UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TENNESSEE AT CHATTANOOGA UNITED STATES OF AMERICA, ex rel. GLENDA MARTIN, Plaintiffs, v. LIFE CARE CENTERS OF AMERICA, INC., Defendant.
UNITED STATES OF AMERICA, ex rel. TAMMIE TAYLOR, Plaintiffs, v. LIFE CARE CENTERS OF AMERICA, INC., Defendant.
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Civil Action No. 1:08-CV-251 MATTICE/CARTER
Civil Action No. 1:12-CV-64 MATTICE/CARTER
LIFE CARE’S MEMORANDUM IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO THE GOVERNMENT’S “UNIDENTIFIED CLAIMS”
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Table of Contents Page Background and Statement of Facts.............................................................................................1 Summary Judgment Standard ......................................................................................................4 Elements of False Claims Act Cause of Action............................................................................5 Argument ....................................................................................................................................6 I.
II.
III.
Evidence From Statistical Sampling And An Extrapolation, Without Presentation Of Evidence For Each Allegedly False Claim, Fails To Satisfy The Elements Of Proof ........6 A.
Statistical Extrapolation Does Not Provide The Required Individualized Proof For Each Unidentified Claim ......................................................................................8
B.
The Government Will Present No Factual Evidence Of The “Falsity” Of Any Unidentified Claim............................................................................................. 10 1.
“Falsity” In This Case Requires An Individual, Patient-Specific Determination Of Whether Life Care Billed The Government For Medically Unnecessary Therapy ............................................................. 10
2.
Life Care Is Entitled To Summary Judgment Because The Government Will Not Present Evidence That Therapy Services Provided To Patients Were Medically Unnecessary ................................................................. 12
3.
Statistical Extrapolation Cannot Prove “Falsity” In This Case................. 14
C.
The Government Will Present No Evidence Of Scienter For Any Of The Unidentified Claims ........................................................................................... 16
D.
The Government Cannot Present Any Evidence Of Materiality For Any Of The Unidentified Claims ........................................................................................... 19
Liability For Unidentified Claims Would Violate Life Care’s Due Process And Statutory Rights By Depriving Life Care Of The Opportunity To Present Defenses And Shifting The Burden Of Proof ..................................................................................................... 21 A.
The Government’s Reliance On Statistical Extrapolation Violates the Due Process Clause By Foreclosing Life Care From Presenting Valid Defenses ..................... 22
B.
The Government’s Use Of Statistical Extrapolation Improperly Shifts The Statutory Burden Of Proof To Life Care ............................................................. 24
Conclusion .................................................................................................................... 25
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Table of Authorities Cases Alexander v. Caresource, 576 F.3d 551 (6th Cir. 2009) ...................................................................................................5 Everson v. Leis, 556 F.3d 484 (6th Cir. 2009) ...................................................................................................5 Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009) ...................................................................................................7 Hagood v. Sonoma County Water Agency, 81 F.3d 1465 (9th Cir. 1996) ................................................................................................. 10 Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999) ................................................................................................. 14 Hefner v. Hackensack Univ. Med. Ctr., 495 F.3d 103 (3d Cir. 2007) .................................................................................................. 17 Holmes v. S. Carolina, 547 U.S. 319 (2006) .............................................................................................................. 22 Lauderdale v. Wells Fargo Home Mortg., No. 12-1794, 2014 WL 259919 (6th Cir. Jan. 23, 2014) ..........................................................5 Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154 (3d Cir. 2001) .................................................................................................. 22 Osuna v. Wal-Mart, No. C20014319, 2004 WL 3255430 (Ariz. 2004) ................................................................. 22 Philip Morris USA v. Williams, 549 U.S. 346 (2007) .............................................................................................................. 22 Sanderson v. HCA-The Healthcare Co., 447 F.3d 873 (6th Cir. 2006) ...................................................................................................6 U.S. ex rel. Wall v. Circle C Constr., 697 F.3d 345 (6th Cir. 2012) ...................................................................................................6 United States ex rel Trim v. J.D. McKean, 31 F. Supp. 2d 1308 (W.D. Okla. 1998) .......................................................................... 15, 16 United States ex rel. Aflatooni v. Kitsap Physicians Serv., 314 F.3d 995 (9th Cir. 2002) ...................................................................................................7 United States ex rel. Atkins v. McInteer, 470 F.3d 1350 (11th Cir. 2006) ............................................................................................ 22 United States ex rel. Bennett v. Medtronic, Inc., 747 F. Supp. 2d 745 (S.D. Tex. 2010) ................................................................................... 11
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United States ex rel. Bledsoe v. Cmty. Health Sys. Inc., 501 F.3d 493 (6th Cir. 2008) ...................................................................................................5 United States ex rel. Burlbaw v. Orendoff, 548 F.3d 931 (10th Cir. 2008) ............................................................................................... 17 United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301 (11th Cir. 2002) ...............................................................................................6 United States ex rel. Crews v. NCS Healthcare of Ill., 460 F.3d 853 (7th Cir. 2006) ....................................................................................... 7, 24, 25 United States ex rel. El-Amin v. George Washington Univ., No. 95-2000, 2013 WL 6912884 (D.D.C. Nov. 25, 2013)................................................... 7, 8 United States ex rel. Fowler v. Caremark Rx, LLC, 496 F.3d 730 (7th Cir. 2007) ...................................................................................................7 United States ex rel. Fry v. Guidant Corp., No. 3:03–0842, 2009 WL 3103836 (M.D. Tenn. Sept. 24, 2009) ............................................8 United States ex rel. Head v. Kane Co., 798 F. Supp. 2d 186 (D.D.C. 2011) .........................................................................................8 United States ex rel. Hockett v. Columbia/HCA Healthcare Corp., 498 F. Supp. 2d 25 (D.D.C. 2007) ..................................................................................... 7, 14 United States ex rel. Kusner v. Osteopathic Med. Ctr., No. 88-9753, 1997 U.S. Dist. LEXIS 16585 (E.D. Pa. Oct. 21, 1997).................................... 23 United States ex rel. Lusby v. Rolls Royce Corp., No. 1:03–cv–680–SEB–WGH, 2011 WL 4387293 (S.D. Ind. Sept. 20, 2011) ....................... 18 United States ex rel. Lusby v. Rolls-Royce Corp., No. 1:03-cv-680-SEB-WGH, 2012 WL 4357438 (S.D. Ind. Sept. 24, 2012) ................... 24, 25 United States ex rel. Quinn v. Omnicare, Inc., 382 F.3d 432 (3d Cir. 2004) ....................................................................................................7 United States ex rel. Roby v. Boeing Co., 100 F. Supp. 2d 619 (S.D. Ohio 2000)............................................................................. 10, 11 United States ex rel. Williams v. Renal Care Group, Inc., 696 F.3d 518 (6th Cir. 2012) ................................................................................... 5, 6, 19, 20 United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370 (4th Cir. 2008) ................................................................................................. 23 United States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 2011 WL 3084932 (7th Cir. July 26, 2011) .................................................... 18 United States v. Bornstein, 423 U.S. 303 (1976) .......................................................................................................... 7, 13 United States v. Cabrera-Diaz, 106 F. Supp. 2d 234 (D.P.R. 2000) ........................................................................................ 10
