Healthcare Enforcement and the False Claims Act: Trends and Developments

All right, if everyone can take their seats we can get started with This conferences annual review of Healthcare enforcement and the False Claims Act which you know never ceases to be in a high demand here and we’re very fortunate for My fellow co-chair Brian McAvoy to be leading this panel Most most people in this room know Brian is really one of one of the most extraordinary False Claims Act at health care Enforcement lawyers that you will find anywhere He’s a graduate of Georgia State Boston College undergrad he is head of office in Atlanta for polsinelli And he is national white-collar leader for polsinelli and Brian every year brings his Unique and detailed perspective to developments in health care law on health care enforcement to this conference for which all of us are very grateful Thanks Mitch pay you later All right So we recognize that this is a white-collar conference and we’re talking about for the most part federal criminal cases and and you know We also recognize as we have historically going back particularly to the parallel proceedings policy announced by Leslie Caldwell several several years ago, which really enhanced the Relationship between the civil do Jay’s and civil Department of Justice attorneys in Criminal Department of Justice attorneys and so, you know We think each year given the the evolution of the case law and some of the related policies that the Department of Justice is putting out each year with respect to these cases that it’s important to sort of Go over the the groundwork and some recent developments. Not just in False Claims Act cases But in some of the parallel criminal proceedings and then you know some of the policies that flow therefrom and we’re very fortunate To have a terrific panel today that I just want to take a minute to introduce Starting with Kristin Tyler who were very happy has joined us She is a partner at Quinton and has offices in Los Angeles and Washington DC Kristen has a national practice including white-collar criminal defense internal investigations and FCA matters And you know not only does Kristen do some healthcare work, but she’s also developed a reputation for a lot of non healthcare False Claims Act cases Which I think we’re going to hear some about today and to Kristin’s right is Jack Selden? Many of you know jack Jack’s been a big friend of this program for many years And we’re happy to have Jack back Jack as a partner of Bradley and Birmingham In addition to being a former Assistant United States Attorney Jack served as the United States Attorney for the Northern District of Alabama and while he was there I think created the affirmative civil enforcement group which you know now has as one of the best Practices around and in terms of bringing False Claims Act cases. So thank you jack for for being here and to my Immediate right is Tom Gregory tom is a partner with the forensic and integrity services group at Ian Why are so young in Atlanta? among other things one of Tom’s practice and I don’t envy you for this but one of Tom’s focuses is advising companies on quantifying damages and FCA cases So I imagine those are not very fun conversations to have so thanks for being here and to my left is is one of the Foremost experts in False Claims Act litigation in the country Robert sell say dough from Akin Gump in Washington, DC Were very happy to have you here Robert Robin was a trial attorney with the Department of Justice and the civil fraud unit from 1988 to 1993 he has worked on FCA cases and tried FCA cases all over the country and Literally wrote the book on False Claims Act litigation or at least one of them. So thanks for being here Robert active And then last and certainly not least is my friend. Sandy Weinberg Sandy is a partner at government Spader in Tampa Sandy’s a former chair of the criminal justice section and also has been a big proponent of this program Sandy’s got not only a white-collar practice and a healthcare practice But also robust False Claims Act and parallel proceedings practice dealing with other regulatory and criminal matter So throughout the group, we sort of got all bases covered and as we’re kind of going through the agenda today, you know, please don’t wait till the end to ask questions or make contributions if some of you in the audience have Observations or experiences of your own and sort of to get things started I thought a good place to start would be with Robert Mann and talking about Escobar sort of two years on and and what has happened since Escobar with respect to you know the materiality standard How that’s been applied by different district court cases and circuit court cases and how that has affected and how it may affect prosecutorial decisions going forward Thank you, Brian. I It’s as Brian know that I started at the Department of Justice Back in 1988. So It was with the civil fraud section, which as many of you may know Has nationwide jurisdiction over the False Claims Act. So the first five years of my career I did nothing but False Claims Act cases and then for the next 25 years and private practice I’ve done nothing but False Claims Act cases and in my view the court decision in those thirty years that has had the greatest impact is universal health services versus Escobar the the case the brine supreme court case eight-zero supreme court case of brian just alluded to the the case is Significant and a few respects one is What the court said? Rhetorically was very important about the False Claims Act And that is that the False Claims Act wasn’t intended to address garden-variety regulatory and contractual disputes The Supreme Court also said that the False Claims Act wasn’t a super fraud statute Intended to enforce all other rules regulations and standards That exist And just to give you one example of what perhaps the court was alluding to is You’d even had cases under the the False Claims Act where