Fourth Circuit Says Attorney General Holds “Unreviewable Veto Power” Over Qui Tam Settlements and Sends Statistical Sampling Issue Back to the Trial Court
Written by: Jonathon Rabin
The Attorney General of the United States has an unreviewable veto power over qui tam settlements, according to the Fourth Circuit’s recent published decision in United States ex rel. Michaels v. Agape Senior Community. In the same decision, the court declined to decide an issue raised by the relators over the trial court’s refusal to allow statistical sampling to prove damages, a method of proof that would have cost the relators an estimated $36 million, far more than the value of the case.
In Michaels, the relator brought an action alleging that 24 affiliated elder care facilities defrauded Medicare and other federal health care programs by charging for unnecessary services and services for which the patients were not eligible. The federal government, after receiving an extension, declined to intervene.
According to the relators, it would have cost $36 million to present their proof of damages. They said it would take their experts four to nine hours per patient to review the charts for about 50,000 alleged claims submitted to federal health care programs. The trial court refused to allow statistical sampling under those circumstances because the evidence was available for expert review. It had not been “destroyed or dissipated.”
After that decision was made, the relators and the defendants reached a confidential settlement, but the Department of Justice, after being presented with notice, objected because the amount of the proposed settlement was appreciably less than the $25 million that the government estimated in damages based on its own statistical sampling. When the relators moved to enforce the settlement, the trial court sustained the government’s objection and concluded that the Attorney General’s office had unreviewable veto power over qui tam settlements even, as in this case, where the government had not sought to intervene in the matter. The trial court noted that if it could review that decision, it would have concluded that the government’s position was not reasonable because it would have cost the relators between $16.2 million and $36.5 million for trial preparation alone.
Instead of proceeding first to trial, the court certified both issues for appeal – the “unreviewable veto power” and the use of statistical sampling. Certification is a little-used procedural method of having significant pretrial issues decided by the appellate court before trial.
The Fourth Circuit first addressed the unreviewable veto power issue. It considered decisions from the Fifth, Sixth and Ninth Circuits. The Fifth and Sixth Circuits had concluded that the Attorney General has absolute veto power over voluntary qui tam settlements. The Ninth Circuit, on the other hand, had held years earlier that the government carried unreviewable veto authority only during the limited initial 60-day (or extended) period during which the government was allowed by statute to intervene without court approval. After that period, according to the Ninth Circuit, the government needed “good cause” in order for its objections to be sustained by a court.
In Michaels, the Fourth Circuit agreed with the Fifth and Sixth Circuit because, it said, the “plain language” of 31 U.S.C. 3730(b)(1), that a “qui tam action may be dismissed only if the court and the Attorney General give written consent to the dismissal and the reasons for consenting,” was unambiguous. It rejected the Ninth Circuit’s position based on language in 31 U.S.C. 3730(d)(2) that states that, where the government declines to intervene, “the person bringing the action or settling the claim shall receive an amount which the court decides is reasonable for collecting the civil penalty and damages.”
The court then decided not to decide the statistical sampling issue presented by the relators. The Fourth Circuit concluded that the relators had not presented a pure question of law that was appropriate for a pretrial review by the appellate courts. This was because they presented a question about the trial court’s exercise of discretion in refusing to allow such sampling.
The decision in Michaels places the federal government in a strategically strong position in qui tam actions. By vetoing settlements without having intervened in the dispute at all, the government can avoid significant expenditure of money and resources by sitting back and watching the relators litigate with defendants and then saying “no” without that decision being subject to judicial review – regardless of whether the government’s objection is reasonable. That impacts both relators and defendants who may spend months (or years) in litigation with nothing to show for it prior to trial. The trial court’s decision in Michaels with respect to statistical sampling also adds to the bar for relators because, as in that case, it could cost millions to prosecute the issues of damages alone.
If you have any questions, please contact Jon Rabin at firstname.lastname@example.org or (248) 457-7835 or your regular Hall Render attorney.
 No. 15-2145 (Feb. 14, 2017).
 Id. at 5.
 Id. at 10, 13.
 Id. at 11.
 Id. at 10-11.
 Id. at 12-13.
 Searcy v. Philips Electronics North America Corp., 117 F.3d 154 (5th Cir. 1997); United States v. Health Possibilities, P.S.C., 207 F.3d 335 (6th Cir. 2000).
 United States ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994).
 Michaels, supra at 21.
 Id. at 26-27.
Written by: Benjamin Waters
On October 24, the Department of Justice (“DOJ”) announced a $145 million False Claims Act settlement with a national skilled nursing facility provider that operates more than 200 skilled nursing facilities (the “Company”) and its individual owner. The settlement has been touted as the largest in the DOJ’s history with a skilled nursing facility (“SNF”) chain. According to the DOJ’s announcement, the lawsuit alleged that the chain had knowingly caused its SNFs to submit false claims for rehabilitation therapy services that were “not reasonable, necessary or skilled.”
The settlement also involved the entry into a corporate integrity agreement (“CIA”) with the Department of Health and Human Services Office of Inspector General. The CIA requires an independent review of the medical necessity of the services billed to Medicare for five years.