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United States v. Chen, 402 F. App'x 185 (9th Cir. 2010) ........................................................................................... 10 United States v. Corinthian Colleges, 655 F.3d 984 (9th Cir. 2011) ........................................................................................... 18, 23 United States v. Friedman, No. 86-610-MA, 1993 U.S. Dist. LEXIS 21496 (D. Mass. July 23, 1993) ......................... 9, 10 United States v. Houston, No. 2:09-0091, 2011 WL 4899983 (M.D. Tenn. Oct. 14, 2011) ...................................... 18, 23 United States v. Krizek, 111 F.3d 934 (D.C. Cir. 1997) ............................................................................................... 10 United States v. Murphy, 937 F.2d 1032 (6th Cir. 1991) ............................................................................................... 17 United States v. Prabhu, 442 F. Supp. 2d 1008 (D. Nev. 2006) .............................................................................. 11, 14 United States v. Rivera, 55 F.3d 703 (1st Cir. 1995)......................................................................................................6 United States v. Science Apps. Int'l Corp., 626 F.3d 1257 (D.C. Cir. 2010) ............................................................................................. 18 United States v. United Techs. Corp., 51 F. Supp. 2d 167 (D. Conn. 1999) ...................................................................................... 18 Vermont Agency of Nat’l Res. v. United States ex rel. Stevens, 529 U.S. 765 (2000) .............................................................................................................. 22 Villegas v. Metro. Gov't of Nashville, 709 F.3d 563 (6th Cir. 2013) ...................................................................................................4 Wang ex rel. United States v. FMC Corp., 975 F.2d 1412 (9th Cir. 1992) ............................................................................................... 11 Statutes 31 U.S.C. § 3729 .........................................................................................................................5 31 U.S.C. § 3729(a)(1)(A)..................................................................................................... 5, 17 31 U.S.C. § 3729(b) ............................................................................................................ 10, 17 31 U.S.C. § 3729(b)(1)(A) ........................................................................................................ 17 31 U.S.C. § 3731(d) ........................................................................................................ 6, 19, 24 42 U.S.C. § 1395y(a)(1)(A) ................................................................................................... 9, 12 U.S. Const. amend. V ................................................................................................................ 22 U.S. Const. amend. VII ............................................................................................................. 22
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Rules Fed. R. Civ. P. 26(a)(1) ...............................................................................................................3 Fed. R. Civ. P. 56(a)....................................................................................................................1 Fed. R. Civ. P. 9(b) .....................................................................................................................8 Fed. R. Evid. 1002 .................................................................................................................... 13 Regulations 42 C.F.R. § 409.32(a) ................................................................................................................ 12 42 C.F.R. § 409.32(d)..................................................................................................................9
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Pursuant to Fed. R. Civ. P. 56(a), Defendant Life Care Centers of America, Inc. (“Life Care”) respectfully submits this memorandum of law in support of its motion for partial summary judgment seeking judgment as a matter of law on all allegedly false claims and statements that the Government contends violated the False Claims Act (“FCA”) but has conceded it will not identify in this action. The disposition of this motion will significantly narrow the issues and alleged claims enabling the Court and Life Care to focus only on the actual claims for which the Government will present specific factual evidence at trial so that Life Care can exercise its fundamental due process rights to defend itself against actual claims that the Government has identified and upon which the Government seeks massive damages. BACKGROUND AND STATEMENT OF FACTS The Government’s Allegations. As set forth in the United States’ Consolidated Complaint in Intervention (Dkt. No. 69, hereafter “Complaint” or “Compl.”), the Government generally alleges that Life Care is a skilled nursing facility (“SNF”) that provides skilled therapy services to patients at more than 200 facilities throughout the country. Compl. ¶ 12. The Complaint alleges that Life Care provided “excessive” skilled therapy services to Medicare and TRICARE beneficiaries, that such excessive therapy services were not medically necessary and therefore not reimbursable under federal standards, and that Life Care “knowingly submitted false claims to the Medicare and TRICARE programs for medically unnecessary, unreasonable, or unskilled therapy services, and used false records and statements to support those claims.” Id. ¶¶ 6, 23, 45. The Government contends that Life Care imposed “corporate pressure” on its facilities and therapists, and that such pressure “caused” individual therapists to provide medically unnecessary services that eventually resulted in the claims for federal reimbursement
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and statements that the Government characterizes as violations of the False Claims Act. Compl. ¶¶ 4, 50, 52. The Government’s “Extrapolation” Methodology. The Government has confirmed that it will attempt to establish FCA liability and damages against Life Care by presenting expert testimony and other specific evidence as to three categories of allegedly false claims and statements: (1) claims and statements for the 10 patients (A-J) identified in the Complaint; (2) any false claims and statements that may be identified from the Government’s medical review of patients in its sample of 400 patient admissions; and (3) any additional, individual false claims and statements that the Government may otherwise identify before the end of discovery. See United States’ Second Am. and Supp. Resp. to Interrog. No. 14 (Nov. 4, 2013) (attached as Exhibit [“Ex.”] A). In addition, the Government plans to establish FCA liability and damages as to alleged false claims and submissions that the Government never will specifically identify. These are claims to be extrapolated from the sample of 400 patient admissions taken from 82 predetermined Life Care facilities (out of more than 225 facilities nationwide), to a universe of 154,621 claims (relating to 54,396 patient admissions), submitted between January 1, 2006 through February 1, 2013 (the “Unidentified Claims”). See United States’ First Supp. Resp. to Interrog. No. 2 (Nov. 1, 2013) (explaining the Government’s methodology “[f]or purposes of extrapolating false claims and damages”) (emphasis added) (attached as Ex. B).1 The Government proposes to have its statistician “extrapolate” and estimate the total number of claims that allegedly resulted in overpayments to Life Care (i.e., as reimbursement for
1
See United States’ Expert Report on Data Processing, Sample Selection, and Proposed Estimation Methodology [“Yiannoutsos Report”] at pp. 1-4, 6 (Sept. 30, 2013) (attached as Ex. C).
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medically unnecessary therapy). This extrapolation will apply the results of the Government’s medical review of the 400 sampled patient admissions to estimate the total number of alleged false claims – but will not identify any specific claims or submissions. See Letter from Mr. Mao at 2, 3, 4 (Aug. 30, 2013) (stating the Government intends to identify false claims through its medical review of the 400 patient admissions, and “to estimate the total number of false claims and records through sampling and extrapolation”) (attached at Ex. D).2 Instead, the Government takes the position that every one of the Unidentified Claims (as estimated in the extrapolation) constitutes a violation of the FCA. See United States’ Disclosures Under Fed. R. Civ. P. 26(a)(1) at 3 (Dkt. No. 97, May 15, 2013). The parties’ respective statisticians agree that the proposed extrapolation methodology will not permit identification of any individual claim or specific patient, much less any false claim or statement. See Dep. of Constantin T. Yiannoutsos (Jan. 10, 2014) (“Yiannoutsos Dep.”) at 321:10-19 (attached as Ex. F); id. at 83:21 – 84:8; Life Care Expert Report of Stefan Boedeker [“Boedeker Report”] at 42 (Nov. 14, 2013) (attached as Ex. G). Thus, as to the Unidentified Claims, the Government will present no evidence as to any patient diagnosis, condition, medical history, or the nature or amount of therapy or skilled services provided to individual patients. It will not identify the physicians or therapists who ordered and/or provided services for the patient or any other factual information relevant to a
2
See also Letter from Mr. Mao to Mr. Hasselman re: Document Requests 23, 47, 48 at pages 2, 4 (Oct. 25, 2013) (“Life Care is correct that the United States does not intend to produce documents relating to every specific claim it contends was false. Rather, it intends to produce such information for the 10 patients identified in the complaint and the 400 patients in the United States’ statistical sample,” and stating that its expert report will identify the “total number of false claim”) (attached as Ex. E); Ex. A, U.S. Second Am. & Supp. Resp. to Interrog. No. 14 (“The United States does not intend, however, to prove individually each and every false claim, false statement or false record that Life Care has submitted or caused to be submitted since 2006”); Ex. C, Yiannoutsos Report at 1, 16-17.
