Facts

After originally choosing not to intervene, the Department of Justice (DOJ) has stepped in to defend a relator's attempt to use statistical sampling to prove False Claims Act liability.(1) The relators alleged that Select Medical Corporation, a related entity in Evansville, Indiana and a physician had all violated the False Claims Act by making medically unnecessary admissions to long-term care facilities and increasing reimbursements by manipulating patients' length of stay and falsifying diagnoses. The relators contended that their claims encompass Select's facilities nationwide and advised the court that they intended to propose a plan to use statistical sampling to establish FCA liability based on the evaluation of a subset of medical records from facilities throughout the country. The defendants stated that the claims should be limited to the named facility in Evansville.

After the parties raised the dispute with the court, the magistrate judge issued an order rejecting the relator's proposal and limiting the scope of discovery to the one facility. As a preliminary matter, the magistrate judge rejected the relators' attempts to characterise their allegations as encompassing "a nationwide Medicare fraud case", finding that the allegations were most appropriately read to be limited to the one named facility in Indiana. Further, the court held that sampling would be inappropriate because "it ignores what the plaintiffs would ultimately need to prove to prevail in this case", noting that relators had presented:

"no authority for the proposition that proving that a particular Medicare reimbursement claim was fraudulent based on a theory of lack of medical necessity can be done by a random-sampling method that does not evaluate whether each particular claim for which the plaintiffs seek relief was actually knowingly false within the meaning of the FCA."

The court concluded that "fraud will have to be proved on a claim-by-claim basis based on the patient's actual medical condition and actual medical care" on an individual basis.

The relators subsequently filed objectionsto the magistrate judge's order with the district judge. On May 11 the DOJ submitted a statement of interest in support of the relators' objections, in which it argued that the magistrate judge's order should be set aside as clearly erroneous:

"because it is contrary to long-established precedent recognizing statistical sampling as an admissible and valid method of proof in complex cases involving large numbers of claims, including cases brought under the FCA."

The DOJ argued that if the government cannot utilise sampling in False Claims Act cases, "then defendants would be incentivized to commit fraud on a large scale, knowing that the government could not present all of the defendant's false claims individually to the jury".

Comment

Contrary to the DOJ's contention, the appropriateness of statistical sampling to establish liability in False Claims Act cases (as distinct from damages once liability has already been established) has been hotly contested among lower courts, with little guidance from courts of appeal or the Supreme Court. The resolution of this issue will have significant implications on the scope of False Claims Act claims going forward, particularly those based on lack of medical necessity. The district court has not yet ruled on the relator's objections.

For further information on this topic, please contact Scott D Stein at Sidley Austin LLP by telephone (+1 312 853 7000) or email (sstein@sidley.com). The Sidley Austin website can be accessed at www.sidley.com.

Endnotes

(1) US ex rel Conroy v Select Medical Corporation, No 3:12-cv-00051 (SD Ind).

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