there would be a manual provision saying that a physician Had to hand signed the record For the record to be deemed complete and the physician instead would use a rubber stamp and actually they’d be False Claims Act action saying that the the physicians claimed form was a false claim because it didn’t conform with rules and Regulations governing the program and a physician did so knowingly and you’re getting False Claims. Act cases like that another principle that supreme court spelled out was that the False Claims Act is in essence a penal statute and Because it provides for treble damages and the potential for massive civil penalties that It wasn’t intended to be used for trivial violations of rules and regulations that was kind of the lead up to What is actually? The the most important ruling I think of the Escobar decision and that had to do with the fact that the false claim itself had to be material to the government and in order for the False Claims Act to apply so the way Escobar Changed the world. The False Claims Act world is Before Escobar materiality wasn’t really an element that was focused on There was really two lines of Decisions having to do with False Claims Act materiality pre Escobar one which was by far the majority rule was the natural tendency test and What court said there was that they would apply an objective standard in assessing materiality They would look to whether an objective government official would be Influenced by the false statement and making a decision about whether to pay that particular claim And not surprisingly most courts putting their shoes Putting themselves in the shoes of a reasonable Government official found that the government’s official reimbursement decision could be impacted by the alleged false statement there was a second school of thought but it was just a few cases and The cases are most noteworthy in the sense that they were frequently criticized and that was an outcome materiality test where Courts would look to the actual behavior of the recipient of the the false statement Not so much an objective standard, but the subjective as well now the reason courts criticized that the vast majority of courts again is there they would say well you can’t leave The decision-making to a single government bureaucrat to determine whether the decision would have been material to The government that that that’s not the proper way to approach materiality Where Escobar’s changed the world as Escobar said know? That in order to determine materiality Either look at the likely effect or the actual effect The risk on the recipient when the recipient received or became aware of the alleged false statement So why is that important in the False Claims Act world? The reason it is so important and had such a dramatic impact in the False Claims Act world is because of the structure of the False Claims Act as many of you know, The the way the process works is the qui tam relator Files the action under seal provides the government with the statement of material evidence The government then for at least 60 days and we all know it’s frequently extended Sometimes over years will study the allegations in great detail in fact a statute itself It’s forth an affirmative duty on the government the Attorney General shall investigate Actions brought under the statute So the government investigates after becoming aware both of the relators complaint and the best evidence The relator has to support the allegations So if he coupled that process with the Escobar’s ruling where Escobar is looking at the actual impact That the false statement had on the government The burden that imposes on any plane of going forward especially in cases where the government doesn’t intervene is the notion that the government is aware of The alleged allegations. So what did the government do? Did it renew the defendants contract? if the allegation was was that they made false representations under the terms of the contract that award the contractor a bonus in performance Did it take once it became aware of the alleged falsity did it taken any administrative action? against the the contractor of any type or did the government do nothing and again, its former DLJ lawyer and Many of you who have participated in this process frequently will also know in the vast majority of cases Historically about 75% of the cases the government doesn’t intervene And in a significant amount of those cases not only does government Doesn’t intervene but the government doesn’t take any action as a result of the relators allegations of any type So if this fraud was committed against the government you have responsible government officials who’s charged for safeguarding? Government programs they become aware of the fraud and they do nothing Then it becomes difficult for the plaintiff at that point to satisfy Escobar’s test At least without blushing. So that’s the reason Escobar has become such a powerful Tool and it’s creating in that regard for the most part great precedent But to give you another example Of the power of Escobar can discuss briefly two cases? Both of which are cases that I worked on That as a result in a published decision over the last year and these two cases because of Escobar has resulted in 1 billion dollars in judgments being reversed That’s the the power of Escobar the False Claims Act in fiscal year 2017 The government and again the False Claims Act is the government’s primary weapon to police fraud In fiscal year 2017 the government recovered 3.7 billion It would have received a billion more at least in the two cases and about the reference briefly but for Escobar So one case I was trial counsel and United States ex rel rook versus Salas rehab which was tried in a Middle District of Florida Tampa and the relator had alleged that a massive among the defendants 50 skilled nursing facilities had engaged in a massive fraud Some of which had to do with care planning and faulty documentation and things