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determination of whether the Life Care services provided to any of the unidentified patients within the extrapolation were skilled or medically necessary. Furthermore, while the Government alleges a nationwide scheme of “corporate pressure,” the Government cannot present any factual evidence that purported “corporate pressure” caused Life Care therapists to provide unskilled or medically unnecessary therapy with respect to the Unidentified Claims. See Ex. A, U.S. Second Am. & Supp. Resp. to Interrog. Nos. 4, 6, 8, 10, 12, 19 (failing to identify any allegedly false claims resulting from various forms of purported “corporate pressure” alleged in the Complaint and confirming the Government will not present information as to FCA violations on a claim-by-claim basis). Because the Government has not identified or produced – and has admitted that it will not produce – any factual information to prove Defendant’s liability as to the Unidentified Claims, the Government cannot cure its fundamental proof deficiencies through discovery relating to any of the Unidentified Claims, and therefore this Motion is ripe for review. After more than five years of investigation and litigation by the Government, Life Care should not be forced to defend itself against potentially thousands of phantom “false” claims that the Government and its team of medical and statistical experts will not even attempt to identify, much less prove. SUMMARY JUDGMENT STANDARD A party is entitled to summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, show that there is no genuine issue as to any material fact such that the movant is entitled to a judgment as a matter of law.” Villegas v. Metro. Gov’t of Nashville, 709 F.3d 563, 568 (6th Cir. 2013) (internal quotation marks and citation omitted). The moving party bears the “initial burden of informing the district court of the basis for its motion and identifying portions of the record that
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demonstrate the absence of a genuine dispute over material facts.” Alexander v. Caresource, 576 F.3d 551, 558 (6th Cir. 2009) (citation omitted). To satisfy this burden, a movant-defendant who does not bear the burden of proof as to an ultimate issue need “only demonstrate that the plaintiff cannot sustain her burden as to an essential element of the case.” Lauderdale v. Wells Fargo Home Mortg., No. 12-1794, 2014 WL 259919, at *1 (6th Cir. Jan. 23, 2014). Once the defendant has done so, the plaintiff then bears the burden of presenting “enough evidence that will be admissible at trial to demonstrate that a genuine issue on a material fact exists, and that a trial is necessary.” Alexander, 576 F.3d at 558. The plaintiff’s “‘failure to present any evidence to counter a well-supported motion for summary judgment alone is grounds for granting the motion.’” Id. (quoting Everson v. Leis, 556 F.3d 484, 496 (6th Cir. 2009)). ELEMENTS OF FALSE CLAIMS ACT CAUSE OF ACTION The FCA, 31 U.S.C. § 3729, et seq., imposes civil penalties on parties who knowingly submit false claims to the United States government. To establish a violation under § 3729(a)(1)(A) of the FCA, a plaintiff must prove: (1) the defendant submitted or caused the submission to the federal government of a claim for payment to the United States; (2) the claim was false or fraudulent; and (3) the party submitting the claim either had actual knowledge of the claim’s falsity or acted in reckless disregard of the claim’s validity. See United States ex rel. Bledsoe v. Cmty. Health Sys. Inc., 501 F.3d 493, 502–03 (6th Cir. 2008). In addition, an FCA violation exists only if the alleged falsity was “material” to the government’s decision to pay the claim. See United States ex rel Williams v. Renal Care Group, Inc., 696 F.3d 518, 528 (6th Cir. 2012). To establish a violation under the “false records” provision of the FCA, a plaintiff must prove: (1) the defendant made a false statement or created a false record with knowledge of its
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falsity; (2) the defendant submitted a claim for payment to the federal government; and (3) the defendant’s false statement was material to the government’s payment or approval of the claim. Id.; U.S. ex rel. Wall v. Circle C Constr., 697 F.3d 345, 356 & n.3 (6th Cir. 2012). ARGUMENT Life Care is entitled to summary judgment on Counts I and II of the Complaint with respect to the Unidentified Claims. As set forth below, there is no genuine dispute as to any material fact that the Government has not and will not present factual evidence to establish any, much less all, of the essential FCA elements as to any of the Unidentified Claims. I.
EVIDENCE FROM STATISTICAL SAMPLING AND AN EXTRAPOLATION, WITHOUT PRESENTATION OF EVIDENCE FOR EACH ALLEGEDLY FALSE CLAIM, FAILS TO SATISFY THE ELEMENTS OF PROOF The Government cannot use its statistical extrapolation as a wholesale proxy for
evidentiary proof of liability in this case. Without the presentation of factual evidence relating to each of the Unidentified Claims for which it intends to establish liability and damages, the Government cannot satisfy its undisputed burden of proof which requires that it prove by a preponderance of the evidence each of the essential FCA elements for each alleged false claim or statement for which it seeks recovery. 31 U.S.C. § 3731(d). As the Sixth Circuit has recognized, it is axiomatic that a false claim is “the sine qua non of a False Claims Act violation.” Sanderson v. HCA-The Healthcare Co., 447 F.3d 873, 878 (6th Cir. 2006) (quoting United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1311 (11th Cir. 2002)) (internal quotation marks omitted). This is so because “the statute attaches liability, not to the underlying fraudulent activity or to the government's wrongful payment, but to the ‘claim for payment.’” Sanderson, 447 F.3d at 877-78 (quoting United States v. Rivera, 55 F.3d 703, 709 (1st Cir. 1995)).
