Decision on the Use of Statistical Sampling in False Claims Cases

A district court in the Eastern District of Tennessee recently upheld that utilization of statistical sampling to establish liability in false claims cases.  This ruling should expand the prosecutorial capabilities of the federal and state governments , by encouraging them to pursue ever larger companies and individuals who submit a significant number of false claims for payment to the government, without causing concern for the overextension of limited government resources.

The U.S. filed a consolidated complaint based on allegations raised in two separate and later consolidated qui tam actions filed by whistleblowers Glenda Martin and Tammie Taylor against Life Care Centers of America, Inc. (“Life Care”)(Case. Nos. 1:08-cv-251 and 1:12-cv-64), the owner of over 200 skilled nursing care facilities.  The U.S. consolidated complaint alleged that Life Care pressured its rehabilitation therapists to maximize the intensity, type, and length of care a patient received in order to exhaust Medicare’s skilled nursing facility benefit.  According to several allegations raised by the U.S., these rehabilitation determinations were made without regard to whether the therapy was medically reasonable or necessary and was, on occasion, even unskilled.  Life Care allegedly submitted 154,621 claims on behalf of 54,396 patient admissions to Medicare for reimbursement from January 1, 2006 through October 31, 2012.

Due to the vast number of claims submitted by Life Care and the difficulty in reviewing each one individually, the U.S. sought to utilize statistical sampling on 400 patient admissions at 82 Life Care facilities where more than 65% of patient days were engaged in an intense level of therapy in order to extrapolate and demonstrate the invalidity of all of Life Care’s claims.  Life Care filed a Motion for Summary Judgment challenging the use of statistical sampling in order to establish liability.

Specifically, Life Care argued that the government could only establish liability by reviewing each claim for payment individually because otherwise it could not establish the False Claims Act elements of presentment of a claim, falsity, scienter (or knowledge), and materiality.  However, the court noted the impracticability of such a requirement, considering the size of the universe of claims at issue.  It held that the purpose of statistical sampling is to locate similarities and probabilities even where the individual claims contain slight differences and that, with such sampling, the government could identify claims and demonstrate falsity.  The court also held that it was sufficient for the U.S. to demonstrate scienter on each of the claims in the statistical sample and then, again, extrapolate.  Moreover, the court held that Life Care’s concerns about materiality were premature considering that the U.S. argued that its model took into account various formulations for the overbilling and that the fact finder would have the ultimate responsibility of discerning whether such modeling was correct.

Finally, Life Care argued that statistical sampling would impact its right to due process, as it would not be allowed to develop a defense with regard to each individual false claim.  However, the court disagreed with this point, noting that other courts had permitted the use of statistical sampling and that Life Care would have the opportunity to cross-examine the U.S.’ witness to challenge the government’s statistical sampling methodology and counter such analysis with its own expert.

The court concluded that nothing in the False Claims Act prohibits the use of statistical sampling to establish liability, but the court reiterated that it is up to the fact finder to determine if the sampling is accurate and reliable.