In February 2017, we wrote about how the Fourth Circuit sidestepped the question of whether a relator bringing suit under the False Claims Act (“FCA”) may use statistical sampling and extrapolation to establish FCA liability when it held in United States ex rel. Michaels v. Agape Senior Community, Inc. that an appeal on that point had been improvidently granted.  The Fourth Circuit would have been the first appellate court to provide guidance on this hotly contested issue.  We noted at the time that the FCA bar would need to continue to await guidance from the appellate courts and contend with inconsistent decisions emanating from federal district courts.

When Agape returned to the district court—which had held that statistical sampling was not appropriate—the relators found themselves unable to afford to continue prosecuting their case and ultimately did not contest the court’s granting of summary judgment on 99 percent of their claims.  Unsurprisingly, the parties announced late last month that they had settled the remainder of the claims for $275,000.

What is surprising, however, is that the Department of Justice has approved this settlement, despite rejecting a $2.5 million amount just two years ago, after the district court already had ruled that it would not accept statistical sampling as evidence to establish liability, and after arguing in its brief in the appeal to the Fourth Circuit that the court did not need to rule on that issue (which, as noted above, it did not).  The relators thus are left with a considerably smaller sum than what they may have expected in a case where DOJ had previously estimated damages at $25 million.

The amount of the Agape settlement in conjunction with the lack of guidance from appellate courts sends a signal to the relator bar that FCA cases that would require the use of statistical sampling to establish liability simply may not be worth bringing.  Given the patchwork of law on this point, healthcare providers nevertheless must continue to be prepared for statistical sampling arguments and monitor for new developments.

The U.S. Department of Health and Human Services Office for Civil Rights (OCR) announced on April 24, 2017, a $2.5 million settlement with mobile health services company CardioNet related to its “potential noncompliance” with the Health Insurance Portability and Accountability Act (HIPAA) Privacy and Security Rules related to the exposure of unsecured electronic protected health information (ePHI) of more than a thousand individuals. OCR touted the settlement as its first with a wireless health services provider.

The settlement requires CardioNet to adopt a Corrective Action Plan, as part of which CardioNet must:

  • conduct a risk analysis to identify the security risks and vulnerabilities to its systems that house ePHI;
  • develop and implement a risk management plan to mitigate those risks and vulnerabilities;
  • review—and potentially revise—its security policies for electronic devices and media; and
  • review—and potentially revise—its training program related to the security of ePHI.

Continue Reading HHS Office for Civil Rights Announces HIPAA Settlement for Exposure of Electronic PHI

stat-samplesThe U.S. Court of Appeals for the Fourth Circuit missed an opportunity earlier this month in United States ex rel. Michaels v. Agape Senior Cmty, Inc., No. 15-2145, 2017 WL 588356 (4th Cir. Feb. 14, 2017), to provide clarity on one of the hottest issues in FCA litigation—whether an FCA relator may use statistical sampling and extrapolation to establish FCA liability. Courts frequently permit the use of statistical sampling to establish damages in FCA cases where liability has already been established. Applying the method to the question of liability, however, remains highly contested, given that courts have long held that the False Claims Act requires a relator to prove the falsity of each claim submitted for payment and the resulting damages. While a number of district courts have faced this question—and have reached different conclusions on its propriety, especially since the District Court for the Eastern District of Tennessee’s decision in United States ex rel. Martin v. Life Care Centers of America, Inc., 114 F. Supp. 3d 549 (E.D. Tenn. 2014)—no appellate court has ruled on the issue. With the Fourth Circuit’s decision—or lack thereof—relators, federal healthcare program providers, and the FCA bar continue to await guidance.

In Agape, the relators—former employees of the defendant, an operator of a network of nursing facilities in South Carolina—filed an interlocutory appeal to the district court’s denial of their request to:

  1. examine a random sample of claims submitted by the defendant to federal healthcare programs for services that the relators claim were not provided or were not medically necessary;
  2. have their experts assess those claims for falsity; and then
  3. extrapolate their findings to a universe of more than 50,000 claims.

Continue Reading Statistical Sampling Stumble – Fourth Circuit Misses Opportunity to Provide False Claims Act Guidance