On Tuesday, the Fourth Circuit Court of Appeals agreed to hear an appeal of a False Claims Act (FCA) case that raises the question of whether statistical sampling and data extrapolation can be used to prove liability without other claim-by-claim proof. The case also presents the question of whether the government has absolute, unreviewable veto authority pursuant to 31 USC § 3730(b)(1) to reject a settlement reached between parties in a case in which it has previously chosen not to intervene.
Relators Brianna Michaels and Amy Whitesides filed a qui tam action in December 2012 against Agape Senior Community, Inc. and others alleging a fraudulent scheme to admit patients to hospice who did not qualify for such care, recertify patients to hospice who did not qualify for such care, and bill for services that were not actually provided to patients. The government declined to intervene in the case in March 2013.
During discovery, the USDC for the District of South Carolina was faced with the “pivotal issue” of whether Relators could use a statistical sampling and extrapolation method to determine liability as well as damages in the case. The court denied Relators’ request to use statistical sampling and extrapolation to prove liability, and held that Relators would have to prove each claim based on the evidence for that particular claim. Judge Joseph F. Anderson, however, did not rule that using statistical sampling and extrapolation to establish liability was inappropriate in all FCA actions. Rather, he found that sampling is permissible in cases where the evidence “has been destroyed or dissipated.” Because the evidence had not been destroyed in this case, and each claim involved whether certain services were medically necessary for individual patients, the court held that this case was not suited for statistical sampling.
To avoid discovery costs, the parties agreed to conduct a bellwether trial for 100 patients with allegedly false claims. In the bellwether trial, the parties would select a representative sample of claims that would then be tried to a jury. The purpose of the trial was to give the parties an indication of what could happen in future trials and further the litigation in a timely manner.
Prior to the start of the bellwether trial, however, the parties reached a settlement agreement. The government objected to the settlement pursuant to the authority provided in 31 USC § 3703(b)(1), which provides that the court and the US Attorney General must consent to dismissing a FCA action. The government did not believe that the settlement amount was high enough and objected to the “full release” proposed by Relators to the defendants. The defendants filed a motion to enforce the settlement, which the District Court rejected.
The District Court later issued a Certification Order, sua sponte, requesting that the parties seek an interlocutory review from the Fourth Circuit of its decisions related to the use of statistical sampling and extrapolation in FCA cases and the limits of the government’s veto authority under 31 USC § 3730(b)(1).
The Fourth Circuit’s decision in this case will represent the first appellate court decision regarding the use of statistical sampling and extrapolation to prove liability in FCA cases. While such methodologies have long been used to set damages, such aggregated proof to establish liability has been limited to extraordinary circumstances. Since last fall, however, a number of FCA cases – some involving intervened actions – have promoted the use of these methodologies, particularly in health care-related FCA cases. A ruling that would broadly allow the use of statistical sampling and extrapolation to prove liability in FCA cases could significantly impact the calculus defendants would have to apply in determining how best to defend FCA claims. Should the Fourth Circuit rule otherwise, barring the use of statistical sampling and extrapolation to establish liability in routine situations, the developing trend of relators and the government seeking to change this aspect of FCA litigation could be dealt a significant setback.
The decision is also expected to supplement prior rulings by the Fifth, Sixth, and Ninth Circuit Courts of Appeals regarding the government’s absolute authority to veto settlements in cases where it has not intervened. While the Ninth Circuit has held that the government does not have absolute veto power over a FCA settlement if it declines to intervene, the Fifth and Sixth circuits have rejected that approach.
The cases, which have been consolidated, are United States ex rel. Michaels et al. v. Agape Senior Community, Inc. et al., Nos. 15-2145 and 15-2147, in the United States Court of Appeals for the Fourth Circuit.