of that sort the relator alleged ultimately a billion-dollar claim Once the dust settled and a jury came back the judgment ended up being 347 million Well was clear from the evidence presented at trial when you review judge Mara day’s decision is that The relators at the end of the day did not put in sufficient evidence as satisfy the Materiality standard has articulated in Escobar’s and what I mean by that Particularly as we because of Escobar on a defense side we put in evidence that at the 50 skilled nursing facilities that were Subject to the lawsuit ultimately there were more than 1,000 surveyor the it’s from state officials that inspected the facility notwithstanding two detailed surveys that were conducted over the relevant time period very few significant violations were ultimately identified and the government certainly never took back or denied payment on any claim as a result of any of these and fractions we put in similar evidence in terms of the government knowledge but not withstanding any government knowledge the government never going back and demanding any type of repayment Ultimately that persuaded the judge in terms of finding that notwithstanding evidence we put on on a Defense side of government knowledge and government inaction the relator then failed in the relators duty to present countervailing evidence that would demonstrate that in fact if the government had true truly known of the allegations the government would have denied payment so the court vacated the 347 million dollar judgment and awarded judgment for the defendants briefly, I think it’s worth noting the second case United States ex rel Harmon versus Trinity, which was a 663 million dollar verdict for the relators and This case the the reason I think it’s it’s useful to spend at least two minutes with it. Is it goes to a fundamental strategic? decision, which I frankly don’t know the right answer to and that is What happened in Trinity, which had to do with the allegations of the relator that? The defendants had sold Guardrails to highways you all see him on the highways. Does he drive that were ultimately defective to the United States government now one strategic consideration and non intervene qui tam cases that everyone confronts is Whether to call any government folks as witnesses now one of the reasons why hist or ugly Prius, khabar I shied away from calling Deposing government witnesses is for the simple reason You don’t know what they’re gonna say. Obviously you have on the defense I had no opportunity to prep them to discuss the case with them You don’t know when to pose they’re going to come out and say Absolutely had I known of that false statement I would have never authorized payment on the claim or whether they’re going to say the opposite So generally I I would not depose them. I couldn’t control what the relator would do But I would try to Set up a record to win the case without getting that type of evidence interestingly what happened in the Trinity case Was before trial the relators made a Chui request Because the government’s a non-party you have to go through the TUI process To take a 30 B 6 Deposition of the government regarding the safety of the product and whether the product was qualified for payment So in lieu of testimony, what happened was the government through the Federal Highway Administration? submitted a memo Which said that? to the government and What they meant by government was government with a capital G not some gs9 bureaucrat But to the government the product was qualified and had always been qualified For payment including the time period the relator said that defective guardrails were sold to the government So you have the situation there where on the one hand you have? government Experts who don’t have any financial interest in the manner in the matter who’s charged with safeguarding government programs say that the product is safe and the government will purchase it and You have on the other hand a financially self-interested non politically accountable relator who says that the product is entirely defective and in that battle a court has to decide whose judgment is going to and applying Escobar, of course, the the Fifth Circuit ultimately Concluded that the government’s viewpoint prevailed in the sense that the relator dint provide Evidence to show that the government’s decision-making was somehow corrupt and since the government decided whatever alleged falsity occurred with respect to the submissions regarding the specifications of the product the government notwithstanding that Studied the product and determined that was safe and fully qualified for payment and hence that Court Vacated and reversed ultimately to 630 663 million dollar judgment, so 1 billion has been reversed as a result of Vaska bar and I think as we go forward just because again the way Escobar interacts with the False Claims Act process in terms of how qui tam actions are brought that there’s going to be a continuation of Really scaling back in terms of the number of successful qui tam actions that have historically been brought I do I mean I really want to pose some questions to Bob because the Salas case I Commend to everybody to read judge Mara day’s opinion judge, Mara day is the chief judge and in Tampa and he’s a very you know, he has a simple background He’s been on the bench a long time and he’s a very reflective guy The opinion is pretty extraordinary and I sort of is it on appeal now? Yeah, so it’s not Appeals I don’t know how much you can actually say about it But but if you I mean I’ll read you a couple of excerpts from the judge Mara days opinion He says Escobar rejects a system of government traps zaps and zingers That permits the government to retain the benefit of a substantially conforming good or service But they’re corrupt But to recover the price entirely multiplied by three because of some immaterial contracts regulatory non-compliance a Principle mechanism to ensure