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In analyzing the elements of the FCA, the focus is on the individual claims alleged to be false, and the statute creates liability “only for certain identifiable acts” committed by a defendant. See United States v. Bornstein, 423 U.S. 303, 309, 311 (1976) (“The language of the statute focuses on false claims” rather than overarching proof of fraud); United States ex rel Hockett v. Columbia/HCA Healthcare Corp., 498 F. Supp. 2d 25, 71 (D.D.C. 2007) (“The FCA is not a catchall anti-fraud provision; it only goes after claims that are false, not claims that are submitted while fraud is afoot.”); United States ex rel. Aflatooni v. Kitsap Physicians Serv., 314 F.3d 995, 1002 (9th Cir. 2002) (“The False Claims Act, then, focuses on the submission of a claim, and does not concern itself with whether or to what extent there exists a menacing underlying scheme.”). The Government must prove all essential elements of an FCA violation for each false claim at an individual, transactional level. See United States ex rel Crews v. NCS Healthcare of Ill., 460 F.3d 853, 856 (7th Cir. 2006) (granting summary judgment for defendants where plaintiff lacked evidence linking allegedly fraudulent scheme to actual false claims submitted to the government); United States ex rel Quinn v. Omnicare, Inc., 382 F.3d 432, 440 (3d Cir. 2004) (summary judgment for defendant where plaintiff lacked evidence of actual false claims); United States ex rel Fowler v. Caremark Rx, LLC, 496 F.3d 730, 741-42 (7th Cir. 2007) (“The Relators do not present any evidence at an individualized transactional level to demonstrate that Caremark” submitted false claims) (emphasis in original), overturned on other grounds, Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009); United States ex rel El-Amin v. George Washington Univ., -- F. Supp. 2d --, No. 95-2000, 2013 WL 6912884 at *7 (D.D.C. Nov. 25, 2013) (requiring the plaintiff-relators to identify with specificity each claim they contended was false, and granting summary judgment for defendant after conducting an individualized
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analysis of 2,579 alleged false Medicare claims because “Relators . . . failed to point to any evidence that they could introduce at trial to establish the essential elements of a violation of the FCA for each of the Medicare claims”) (emphasis added).3 A.
Statistical Extrapolation Does Not Provide The Required Individualized Proof For Each Unidentified Claim
Partial summary judgment in favor of Life Care is appropriate here because the Government’s extrapolation methodology cannot even identify specific claims alleged to constitute violations of the FCA, much less allow for individualized, transactional level proof for any of the Unidentified Claims. See Ex. A, U.S. Second Am. & Supp. Resp. to Interrog. Nos. 8, 10, 12, 19 (stating the Government will not present evidence on a claim-by-claim basis).4 Given the Government’s attempt to prove liability through statistical extrapolation, there is no dispute that the Government could not comply with an order similar to the order entered by the court in the El-Amin case requiring the Government to specify with detail all of the Unidentified Claims for which it seeks to impose liability and damages. See El-Amin, 2013 WL 6912884 at *5 (quoting court order requiring plaintiffs to identify detailed information for each specific Medicare claim they alleged was false); 5 see also United States ex rel Head v. Kane Co., 3
In prior rulings in the El-Amin case, the court narrowed the issues in the case by precluding the relators from proceeding on claims that it failed to link to specific, identifiable anesthesiologists (who relators alleged had violated rules that were prerequisites to Medicare reimbursement), and further precluded relators from offering evidence about the general practices of anesthesiologists without tying the evidence to “specific Medicare claims for specific patients.” El-Amin, 2013 WL 6912884 at *3. 4
In fact, because the Government cannot describe any of the Unidentified Claims (much less with any particularity), the extrapolation methodology is insufficient to withstand even the preliminary requirement to identify claims of fraud with particularity under Fed. R. Civ. P. 9(b). 5
Cf. United States ex rel Fry v. Guidant Corp., No. 3:03–0842, 2009 WL 3103836 at *2 (M.D. Tenn. Sept. 24, 2009) (requiring Government in FCA case to produce in discovery each and every claim it contended was false, despite the Government’s arguments that it should be permitted to conduct discovery and prove its case at trial based on a statistical sampling and extrapolation methodology). -8Case 1:08-cv-00251-HSM-WBC Document 141 Filed 02/18/14 Page 14 of 32 PageID #: 1403
798 F. Supp. 2d 186, 196 (D.D.C. 2011) (stating that an FCA plaintiff “must, of course” identify the specific and individual claims and statements alleged to be false at some point, even if not required to be included in the complaint at the pleading stage). In a case with analogous circumstances, the court specifically declined to permit statistical sampling and extrapolation to form the basis for liability in an FCA case because of the lack of individualized proof. See United States v. Friedman, No. 86-610-MA, 1993 U.S. Dist. LEXIS 21496 (D. Mass. July 23, 1993). In Friedman, the Government presented expert testimony to establish that the defendant physician submitted Medicare claims for medically unnecessary services. Id. at *9 n.1. Specifically, the Government sought to extrapolate from a random sample of 350 claims to a universe of 676 total claims submitted by the defendant. Id. Even though the sample from which the Government sought to extrapolate comprised more than 50% of the entire universe of claims at issue in Friedman – compared with only 0.7% of the selected sampled patient admissions the Government proposes to extrapolate to the universe in this case6 – the court declined to permit extrapolation. Id. The court was “reluctant to accept a statistical sampling as the basis for [multiplying] the alleged overpayment without” the scrutiny and analysis afforded by the presentation of actual evidence at trial that is subject to crossexamination. Id. As in Friedman, this case involves fact-intensive, subjective determinations by scores of different physicians, therapists, and other professionals as to whether individualized therapy treatments improved, maintained, or slowed the deterioration of the conditions of unique patients, and therefore were medically necessary. See 42 U.S.C. § 1395y(a)(1)(A); 42 C.F.R. § 409.32(d). Of note, the determinations in this case were made by differing personnel and relate 6
See Ex. C, Yiannoutsos Report at 7, 16 (sample size of 400 patient admissions, and relevant universe of 54,396 patient admissions; 400/54,396 = 0.7%).
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to tens of thousands of patients from 82 different facilities, rather than the hundreds of patients from the single facility at issue in Friedman. Just as the court acknowledged in Friedman, a statistical extrapolation methodology improperly would preclude Life Care from challenging the Government’s factual evidence and cross-examining witnesses concerning evidence relating to each of the Unidentified Claims. Because there is no genuine dispute that the Government will present no factual evidence to prove whether Life Care provided medically necessary therapy services to any individual patients,7 Life Care is entitled to judgment as a matter of law as to the Unidentified Claims. B.
The Government Will Present No Factual Evidence Of The “Falsity” Of Any Unidentified Claim 1.
“Falsity” In This Case Requires An Individual, Patient-Specific Determination Of Whether Life Care Billed The Government For Medically Unnecessary Therapy
“At a minimum, the FCA requires proof of an objective falsehood” because “[t]he statutory phrase ‘known to be false’ does not mean ‘scientifically untrue,’ it means ‘a lie.’” United States ex rel. Roby v. Boeing Co., 100 F. Supp. 2d 619, 625, 628 (S.D. Ohio 2000) (quoting Hagood v. Sonoma County Water Agency, 81 F.3d 1465, 1477–78 (9th Cir. 1996)); 31 U.S.C. § 3729(b). Therefore, “[c]laims are not ‘false’ under the FCA unless they are furnished in violation of some controlling rule, regulation or standard,” and “[e]xpressions of opinion, 7
Life Care acknowledges that statistical sampling in certain limited circumstances has been used as a method of proof in FCA cases, but all such cases are clearly distinguishable from the circumstances of this case. See, e.g., United States v. Cabrera-Diaz, 106 F. Supp. 2d 234, 240, 243 (D.P.R. 2000) (permitting the government to use statistical sampling to calculate damages – rather than establish liability – where the defendant was in default and failed to challenge the government’s motion); United States v. Chen, 402 F. App'x 185, 188-89 (9th Cir. 2010) (declining to address “the potential problems with using sampling and extrapolation to prove FCA violations” because the defendant did not challenge the extrapolation methodology in the trial court and only raised the issue for the first time on appeal); United States v. Krizek, 111 F.3d 934, 943 (D.C. Cir. 1997) (affirming use of extrapolation in FCA case where defendant expressly stipulated and consented to its use).