For the treatment of their residents, SNFs are paid a per diem rate under Medicare’s prospective payment system (“PPS”). The PPS sets the per diem rate based on the level of care required to treat a patient with similar needs. To do this, each patient is assigned a resource utilization group (“RUG”). A patient’s RUG is determined based on the number of skilled therapy minutes the resident receives each week, the number of disciplines (occupational therapy, physical therapy and speech language pathology) of therapy the patient receives and other facility considerations. The highest RUG level, and the greatest reimbursement, is for the “Ultra High” group. To be classified as Ultra High, a patient must receive a minimum of 720 minutes of skilled therapy per week from at least two therapy disciplines. The medical necessity of such treatment, and the level of care needed, must also be certified and re-certified by the SNF at regular intervals of each patient’s stay.
The U.S. Government alleged that the Company engaged in a “systematic effort” to increase government billings by providing patients with an excessive amount of therapy each week and treating the patients for as long as possible, “irrespective of the clinical needs of the patients.” In doing so, the government beneficiaries were alleged to have been placed in an Ultra High RUG, which resulted in significantly higher reimbursement than would have been obtained if each resident had been appropriately evaluated.
To drive up the number of therapy minutes provided, the Company allegedly had its therapists provide generic and non-individualized services and allegedly instructed therapists to bill for services that should have been provided by aides, nurses and other non-therapists. These allegations further contended that this improper behavior was motivated by unrealistic and uninformed therapy goals set by those at the corporate level. The complaint alleged that individuals and SNFs who achieved therapy goals were rewarded, and those who failed to meet goals were punished. As a result of this corporate policy, it was alleged that all patients began their treatment with 2.5 hours of therapy a day, regardless of medical necessity, and that any objections to the amount of therapy provided were rejected and compliance hotline complaints were ignored. Finally, the allegations contend that physicians certified the medical necessity of the ongoing treatment without ever seeing the patient and that some physicians pre-signed blank certifications to be filled out later by the Company’s staff.
Both the Company and the Company’s owner entered into settlements with the government, for a total settlement amount of $145 million. This is consistent with the Yates Memo of September 2015 in which Sally Quillian Yates, Deputy Attorney General, announced the government’s intent to focus on holding corporate leadership, as well as corporate entities, liable for misconduct. The settlement did not include an admission of wrongdoing by the Company or the Company’s owner.
The scrutiny of SNFs has been a consistent and ongoing emphasis for the government over the past several years. The 2016 OIG Work Plan, which describes the OIG’s enforcement and audit priorities for the upcoming year, indicates that SNFs have increasingly billed for the highest level of therapy. Based on the enforcement attention in this area, SNFs should carefully scrutinize how therapy is provided to its patients and ensure that the amount of therapy provided is medically necessary and set by qualified individuals. More so than ever before, there is a critical need for SNFs to ensure they have robust, working compliance programs that appropriately investigate any complaints.
Finally, the individual settlement is consistent with the government’s articulated focus on individual liability. Corporate decision-makers should be mindful of these developments and, in certain situations, consider engaging independent legal counsel related to potential compliance matters for both the corporation and individuals.
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Written by: David B. Honig
In November 2015, the Bipartisan Budget Act of 2015 went into effect. One aspect of that act was the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The new law required that the Program Fraud Civil Remedies Act and the False Claims Act (“FCA”) penalties be “corrected” to adjust for inflation since their last adjustment and then that the penalties be adjusted for inflation each following year.
This week, the Railroad Retirement Board was first to issue its inflation “corrections,” and they shocked the FCA world.
In 1986, the False Claims Act was completely rewritten and that new rewrite included a minimum penalty of $5,000 per claim and a maximum penalty of $10,000 per claim.
In 1996, pursuant to the Debt Collection Improvement Act of 1996, the penalties were increased to $5,500 and $11,000. Practitioners expected the correction to run from that date, leading to an increase of approximately 140 percent with a maximum penalty of about $15,000.
Instead, the Board disregarded that correction because it was subject to the ten percent cap of the 1996 act. The Board went all the way back to 1986, leading to a massive 216 percent penalty increase.
The new minimum penalty per claim under the FCA for railroad claims is $10,781.40 and the maximum is $21,562.80. These will have an immediate effect on health care providers as Railroad Medicare claims make up a significant percentage of all Medicare claims. Railroad workers’ retirement is administered through the Railroad Retirement Board, rather than the Social Security Administration. Providers are not likely to even notice the difference between Social Security and Railroad Medicare cards as they look quite similar. Both are red, white and blue. The Railroad Medicare card says “Medicare Health Insurance provided by the Railroad Retirement Board” on it, and the patient’s alphanumeric identifier starts, rather than ends, with a letter. Railroad Medicare is administered by Palmetto GBA.
More significantly, the Railroad Retirement Board is only the first agency to make its adjustments. There is no reason to believe other agencies won’t do exactly the same thing. In fact, it is a near certainty as consistency in the FCA is an important governmental interest. Additionally, receipt of Medicaid money is contingent upon the states significantly mirroring the federal FCA, so expect similar changes in state penalties.
