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Agape Take Two - 4th Circuit Court of Appeals Rules on FCA Statistical Sampling Case

3.20.2017

Last May, we reported on a False Claims Act (FCA) case pending in the 4th Circuit Court of Appeals regarding a claim brought in the U.S. District Court in South Carolina against a network of 24 nursing home providers (collectively, “Agape”).

The case, U.S. ex rel. Brianna Michaels and Amy Whitesides v. Agape Senior Community, et al., alleged that Agape engaged in a scheme to submit claims to Medicare, Medicaid and Tricare for hospice and nursing home inpatient services that were false because the care was not medically necessary or the certifications required to obtain reimbursement were falsified. 

District Court Judge Joseph S. Anderson, Jr. initially denied the plaintiff relators’ (the “Relators”) request to prove liability and damages based on a statistical sampling model, determining that statistical sampling would not be appropriate because (1) each claim asserted in the case presented the question of whether services furnished to nursing home patients were medically necessary; (2) answering the question for each of the patients would involve a highly fact-intensive inquiry involving expert testimony after a review of each patient’s medical chart; and (3) the medical charts of each patient for which the false claims were alleged were intact and were available for review by the parties. Thus, Judge Anderson was satisfied that an extrapolation from a statistical sample may not accurately reflect the non-sampled cases.

Thereafter, the Relators and Agape reached a settlement without the involvement of the Government (which had elected not to intervene in the case), which would pay Relators $2.5 million in settlement of all claims. The settlement was then submitted to the Government for approval, is required under federal law. However, the Government rejected the settlement, based in large part on its own statistical sampling analysis that put the value of the case at $25 million. The Relators and Agape objected to the Government’s refusal to approve the settlement, but Judge Anderson ruled that the plain language of the FCA required the Government’s approval, regardless of whether it elected to intervene in the case. Judge Anderson certified both of his rulings for immediate appeal.

The 4th Circuit Court of Appeals upheld Judge Anderson’s ruling that the Government had an absolute veto right over any settlement of the case. The Court found no exceptions in the law to this requirement in the language of the statute. The Court further noted that its ruling was consistent with the overall intent of the FCA, noting that while qui tam relators “ are motivated primarily by prospects of monetary reward rather than the public good,” … “the United States is the real party in interest in any [FCA] suit,” even when it chooses not to intervene in the case. 2017 U.S. App. LEXIS 2570 at p. 20.

The Court of Appeals then determined that Judge Anderson’s decision rejecting statistical sampling as a measure of damages was too fact-based to warrant an immediate appellate review. The Court therefore remanded the case back to Judge Anderson to hold the trial.

Thus, the Relators and Agape are going to have to decide whether to spend what Relators estimated could be “between $16.2 million and $36.5 million in pretrial preparation alone for a case that the Government values at $25 million." 2017 U.S. App. LEXIS 2570 at p. 10. It will be interesting to see whether the parties will proceed with the trial, or try to enter into a new settlement that is more palatable to the Government.

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