Fourth Circuit Grants Review of Use of Statistical Sampling in False Claims Act Case to Prove Liability and Damages

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On September 29, 2015, the United States Court of Appeals for the Fourth Circuit agreed to hear on interlocutory appeal the controversial issue of reliance on statistical sampling in a whistle-blower action to prove liability and damages.  The case is U.S. ex rel. Michaels v. Agape Senior Community, Inc. et al., case nos. 15-2145 and 15-2147 (4th Cir. Sept. 29, 2015). 

The district court held that plaintiff-relators were not permitted to use statistical sampling in determining damages for allegedly false claims submitted to Medicare, Medicaid, and Tricare programs by defendant nursing homes.  U.S. ex rel. Michaels v. Agape Senior Community, Inc., 0:12-3466-JFA, (D.S.C. June 25, 2015).  After the parties notified the court that they had reached a settlement, the government, which had not formally intervened, objected to the settlement on the basis that statistical sampling showed that the total potential damages to the government were much higher than the settlement amount.  The court recognized the unique dilemma before it: the government, claiming an unreviewable veto right over the settlement in a case to which it was not a party, objected to the settlement based on a form of statistical sampling that the court had previously rejected for use at trial.  The court certified two issues – the veto authority of the government, and the court’s rejection of the statistical sampling model – for interlocutory appeal. 

The district court’s decision set forth its rationale for (1) recognizing the veto power of the government; and (2) for disallowing statistical sampling as a method for proving liability or damages.  First, the district court held that the False Claims Act (FCA) makes the consent of the Attorney General a prerequisite to the dismissal of an FCA action pursuant to a settlement between a relator and a defendant.  The court noted that the only circuit to hold that the government’s consent is not required after the government declines to intervene in an FCA action is the Ninth Circuit, which held that the government’s veto is subject to a reasonableness review by the court in which the action is pending in United States ex rel. Killingsworth v. Northrup Corp., 25 F.3d 715 (9th Cir. 1994).  But the court explained that every other circuit court to address the issue had expressly rejected Killingsworth, and the district court followed suit.   

Second, the court explained that the question of permitting statistical sampling was by far the more difficult issue presented, noting that there were a number of FCA cases on each side of the issue.  Notably, United States v. Friedman, No. 86-0610-MA, 1993 U.S. Dist. LEXIS 21496 (D. Mass. July 23, 1993) disallowed statistical sampling based on the existence at trial of discrete claims that may be analyzed, discussed, and subjected to cross-examination.  However, U.S. ex rel. Ruckh v. Genoa Healthcare, LLC, No. 8:11-cv-1303-T-23TBM, 2015 WL 1926417 (M.D. Fla. Apr. 28, 2015)rejected Friedman,explaining that Friedman does not stand for the proposition that statistical sampling cannot be used in large-scale qui tam cases. The district court ultimately agreed with the analysis by the district court in Friedman, explaining that there were questions of medical necessity that involved a “highly fact-intensive inquiry involving medical testimony after a thorough review of the detailed medical chart of each individual patient.”  The court reasoned that while some cases are suited for statistical sampling, such as those in which the claims evidence had dissipated, this was not such a case. 

The district court’s opinion is available here.

Reporter, John Whittaker, Sacramento, +1 916 321 4808, jwhittaker@kslaw.com.

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