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scientific judgments, or statements as to conclusions about which reasonable minds may differ cannot be false.” United States v. Prabhu, 442 F. Supp. 2d 1008, 1026 (D. Nev. 2006); Roby, 100 F. Supp. 2d at 625–26 (citing Wang ex rel. United States v. FMC Corp., 975 F.2d 1412, 1420–21 (9th Cir. 1992)). The Government broadly alleges that Life Care submitted false claims and statements seeking federal reimbursement for therapy services that it now contends were “not medically reasonable and necessary, and that were not skilled in nature.” Compl. ¶¶ 1, 6, 159-160. Because “falsity” is an essential element of any FCA violation, the Government is required to establish, for each claim and statement it contends is false, that the claim for reimbursement as to each specific patient was submitted in violation of the controlling “medically reasonable and necessary” standard in this case. The determination of whether therapy is medically necessary for a particular patient requires an “individualized assessment of the patient’s clinical condition.” Jimmo v. Sebelius, No. 5:11-cv-17-cr (D. Vt.), Settlement Agreement, Dkt. No. 82-1, at 11 (¶ 6(a)) & 12-13 (¶ 7(a)) (Oct. 16, 2012) (Government agreement to revise Medicare Benefit Policy Manual as to skilled nursing facility benefits to clarify that coverage for therapy and nursing services requires “individualized assessment of the patient’s clinical condition”) (attached as Ex. H); see also United States’ Supp. and Am. Resp. to Defendant’s First Requests for Admission, No. 23-25 (Oct. 29, 2013) (attached as Ex. I); United States ex rel Bennett v. Medtronic, Inc., 747 F. Supp. 2d 745, 777 (S.D. Tex. 2010) (“The decision on medical necessity is made by individual physicians exercising independent professional judgment based on the knowledge of their
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particular patients”) (emphasis added).8 Similarly, “‘[r]ules of thumb’ in the Medicare medical review process are prohibited. . . . Medical denial decisions must be based on a detailed and thorough analysis of the beneficiary's total condition and individual need for care.” Jimmo, United States’ Mem. in Support of Motion to Dismiss Pl. Am. Compl., Dkt. No. 25-1, at 3839 (Apr. 11, 2011) (attached as Ex. J); see also 75 Fed. Reg. 70372, 70395 (Nov. 17, 2010).9 2.
Life Care Is Entitled To Summary Judgment Because The Government Will Not Present Evidence That Therapy Services Provided To Patients Were Medically Unnecessary
It is undisputed that the Government will not present any factual evidence relating to the “falsity” of any of the Unidentified Claims on an individual, patient-specific level. For example, the Government will not present evidence concerning individual patients’ actual conditions, diagnoses, or clinical needs; or the nature of therapy (physical, occupational, and/or speech therapy); or the extent (i.e., number of minutes) of therapy for each type of therapy provided. Without such information, there is no factual evidence to establish that the individualized therapy provided to any patient corresponding to the Unidentified Claims was medically unnecessary, or
8
The Complaint’s allegations that medical necessity determinations require consideration of each patient’s individual condition, circumstances, medical history, and records stand in stark contrast to the Government’s position on proof required to establish liability for the Unidentified Claims in this case. See, e.g., Compl. ¶¶ 3, 4, 24, 50, 52. 9
Similarly, a determination of whether therapy services are “skilled” also requires a determination that the particular type of therapy provided to the patient is “so inherently complex that it can be safely and effectively performed only by, or under the supervision of, professional or technical personnel,” results from “[a] condition that does not ordinarily require skilled services may require them because of special medical complications,” and is medically “reasonable and necessary.” See 42 C.F.R. § 409.32(a); Ex. I, U.S. Supp. and Am. Resp. to Req. for Adm., No. 23; 42 U.S.C. § 1395y(a)(1)(A).
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was not tailored to any patient’s particular needs, or was not consistent with the nature and severity of any patient's individual illness, injury, or particular medical condition.10 Nor does the Government statistician’s estimate of the number of claims translate into individualized, qualitative determinations of medical necessity. In fact, the Government statistician conceded that his extrapolation theory does not consider or account for patients’ actual diagnoses, medical needs, or other factors affecting the medical necessity analysis. See Am. Report in Response to the Expert Report of Stefan Boedeker [“Yiannoutsos Rebuttal”] at 3, 17 (Dec. 17, 2013) (no consideration of patient diagnosis codes) (attached as Ex. K); Ex. F, Yiannoutsos Dep. at 101:16 – 103:13 (statistician failed to consider any factors reflecting variation among patients, or “covariates”); id. at 310:17 – 312:19 (did not consider any patientspecific data, e.g., patient diagnosis codes, average length of stay, or otherwise, to determine whether patients in sample were representative of patients in the universe); id. at 207:1-2, 13-19 (did not rely on Minimum Data Set forms, which reflect data relating to individual patient conditions and therapy provided); Ex. G, Boedeker Report at 37. The Government’s statistician further admitted that he has never reviewed a patient medical record, and is not aware of the circumstances or criteria relevant to determinations of whether therapy is medically necessary, as to any patient. See id.; Ex. F, Yiannoutsos Dep. at 146:21 – 147:9; id. at 283:22 – 284:2; id. at 86:14-20; Ex. K, Yiannoutsos Rebuttal at 30 (statistician lacks medical expertise). Because the Government’s extrapolation theory fails to account for such factors – on an individualized, patient-specific basis or otherwise – the Court should not accept statistical estimations in lieu of individualized clinical determinations required to assess medical necessity.
10
As a result, any attempt by the Government to establish the content of the Unidentified Claims, or the underlying medical records for the patients corresponding to the Unidentified Claims, should be excluded pursuant to the Best Evidence Rule. See Fed. R. Evid. 1002.
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The undisputed absence of factual evidence relating to each of the Unidentified Claims precludes any proof of falsity for the Unidentified Claims, and thus requires judgment in Life Care’s favor on the Unidentified Claims. 3.
Statistical Extrapolation Cannot Prove “Falsity” In This Case
Because conclusions about the medical necessity of rehabilitative therapy provided to individual patients in skilled nursing facilities are subjective, clinical opinions, statistical extrapolation is an inappropriate and insufficient method to prove the “falsity” of any individual claim in this case. As an initial matter, there is no recognized objective criteria for when services provided to Medicare beneficiaries are “reasonable and necessary.” See 54 Fed. Reg. 4302, 4304 (Jan. 30, 1989) (“we have not defined the terms ‘reasonable’ and ‘necessary,’ nor have we described in regulations a process for how these terms must be applied”); see also Prabhu, 442 F. Supp. 2d at 1032 (“CMS has not delineated what constitutes ‘medically indicated’ and ‘necessary’ items or services furnished to Medicare patients”). Accordingly, the standards for determining when such therapy services are “skilled” and “reasonable and necessary” constitute subjective, clinical determinations, which must be made by clinicians on a patient-by-patient basis. See 64 Fed. Reg. 41644, 41660 (July 30, 1999) (“Medicare requires the physician to make decisions regarding the amount and intensity of rehabilitation therapy services provided to Medicare beneficiaries in SNFs after consulting with the professional therapist”).11 The evidence the Government has identified to support its view that Life Care’s services provided to the ten individual patients described in the Complaint were medically unnecessary
11
In other words, decisions concerning the nature, intensity, and amount of therapy to provide to patients, based on all of the relevant circumstances, are “medical opinions” that are not susceptible to a determination of objective falsity for purposes of the FCA. See Hockett, 498 F. Supp. 2d at 65 n.29; see also Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 792 (4th Cir. 1999).
