On September 29, 2015, the Fourth Circuit Court of Appeals (which has jurisdiction over federal appeals from West Virginia, Virginia, Maryland, North Carolina, and South Carolina) became the first appellate court to agree to consider whether statistical sampling of providers’ billing claims can be used to demonstrate False Claims Act (FCA) liability, or whether whistleblowers should be limited to directly analyzing billing claims in order to prove damages and penalties.  In the same case, the court also is expected to decide whether the Department of Justice (DOJ) has absolute veto power over settlements in FCA cases where it has not intervened as a party.  

The court’s rulings on these issues will significantly affect the proof of damages and penalties permissible in False Claims Act trials, as well as the scope of the government’s right to foreclose potential settlement of such cases, even when it has not been a party to the litigation. 

Healthcare providers who bill for services rendered to patients under Medicare or Medicaid programs must understand how whistleblowers (or the government) can use statistical sampling of the provider’s billing claims, typically in ways that disfavor the provider.

In False Claims Act cases, whistleblowers (and, sometimes, the government) use statistical sampling to directly prove the falsity of a small number of Medicare (or Medicaid) claims and then to extrapolate the findings to a larger universe of claims to assess the total damages and penalties they seek to have imposed. Similarly, in healthcare fraud prosecutions, the government utilizes statistical sampling as proof of the losses and restitution it seeks to recoup from Medicare and/or Medicaid providers convicted of falsely billing the government under these programs.

Two whistleblowers, Brianna Michaels and Amy Whitesides, filed FCA claims in the District of South Carolina, alleging that their employer, Agape Senior Community, Inc. (Agape), was overbilling Medicare for nursing home services.

United States District Judge Joseph F. Anderson, Jr. rejected the whistleblowers’ plan to present evidence at trial of statistical sampling, finding that it would be permissible only if direct analysis of billing claims was impossible, not just time-consuming and expensive. In response, the whistleblowers asked the Fourth Circuit for a ruling that, at trial, they could admit sampling evidence.  The Fourth Circuit is expected to rule on this issue during its current term, which ends in June 2016.

In the same case, the court 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.”  Here, 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 Judge Anderson upheld the government’s veto of the settlement due to the attorney general’s refusal to consent. 

Because district courts in other circuits have allowed the use of statistical sampling in FCA trials, the Fourth Circuit’s ruling in the Michaels case could lead to Supreme Court consideration of the issue.