indicating the federal government would have to agree to that term.

Wilkins pointed out that that term was removed from the settlement and was only originally included after the U.S. attorney represented that he wasn’t going to bring criminal charges. He argued a court should judge whether the government is being reasonable in its objection to the settlements.

However, that argument didn’t satisfy some members of the panel.

“That seems to put the attorney general, and by implication the United States, who is the real beneficiary of a settlement, in a worse position than a private litigant who can veto a settlement for any reason,” Judge Albert Diaz said.

Wilkins argued this could be corrected if the government would just intervene in the case in the first place. That position matches one already taken by the U.S. Court of Appeals for the Ninth Circuit, which has ruled the federal government doesn’t have an absolute veto power over FCA settlements.

The Fifth and Sixth circuits have interpreted the statute to allow the government to have an absolute veto over settlements.

Pacella argued the case for the whistle-blowers. Wilkins argued the case for Agape. Charles W. Scarborough of the Department of Justice argued the case for the government.

To contact the reporter on this story: Matthew Loughran in Washington at mloughran@bna.com

To contact the editor responsible for this story: Peyton M. Sturges at PSturges@bna.com

For More Information

The audio recording of the oral arguments is at http://src.bna.com/jG4.

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