$200 million and pivotal legal precedent are at stake in the False Claims Act (“FCA”) case against AseraCare, Inc. (“AseraCare”), a for-profit hospice chain that was alleged to have fraudulently submitted claims that falsely certified hospice eligibility for patients who were not terminally ill. In May 2016, the United States Department of Justice (“DOJ”) announced that it will appeal three orders accompanying its stunning loss to AseraCare: the judge’s decision to split the case into two parts, an opinion granting AseraCare a new trial, and a summary judgment award to AseraCare.
The AseraCare case instantly became a noteworthy case that initially derived attention after the district court allowed the DOJ to use statistical sampling to prove liability, contradicting historical precedent that only permitted statistical sampling to prove damages. The new sampling practice allowed the DOJ to extract, from a pool of 2,181 patients, records and payments of a sample size of 124 patients. The DOJ then scrutinized the records that incorporated “ineligible patients” and extrapolated the payments to a larger universe of claims, rooting its FCA suit and the $200 million claim for damages on that evidence.
The DOJ’s first appeal resolves around the United States District Judge Karon O. Bowdre’s unprecedented move in June 2015 to bifurcate the trial – requiring the parties to try the FCA’s elements of falsity and scienter in two different trials. Though splitting a FCA into two separate trials has never occurred in the FCA’s 150-year history, Judge Bowdre divided the case against AseraCare as a way to remove any juror prejudice that could taint the case.
During the first trial deciphering the “falsity” element, the jury found that 104 of the 121 (three claims were removed from consideration) were objectively false. But Judge Bowdre granted AseraCare a new trial after concluding that the jury instructions that incorporated the wrong legal standard of “falsity” were a “reversible error.” Consequently, the second order that the DOJ will appeal is the district court’s ordering of a new trial regarding the instructions on “falsity.”
The third and final order on appeal is the district court’s grant of summary judgment in favor of AseraCare. Judge Bowdre introduced her memorandum opinion granting AseraCare’s motion for summary judgment with an appropriate quote from Pascal stating that “[c]ontradiction is not a sign of falsity, nor the lack of contradiction the sign of truth.” Judge Bowdre concluded that dismissal was warranted because the Federal government could not prove fraud merely by presenting one medical expert’s disagreement with AseraCare’s diagnoses of terminal illness. The conflicting medical expert opinions and differences in clinical judgment were considered not enough to establish the FCA’s objective “falsity” element.
The first sentence in Judge Bowdre’s opinion granting AseraCare a new trial in 2015 was that “[FCA] cases have been particularly hot.” And this FCA “heat wave” will continue to rise throughout 2016 and into 2017. In accordance with a prior article discussing the likely demise of medically unnecessary false claims cases, the AseraCare case could also affect various FCA theories rooted on claims for medically unnecessary services.
Further, the DOJ’s announcement to appeal three district court orders in the AseraCare case comes just one month after the Supreme Court released its unanimous opinion in Universal Health Services, Inc. v. United States ex rel. Escobar, discussed in a prior article, sustaining the implied false certification theory and rejecting the distinction between conditions of payment and conditions of participation. This case currently presents a significant “win” for the defense bar and it will be particularly interesting to track how the Eleventh Circuit incorporates the Escobar opinion into its analysis of the AseraCare case.
The author acknowledges and thanks Erin Dine, a rising 3rd year law student at Loyola University Chicago School of Law, for her help and support in the preparation of this post.