On October 10, 2014, Life Care Centers of America, Inc., owner and operator of over 200 “skilled nursing facilities,” filed a motion requesting that the trial court certify for interlocutory appeal its order ruling that the government may extrapolate from a significantly smaller statistical sample in order to prove the entirety of Life Care’s liability and damages under the False Claims Act (“FCA”).  This case is different than most FCA cases involving statistical sampling because here the trial court has allowed the use of this method to prove liability, instead of just the amount of damages.  In other words, the government will be allowed to extrapolate from a statistical sample and thereby establish that certain claims not included in the sample were false, that Life Care had knowledge of their falsity, and that those claims were material (i.e. that they had the tendency to influence payment of money).  As the trial court noted, “[u]sing extrapolation to establish damages when liability has been proven is different than using extrapolation to establish liability.” (italics added).  The certification of this ruling would allow the United States Court of Appeals for the Sixth Circuit to review this decision prior to the trial’s resolution.  Generally, trial courts will certify such a ruling where it “involves a controlling question of law as to which there is substantial ground for difference of opinion.” 

In its suit against Life Care, the government alleges that Life Care provided services to its patients that were not “medically reasonable or necessary” in order to maximize its receipt of Medicare reimbursement funds.  Because there are over 150,000 claims involving 54,396 patient admissions in the relevant time frame, the government sought to use a random sample of 400 patient admissions, and extrapolate this sample to the full amount of patient admissions (54,396), instead of conducting a “claim-by-claim review.”   

Life Care challenged this method of establishing liability and damages, and the trial court concluded that “the use of statistical sampling . . . is a legally viable mechanism which the Government may employ in attempting to prove the FCA claims in this action.”  Specifically, the court reasoned that “the ever-changing landscape of technology” and dramatic growth of the Medicare program have increased the number of claims that could potentially be submitted  by a single entity to be reimbursed by Medicare, and resulted in a “relative unlikelihood of detection” of false claims.  Thus, after a review of the language and legislative history of the FCA and relevant case law, the trial court concluded that the purpose of the FCA “support[s] the use of statistical sampling in complex FCA actions where a claim-by-claim review is impracticable.”

Life Care now argues that the trial court’s order misinterprets federal law — namely the FCA and the Constitution’s Due Process Clause — and should be reviewed by the Sixth Circuit.  Life Care also asserts that “no federal court has resolved the constitutionality, under the Due Process Clause, of permitting sampling and extrapolation to prove liability (or damages) under the FCA in a case like this one — or any other type.” While the court has not yet ruled on this motion, it likely weighs in Life Care’s favor that the trial court previously acknowledged that it had found no cases “which are determinative regarding the use of statistical sampling in FCA cases involving Medicare overpayment.”

 While district courts in Puerto Rico and Massachusetts have encountered and allowed such efforts by the government, in the Puerto Rico case the matter was unchallenged by defendants, and in the Massachusetts case, the court ruled on the reliability of the method, but did not discuss its constitutionality or whether use of such evidence could establish an FCA claim as a matter of law. 

Thus, the Sixth Circuit’s potential ruling on the legality of the government’s use of statistical samples to establish liability for false claims in FCA cases would provide valuable guidance to federal district courts.  Furthermore, companies that receive Medicare reimbursement funds should note that in complex FCA litigation where the court deems it impractical to perform a claim-by-claim review to determine the existence of fraud and amount of damages due, broader application of this trial court’s ruling could significantly impact the scope and cost of discovery as well as the scope of liability imposed and amount of damages assessed.