Fourth Circuit Set to Consider Controversial ‘Statistical Sampling’ Issue in Pivotal FCA Case

In a case of first impression, the False Claims Act-heavy Fourth Circuit has agreed to review an interlocutory appeal over whether the use of statistical sampling is sufficient to establish liability under the Act, or whether plaintiff-relators must actually submit evidence to support each and every allegation.

The case, known as United States ex rel. Michaels v. Agape,[1. Morgan, Shawn. “Fourth Circuit First to Examine Providers’ Billing Claims in False Claims Act Liability.” National Law Review. http://www.natlawreview.com/article/fourth-circuit-first-to-examine-providers-billing-claims-false-claims-act-liability] involves some 50,000 instances of alleged fraudulent billing across 24 nursing homes in South Carolina.

With the litigation ongoing, the plaintiffs have appealed to the U.S. Court of Appeals for the Fourth Circuit over the limited issue of whether individual instances of fraud may be proven through statistical sampling, which will have a significant ripple effect on a number of other ongoing cases within the Court’s jurisdiction – a Court which, due to its location, routinely handles FCA matters, particularly involving the Department of Defense and government contractors.

Background of the Michaels case

The Michaels case involves significant allegations of false billing involving tens of thousands of Medicare, Medicaid, and TRICARE patients.[2. Anderson, Joseph F. “United States ex rel. Michaels v. Agape Senior Cmty. Inc.” CaseText.com. https://casetext.com/case/united-states-ex-rel-michaels-v-agape-senior-cmty-inc-1] More specifically, two relators, both of whom are former employees of Agape Senior Community, Inc., alleged that the group consistently overbilled the government for hospice and long-term care services. Notably, the relators assert that patients were admitted to hospice care in violation of established governmental guidelines, and that long-term care services were rendered that were either duplicitous or not medically necessary.

Following a rigorous discovery period, it became known that over 63,000 separate invoices would be presented at trial for purposes of establishing liability and calculating damages. Accordingly, the relators sought to preserve costs by entering a statistical sample of these invoices, prepared by an expert and designed to reflect the evidence pool as a whole. In support of this approach, the relators explained that an independent review of each medical file involved (including the files of over 10,000 patients) would ultimately cost nearly $36 million, so a statistical sample would be much more economical.

With the case pending, the relators and Agape entered into settlement negotiations and arrived at a $2.5 million settlement of the over 63,000 claims of alleged fraudulent billing. At the time of negotiations, the Department of Justice had opted not to intervene and was not invited to the discussion. However, it subsequently entered its objection to the settlement, asserting that it is far too low given the volume of allegations raised and the per-violation statutory damages available in the False Claims Act.

Status of the case

After much judicial wrangling, the Court ultimately opted to submit the issues as a certified question to the Fourth Circuit. More specifically, the South Carolina District Court asked the Fourth Circuit two specific questions: (i) whether statistical sampling is appropriate in cases involving voluminous records and evidence, and; (ii) whether the DOJ can enter its appearance in a False Claims Act case solely to object to a negotiated settlement.

In the District Court’s opinion, statistical sampling is only appropriate when the evidence is either impossible to gather or simply not available. However, other jurisdictions have held otherwise, creating a conundrum for the District Court in deciding whether or not to allow this sort of truncated evidentiary approach.

In sum, the District Court held “[a]s can be seen from the discussion in this Order, the question of whether the Government should be allowed to reject a settlement in a case for which it has not intervened, while relying upon a damages model that this Court has rejected for purposes of trial, presents a unique development that cries out for interlocutory appeal in this case.”

Stay tuned for the Fourth Circuit’s ultimate answer on these issues.

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