On September 29, 2015, the U.S. Court of Appeals for the Fourth Circuit agreed to hear an interlocutory appeal on the use of statistical sampling as a means of proving liability under the False Claims Act (FCA).  See United States ex rel. Michaels v. Agape Senior Community, Inc., et al., No. 15-238 (L) (0:12-cv-03466-JFA) (4th. Cir. Sept. 29, 2015).  (I previously wrote about this case here.) While statistical methods of proof have been used to prove damages in FCA cases, relatively few courts have considered whether such methods are ever appropriate to establish liability under the FCA.  Consequently, the outcome of the appeal has significant potential to shape this area of FCA jurisprudence moving forward.

The case, United States ex rel. Michaels v. Agape, concerns allegations that a network of 24 nursing homes throughout South Carolina submitted fraudulent claims to Medicare, Medicaid and Tricare for care that was not medically necessary. Due to the large volume of potentially fraudulent claims—over 50,000 claims were submitted during the relevant time period—relators sought to use statistical sampling to prove that defendants had submitted false claims.  Specifically, the relators sought to have their experts review a small percentage of the claims, determine what percentage of those claims were fraudulent and extrapolate over the entire universe of submitted claims.  The district court rejected the relators’ proposed approach but certified the question for interlocutory appeal.

First, the district court noted that Agape does not present a situation  where the relevant evidence is unavailable and statistical sampling presents the only possible method of proof.  All the relevant documentation concerning the allegedly fraudulent claims exists and is fully accessible.  At root, the relators’ argument is that it would take too much time and cost too much money to review such a large volume of data.  As the district court stated, however, such shortcuts are inappropriate in a case where the alleged fraud is that services provided were not medically necessary—a “highly fact intensive inquiry involving medical testimony after a thorough review of the detailed medical chard of each individual patient.”

Second, the use of statistical sampling is not guaranteed to shorten a trial because the defendants still retain the right to present evidence on each individual claim.  To force the defense to also rely on a sample of the claims and prevent the presentation of evidence on the remainder of the individual claims would, as the defendants argued, deny them of their constitutional right to a jury trial on the facts.

Third, and perhaps equally important, Fourth Circuit also is expected to decide whether the DOJ has absolute veto power over settlements in FCA cases where it has not intervened as a party.  The FCA provides that cases can be dismissed due to settlement “only if the court and the attorney general [of the United States] give written consent.”  In Agape, the DOJ blocked the whistleblowers’ proposed $2.5 million settlement with Agape, contending that the damages involved are closer to $25 million.  The parties called the DOJ opposition unjustified, but the district court judge upheld the government’s veto of the settlement due to the attorney general’s refusal to consent.

The Fourth Circuit’s ruling in Agape has the potential to either help clarify the law regarding the use of statistical sampling to prove falsity or open the door to speculative methods of proof in FCA litigation.  A ruling is expected by June 2016.  We will continue to follow this appeal as it develops and report back with updates.