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demonstrates the wide variety of individualized, subjective factors that necessarily affect the relevant analysis for each patient’s care. See Second Am. Ex. A to United States’ Third Supp. Resp. to Defendant’s Interrog. No. 15 (attached at Ex. L). These individual factors range from age; gender; pre-hospital condition/prior level of function; reason for hospitalization; condition upon admission to skilled nursing facility; visual defects; whether the patient received nursing assistance at home prior to hospitalization; incontinence; mental status; whether the medical history was extensive; whether the patient was terminally ill; whether the patient’s strength was impaired; degree of the patient’s dependency on others; whether the patient exhibited nausea, pain and fatigue; and endurance, among many others. Id. It is undisputed that the factors, clinical circumstances, rationale, and conclusions differed for each patient; none were identical, nor could they be in light of the unique nature of each individual’s circumstances. See id. To the extent there will be a similar review that considers (in a subjective sense) the individual facts and circumstances of the 400 patient admissions in the Government’s sample, there will never be individualized evidence as to the remaining 53,496 patient admissions in the universe to which the statistician plans to extrapolate. The parties’ statisticians agree that extrapolation does not permit any expert evidence as to the falsity of claims of the remaining 53,496 admissions. See Ex. K, Yiannoutsos Rebuttal at 3; Ex. G, Boedeker Report at 41-42. The circumstances of this case are analogous to those in United States ex rel Trim v. J.D. McKean, where the court refused to permit proof of FCA violations through the use of statistical extrapolation. 31 F. Supp. 2d 1308, 1314 (W.D. Okla. 1998). In Trim, the court found that coding of patient records to determine federal reimbursement “is a subjective endeavor,” id. at 1311; there were changes to the regulatory and reimbursement scheme throughout the time period at issue in the case which resulted in “variation” in the medical review, coding and
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reimbursement during those time periods, id; and there was a relatively small sample size of records reviewed during medical review audits of the defendant’s practices. Id. at 1314. For these reasons (among others), the court refused to extrapolate the findings of the medical review audits to all other claims at the summary judgment stage. See id. (“in light of the admittedly subjective nature of coding, the relatively small sample size, and the variation in years covered, given the evolution of more consistent and predictable coding definitions and practices over time, the audits are not a reliable or accurate representation of all EPBS claims”). The same factors that contributed to the court’s decision in Trim exist in this case and should compel the same result. As set forth above, medical necessity determinations for patient rehabilitation therapy are subjective conclusions; there is no algorithm that dictates whether therapy for individual patients is medically necessarily based upon a defined set of objective criteria. Moreover, just as in Trim, relevant standards relating to Medicare reimbursement changed during the time period at issue – and the government’s statistician did not consider or account for these changes in any way. Compare Compl. ¶ 27 with id. ¶ 34 (discussing changes to the RUG classification system in 2010, including increase in the number of RUG classification levels); Ex. F, Yiannoutsos Dep. at 86:21 – 89:6; id. 207-209, 211, 217 (failing to account for any of the potential variables identified on Minimum Data Sets, which influence a patient’s RUG classification). The Government’s extrapolation methodology also uses an extraordinarily small sample size: 400 patient admissions out of a universe of 54,396 admissions (i.e., 0.7% of the relevant admissions). See supra note 6. Thus, as in Trim, extrapolation is not a reliable means to prove liability for the Unidentified Claims and should be rejected. C.
The Government Will Present No Evidence Of Scienter For Any Of The Unidentified Claims
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Life Care also is entitled to summary judgment because the Government has not and will not present any evidence to prove another essential FCA element: that Life Care “knowingly” presented any of the Unidentified Claims. See 31 U.S.C. §§ 3729(a)(1)(A)&(B); Compl. ¶¶ 185, 188. For purposes of the FCA, the term “knowingly” includes both actual as well as “constructive” knowledge that claims and statements were false. 31 U.S.C. § 3729(b)(1)(A) (“the terms ‘knowing’ and ‘knowingly’ mean that a person, with respect to information (i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information”). To satisfy this scienter element, a plaintiff must prove the defendant had “knowledge” that each of the alleged claims and statements were false. See Hefner v. Hackensack Univ. Med. Ctr., 495 F.3d 103, 109 (3d Cir. 2007) (stating that “[t]he False Claims Act defines “knowing” as including a defendant's “actual knowledge,” “deliberate ignorance,” or “reckless disregard” of the truth or falsity of information in the defendant's claim to the government,” and affirming summary judgment for defendant where plaintiff presented insufficient evidence that defendant knew the claims were false) (emphasis added); United States v. Murphy, 937 F.2d 1032, 1038-39 (6th Cir. 1991) (stating that the “constructive knowledge” provisions of the FCA’s “knowledge” definition “applies only to the information submitted” to the government); United States ex rel Burlbaw v. Orendoff, 548 F.3d 931, 952-53 (10th Cir. 2008) (“The proper focus of the scienter inquiry under § 3729(a) must always rest on the defendant’s ‘knowledge’ of whether the claim is false”). The Government concedes that it will not present any factual evidence to prove that any of the individual physicians or therapists who treated individual patients corresponding to the
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Unidentified Claims had actual or constructive knowledge that any therapy provided to such patients was medically unnecessary. It is further undisputed that the Government will not be able to present factual evidence that any specific Life Care employee knew that therapy corresponding to the Unidentified Claims was not medically necessary. Therefore, as to any of the Unidentified Claims, the Government cannot satisfy the FCA’s scienter requirement which requires proof that a particular employee or agent acted “knowingly” with respect to the alleged false claims. See United States v. Science Apps. Int’l Corp., 626 F.3d 1257, 1276 (D.C. Cir. 2010) (holding that a plaintiff may establish scienter with proof that specific individuals had knowledge of contractual violations that served as the basis for allegations of FCA liability, but could not establish scienter by relying on the “collective pool of information derived from all of its individual employees”); United States v. United Techs. Corp., 51 F. Supp. 2d 167, 199 (D. Conn. 1999) (same). Even during the discovery stage, a plaintiff pursuing claims under the FCA is required to identify witnesses and evidence showing how a defendant knew each claim was false at the time it was made.12 See United States ex rel. Lusby v. Rolls Royce Corp., No. 1:03–cv–680–SEB–WGH, 2011 WL 4387293 at *3 (S.D. Ind. Sept. 20, 2011) (granting defendant’s motion to compel plaintiff to identify witnesses and produce evidence relating to scienter for each allegedly false claim).