To government contractors, this is a foreboding change. The FCA was always onerous, to the point that the Eighth Amendment Excessive Fines Clause was often considered, though no case ever turned on that issue. This massive increase may well put that matter back in play, particularly for claims that are microscopic in comparison to the penalties, e.g. a $5.00 laboratory service. While penalties are often not paid as part of negotiated settlements, they are mandated for any case decided by a court. It is that threat that often makes settlement discussions feel like coercion or even extortion to contractors.
For contractors, and particularly health care providers, this suggests new measures should be considered to insulate from these new penalties. One such suggestion is the batching of individual services to include as many as possible on a single “claim” to the government. The FCA applies to “claims for payment,” not individually itemized services found within each claim. There is no case law yet to guide providers on whether services for multiple recipients found on a single claim for payment would be one or many claims. However, that is the best prophylactic action available and provides the sort of argument courts will welcome to avoid having to resolve issues on Eighth Amendment constitutional grounds.
The FCA’s treble damages penalty was not changed as part of this adjustment.
The maximum civil monetary penalty was increased to $10,781.
All of these changes are effective for claims or statements made after August 1, 2016. This includes any failure to identify a prior overpayment after more than 60 days under the FCA’s 60-Day Overpayment Rule.
Health Care Takeaway
The FCA’s already onerous penalties have become draconian for Railroad Medicare claims and are likely to do so for all claims in the coming months. Providers best avoid these new penalties with strong compliance programs and by working closely with their health care counsel to evaluate their programs, particularly in the billing and coding departments, as this terrifying specter looms over the entire industry. Providers can insulate themselves somewhat from these changes by adjusting their billing practices to include as many individual services on as few claims for payment as possible.
If you have any questions, please contact David B. Honig at email@example.com or (317) 977-1447 or your regular Hall Render attorney.
Assisting with this story were:
Lori A. Wink (firstname.lastname@example.org or (414) 721-0456) in our Milwaukee office;
Amy O. Garrigues (email@example.com or (317) 447-4962) in our Raleigh office; and
Steven H. Pratt (firstname.lastname@example.org or (317) 977-1442) in our Indianapolis office.
Written by: David B. Honig
An Indiana Federal District Court just published an opinion on an issue of first impression in the Seventh Circuit, the ability of the government to reject or approve a settlement in a case in which they did not intervene. The court also opined on the ability of a whistleblower to enter into a settlement that delivered none of the proceeds to the government.
In Howze v Sleep Centers, the whistleblower and the Defendant entered into settlement discussions, which reached the point of an unsigned draft settlement agreement. Neither the US nor the State of Indiana had approved the settlement. Defendant changed counsel, and new counsel immediately rejected the proposed agreement.
The whistleblower moved to enforce the agreement, arguing that the government was made aware of the agreement, that it would not be harmed by it and that the government lacked veto authority because it refused to intervene in the case.
The plain language of the statute, 31 USC sec. 3730(b)(1), states a whistleblower case under the False Claims Act “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.” However, the Ninth Circuit Court of Appeals, in the Killingsworth case, held that the government’s refusal to consent to a settlement was subject to a court’s review for reasonableness. However, the Fifth and Sixth Circuit Courts of Appeal, as well as the D.C. District Court, have all rejected the Ninth Circuit’s interpretation, accepting instead the plain language of the statute.
The District Court rejected the Ninth Circuit’s interpretation, stating:
“This Court is persuaded by the plain language of the statute as well as the policy purposes behind the FCA to side with the Fifth and Sixth Circuits in their upholding the requirement for government consent to dismiss FCA claims. Where, as here, the Agreement attempts to dismiss FCA claims over the government’s objection, this Court cannot enforce the Agreement.”
The settlement agreement the whistleblower hoped to enforce did not provide any money to the government – 100 percent of the settlement proceeds went to the whistleblower and his counsel. He argued that there was nothing in the statute that prohibited such an agreement. The court disagreed, again based upon the plain language of the statute:
“If the Government does not proceed with an action under this section, the person brining the action or settling the claim shall receive an amount which the court decides is reasonable for collecting the civil penalty and damages. The amount shall be not less than 25 percent and not more than 30 percent of the proceeds of the action or settlement and shall be paid out of such proceeds.” 31 U.S.C. § 3730(d)(2)
The court stated:
“These (FCA) claims belong to the United States and the State of Indiana, and as such Howze is only entitled to a portion of these claims, not 100%. The Agreement is not enforceable.”
While this decision was made at the District Court level, the reasoning behind it, as well as the precedent from the Fifth and Sixth Circuits, suggest that it will be persuasive in Seventh Circuit courts.
Health Care Takeaway
Health care providers must always be conscious of potential False Claims Act risk. This case is persuasive in Seventh Circuit courts in Wisconsin, Illinois and Indiana and stands for the propositions that the government cannot be excluded from settlements, either in their approval or in their award of settlement proceeds.
The author, with Mark Giaquinta of Haller & Colvin in Ft. Wayne, Indiana, represented Sleep Centers of Ft. Wayne, Defendants in this case.