12
The significance of proof of scienter for each individual claim is demonstrated by the fact that “[t]he False Claims Act does not penalize all factually inaccurate statements, but only those statements made with knowledge of their falsity.” United States v. Houston, No. 2:09-0091, 2011 WL 4899983 at *4 (M.D. Tenn. Oct. 14, 2011) (quoting United States ex rel Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 2011 WL 3084932 at *11 (7th Cir. July 26, 2011)). Thus, “‘innocent mistakes, mere negligent representations and differences in interpretations’ will not suffice to create liability” under the FCA. Id. (quoting United States v. Corinthian Colleges, 655 F.3d 984, 996 (9th Cir. 2011). Individualized proof for each of the Unidentified Claims is clearly necessary to distinguish between the requisite FCA “knowledge” and innocent mistakes.
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The statistical extrapolation will not provide evidence about scienter, knowledge, or intent for any of the Unidentified Claims. Ex. K, Yiannoutsos Rebuttal at 3; Ex. G, Boedeker Report at 42. The government’s inability to present evidence linking the knowledge of any Life Care employee to any particular Unidentified Claim is fatal to its attempt to prove FCA liability through statistical extrapolation and Life Care is entitled to summary judgment with respect to the Unidentified Claims on this basis as well. D.
The Government Cannot Present Any Evidence Of Materiality For Any Of The Unidentified Claims
Summary judgment as to the Unidentified Claims is also appropriate because the Government cannot present any factual evidence to satisfy the essential FCA element of “materiality.” 31 U.S.C. § 3731(d). A claim or statement is not material, and thus does not violate the FCA, if its alleged falsity does not affect the amount of the government’s reimbursement. See Williams, 696 F.3d at 528. The Government generally alleges that Life Care provided excessive, unnecessary therapy to patients, and that the increased amount of therapy artificially resulted in the corresponding patients being classified into a new therapy category (“Resource Utilization Group” or “RUG”) that resulted in a higher per diem Medicare reimbursement rate for Life Care. See Compl. ¶¶ 2-4, 27, 29-30, 41, 50, 52. The Government’s allegations focus on individual patients who it claims received so much unnecessary therapy that they were classified into the “Ultra High” RUG category, which is associated with the highest per diem Medicare reimbursement rate available. Id.; see also U.S. Resp. to First Req. for Adm. No. 19 (July 16, 2013) (attached as Ex. M). According to the Government, a patient’s RUG category is determined by, inter alia, “the number of skilled therapy minutes the patient received” during the relevant time period that is used to classify the
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patient to the RUG category (the “assessment period”). Compl. ¶ 29. To be classified into the “Ultra High” RUG level, a patient must receive a minimum of 720 minutes per week in total therapy. Id. In light of these allegations, a determination about whether an allegedly false claim was material to the Government’s payments to Life Care requires at least the following information: (1) the number of therapy minutes provided to each patient for the relevant assessment period during the patient’s stay at a Life Care facility; (2) the number of therapy minutes provided to the patient that were allegedly unskilled, unnecessary, or unreasonable during the same time period; and (3) the minimum, threshold number of therapy minutes necessary to classify a patient into the relevant RUG category. A claim arguably would only be material for FCA purposes if the patient would be re-classified into a lower RUG category (with a corresponding lower reimbursement rate) after subtracting the number of allegedly unnecessary therapy minutes from the total number of therapy minutes for the assessment period, because the re-classification into the lower RUG category would result in Life Care receiving a lower per diem reimbursement rate during the patient’s stay.13 It is undisputed that the Government cannot present any evidence to establish the materiality of any of the Unidentified Claims because the Government lacks information about
13
By way of example, if a patient received 850 minutes of therapy during the assessment period, and 120 of those minutes were deemed unnecessary, then the patient’s total number of appropriate therapy minutes for the assessment period (i.e., 850 – 120 = 730 minutes) would still exceed the 720-minute minimum threshold for the patient to qualify for the Ultra High RUG category. Under these circumstances, the claim to Medicare seeking payment for 850 minutes would not be material for FCA purposes, because Life Care still would be entitled to receive payment at the reimbursement rate associated with the Ultra High RUG category. Conversely, if 200 of the 850 minutes were deemed unnecessary, then the patient’s total therapy minutes for the assessment period (850 – 200 = 650 minutes) would drop below the 720-minute minimum threshold to qualify for the Ultra High RUG category and thus, the allegedly false claim seeking reimbursement for 850 minutes could be material.
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the total number of therapy minutes received by any patient associated with any of the Unidentified Claims, or the total number of minutes that were allegedly unnecessary for any such individual patient. Nor is it possible to use any general “rule of thumb” to determine and compare the number of minutes individual patients actually received versus the number of minutes the Government claims were medically necessary.14 Due to the unique circumstances of each individual patient, as demonstrated by the Government’s interrogatory responses concerning the ten patients described in the Complaint, there necessarily is an extremely wide variation among patients, the therapy minutes they received, the therapy minutes the Government contends were unnecessary, and the RUG levels to which the patients were classified.15 See Ex. L, Second Am. Ex. A to U.S. Third Supp. Resp. to Interrog. No. 15. The Government’s statistical extrapolation does not purport to determine – or even “estimate” – whether any of the Unidentified Claims were material. Because it is undisputed that the Government cannot present any evidence concerning the materiality of any of the Unidentified Claims, the Government cannot satisfy the FCA’s essential materiality element and Life Care is therefore entitled to summary judgment as a matter of law. II.
LIABILITY FOR UNIDENTIFIED CLAIMS WOULD VIOLATE LIFE CARE’S DUE PROCESS AND STATUTORY RIGHTS BY DEPRIVING LIFE CARE OF THE OPPORTUNITY TO PRESENT DEFENSES AND SHIFTING THE BURDEN OF PROOF Life Care has a constitutional due process right to present every available defense with
regard to the Unidentified Claims, especially because the Government seeks treble damages and civil penalties of $5,500-$11,000 for each claim. Compl. ¶¶ 186 ,189. The Due Process Clause 14
See supra at pages 11-12 (citing Jimmo settlement agreement and briefs, and other sources).
15
For example, in some instances the Government asserts that patients were not eligible for any skilled therapy (e.g., Patient A); while in others patients were eligible for therapy at a level lower than the Ultra High for some portions of the stay, but were ineligible for any therapy for other portions of the stay (Patient B); and so on.
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requires that a civil defendant be provided “an opportunity to present every available defense.”16 Philip Morris USA v. Williams, 549 U.S. 346, 353 (2007); see also U.S. Const. amend. V. Where, as here, a case contemplates the use of statistical sampling and extrapolation to determine liability against a defendant, such a theory must give way to the defendant’s due process right to assert individual defenses. See U.S. Const. amend. VII; Osuna v. Wal-Mart, No. C20014319, 2004 WL 3255430 at *8 (Ariz. 2004) (“denying [the defendant] the right . . . to assert individual defenses, by using formulaic methodologies to establish liability and damages, would deny [the defendant] its rights to due process and a jury trial under the United States Constitution . . . .”).17 A.
The Government’s Reliance On Statistical Extrapolation Violates the Due Process Clause By Foreclosing Life Care From Presenting Valid Defenses
The Government’s attempt to prove FCA liability for the Unidentified Claims, and ultimately to seek treble damages and civil penalties premised on “estimated” or extrapolated liability violates Life Care’s fundamental due process right to present a factual defense to any of the essential elements of FCA liability for the Unidentified Claims. The proposed extrapolation fails to apprise Life Care of the specific claims and statements the Government contends constitute violations of the FCA, and thus precludes Life Care from investigating, developing and presenting factual and expert evidence related defenses to each of the essential FCA 16
The due process concerns in this case are even more heightened than in a traditional civil action because of the FCA’s quasi-criminal aspect and the risk that punitive damages (through the FCA’s treble damages provision) that may be imposed. See Vermont Agency of Nat’l Res. v. United States ex rel. Stevens, 529 U.S. 765, 784 (2000) (recognizing that the FCA imposes penalties that are punitive in nature); United States ex rel. Atkins v. McInteer, 470 F.3d 1350 , 1360 (11th Cir. 2006) (referencing the “quasi-criminal nature of FCA violations”). Under these authorities, Life Care is entitled to the constitutional guarantees that afford it “a meaningful opportunity to present a complete defense” that is unabridged by the exclusion of important defense evidence. See Holmes v. S. Carolina, 547 U.S. 319, 324-25 (2006). 17
See also Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 191-92 (3d Cir. 2001) (“[A]ctual injury cannot be presumed, and defendants have the right to raise individual defenses against each class member”).
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elements (objective falsity, scienter, and materiality) discussed above.18 Cf. United States ex rel. Kusner v. Osteopathic Med. Ctr., No. 88-9753, 1997 U.S. Dist. LEXIS 16585 at *18 (E.D. Pa. Oct. 21, 1997) (defendants were prejudiced by the inability “to utilize the actual records to defend Kusner's claim,” due to the circumstances in that case). The Government’s use of extrapolation in this case prevents Life Care from challenging the Government’s central theory in this case—that “corporate pressure” to increase revenues caused therapists to provide excessive and unnecessary therapy as to any of the Unidentified Claims. Compl. ¶¶ 4, 52, 166. While the Government has not and cannot identify a single false claim resulting from the purported corporate pressure, use of extrapolation to prove liability for such claims would prevent Life Care from identifying the actual patients corresponding to the Unidentified Claims, and from presenting testimony and evidence from the respective therapists and physicians who provided those individual patients with therapy, to rebut the generalized assertion that corporate pressure (rather than the sound and well-reasoned clinical judgment of the professionals who provided the therapy) dictated the type and duration of therapy provided to individual patients. Regardless of why the Government feels it can side-step its proof burdens in this case at trial, Life Care should not be deprived of its fundamental due process rights to 18
For example, as to the element of falsity, the extrapolation methodology eliminates the opportunity for Life Care to present factual and expert evidence that the therapy actually provided to individual patients was medically reasonable and necessary, which could present a sufficient defense to FCA liability particularly in light of the highly subjective nature of medical necessity determinations. See United States ex rel Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 377 (4th Cir. 2008) (“differences in interpretation growing out of a disputed legal question are similarly not false under the FCA”) (internal citations omitted). Similarly, the extrapolation methodology eliminates Life Care’s opportunity to present evidence and testimony from therapists and clinicians who provided services to individual patients, where such testimony could inform the fact-finder’s decision as to whether the therapy was medically necessary, as well as whether the mental state of such individuals rose to the level “knowledge” under the FCA, or alternately could be construed as “’innocent mistakes, mere negligent representations and differences in interpretations’ [which] will not suffice to create liability” under the FCA. Houston, 2011 WL 4899983 at *4 (quoting Corinthian Colleges, 655 F.3d at 996).
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present and support its defenses with actual evidence in response to the Government’s assertions. Yet, the Government’s attempted use of extrapolation to establish liability for the Unidentified Claims does just that. It leaves Life Care to defend against unknown claims, relating to unknown patients, for unknown therapy services, on unknown dates – and to face quasi-criminal, treble damages and civil penalties for each such unknown claim. B.
The Government’s Use Of Statistical Extrapolation Improperly Shifts The Statutory Burden Of Proof To Life Care
The Government’s reliance on extrapolation as to the Unidentified Claims further violates Life Care’s rights by improperly shifting to Life Care the burden on all elements of proof for the Unidentified Claims. See 31 U.S.C. § 3731(d) (government bears burden of proof on each element of FCA violation). The Government has refused to identify all of the claims it contends are false in this case, and without such information Life Care does not even know the claims which it must defend. As a result, Life Care is precluded from identifying and presenting factual evidence to counter the Government’s case. There simply is no authority permitting the Government to shift the burden to Life Care to actually identify false claims and ultimately prove whether those claims were “true” or false. See Crews, 460 F.3d at 857. In Crews, the plaintiff could not identify actual false claims submitted by the defendant, yet argued that the burden was on the defendant to show its actions were legal. Id. The Seventh Circuit held that “[i]n effect, [plaintiff] is arguing that [defendant] must prove each and every claim it ever filed with the [government agency] was lawful, an argument that defies common sense and the plain language of the FCA.” Id. (emphasis added); see also United States ex rel Lusby v. Rolls-Royce Corp., No. 1:03-cv-680SEB-WGH, 2012 WL 4357438 at *13 (S.D. Ind. Sept. 24, 2012).
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The effect of the Government’s refusal (or inability) to identify actual false claims from the Government’s universe of more than 154,000 potential Unidentified Claims is equally improper here because the Government has impermissibly shifted its burden of proof to Life Care to prove that all of the Unidentified Claims were accurate, truthful, and lawful. This burden-shifting is just as inappropriate here as in Crews and Lusby, and more so due to the extraordinarily large number of potential claims in the extrapolation of the Unidentified Claims. See id. As such, the Court should find the extrapolation methodology improperly shifts the Government’s statutory burden of proof and grant summary judgment in Life Care’s favor. III.
CONCLUSION For all of the reasons set forth above, there is no genuine dispute of material fact and Life
Care is entitled to summary judgment as a matter of law on Counts I and II of the Complaint as with respect to any and all if the Unidentified Claims. Dated: February 18, 2014
Respectfully submitted, MILLER & MARTIN PLLC By: /s/ Roger W. Dickson Roger W. Dickson, Tenn. Bar No. 001933 Richard C. Rose, Tenn. Bar No. 017544 Kyle W. Eiselstein, Tenn. Bar No. 020727 1000 Volunteer Building 832 Georgia Avenue Chattanooga, Tennessee 37402 Telephone (423) 756-6600 Facsimile (423) 785-8480 REED SMITH LLP Thomas C. Fox (admitted pro hac vice) Scot T. Hasselman (admitted pro hac vice) Eric L. Alexander (admitted pro hac vice) Lawrence S. Sher (admitted pro hac vice) Andrew C. Bernasconi (admitted pro hac vice) 1301 K. Street, N.W., Suite 1100 – East Tower Washington, D.C. 20005 Tel: (202) 414-9200
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Fax: (202 414-9299 Attorneys for Defendant Life Care Centers Of America, Inc.
CERTIFICATE OF SERVICE I do hereby certify that the foregoing has been filed electronically. Notice of this filing will be sent by operation of the Court’s electronic filing system to all parties indicated on the electronic filing receipt. All other parties will be served by regular U.S. Mail and/or facsimile or hand delivery. Parties may access this filing through the Court’s electronic filing system.
This 18th day of February, 2014. MILLER & MARTIN PLLC By: s/ Roger W. Dickson
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