fairness and to avoid traps zaps and zingers is a rigorous standard of materiality and scienter And then he talks about Escobar and the in this case I haven’t read if you filed a brief in the in the Eleventh Circuit, but there was an amicus that was filed by a group of This is a nursing-home case but a group of organizations that deal with patients rights and all and their you know Their concern was is that the you know that the government strapped zaps and zingers You know in this sort of immaterial contractual Regulatory non-compliance. In this case the the issue was whether or not Salas had systematically not I think the issue had systematically not secured comprehensive care plans For the nursing home residents which is a which of people that have done nursing home cases. No is a very Important requirement that you know that that the that that the care for in a nursing home is supposed to secure and so the I Suspect that what the relator is gonna argue in the Eleventh Circuit is you know judge mera days, you know off his rocker I mean nothing could be more material in a nursing home for care in a nursing home Setting than the comprehensive care plan now now what he does do in this opinion At least from from my reading of it. He basically says no one complains about quality No one complained about the about the surface really that was your point that that the regulators were Arco Which is the agency of health care administration and in Florida that that regulates Medicaid They were in and I guess CMS was in and they did all kinds of surveys and all and there was no real You know major findings and in any event They continued to pay even after The and he makes a point in here that they continued to pay even after the case became public and based on that he says well, you know, I find that they can’t you know meet the Requirements, you know under Escobar and the other side says well good lord Do you want you know, do you want the government? Yank pay to nursing homes? I mean, these are the most You know severely dependent people that we have in our society and if you yank pay what’s that gonna do for care? So, I mean it’s a really interesting and so I’d like to know You know to the extent you can Yeah, and I think this issue for any of you doing False Claims Act work It’s is really important and let me kind of unpack If I can What what I think was behind the judges trap zaps zingers statement and it kind of goes back to what I mentioned earlier in terms of the physician with the rubber stamp so what you have here is skilled nursing facility, of course, the skilled nursing facility has to pay for The property the site that it occupies has to pay for electricity has to pay for laundry has to pay for food Has to pay for staff has to pay for the rehabilitation therapists all that is reimbursed ultimately through a per diem and a per diem is is Paid more depending on the the amount of services that are actually provided at the end of the day Assume it’s $500 a day or so In terms of what the sniff is going to get in many cases is less than that but but they’re gonna give that based on the service provided so you take the allegation about care planning and Let’s say the care plan has to be completed every 90 days So an audit was conducted To find out whether care planning was conducted every 90 days and what care planning would entail is that if a patient had trouble hearing then you had to have a care plan in place to address it and you would literally so it’d be what what is the the defect what is the plan and What is the result of? implementing the plan in essence is what you’re doing with care planning and then you review it every 90 days to still see if it’s Still applicable so you’d have cases here where? After the 90th day the nurses are supposed to sign off and say well the patient had trouble hearing The remedy to address that was to talk more loudly To the patient and we need to confirm that staff has been trained on that and they’re speaking more loudly to this particular resident on the site Relators come back and say oh my god We audited that record and we don’t see the signatures after 90 days showing that the care plan was reviewed. So Therefore your claim for payment is false because in your claim for payment you certify that you complied with all rules wrecked regulations that are in existence and you were recklessly disregard for and deliberately ignorant and Ensuring you had a process and make sure that that care plan was done in 90 days now As was mentioned there’s no contention high quality of care medically necessary services, no bad results were identified with respect to the patient population that was on trial but What we later wanted at the end of the day was a full per diem paid during a relevant time period back Yet for the electricity laundry rehabilitation therapist nursing staff and everything else times 3 Plus civil penalties to address the fact that someone some nurse Then initialed a care plan after 90 days And I think that’s precisely what Judge merriday met by traps app zingers in order to turn Kind of incidental with Supreme Court referred to an Escobar’s garden-variety regulatory breaches into massive treble damages civil penalties hundreds of millions of dollars worth of of judgment and that’s the way at least in my Humble view the False Claims Act was being abused previously and how Escobar has really swung the pendulum in the other direction to really Making the plaintiff the plaintiff wants to invoke an essentially penal statute to show essentially penal wrongdoing and it it’s also will validate what judge merriday was looking for which was at what the False Claims Act attacks at the end of the day or wants to ensure is that Fair value is paid for fair value Fair value services provided so if you’re covering the beneficiaries high quality of care medically necessary care No defects and care Don’t try to get hundreds of millions of dollars because a care plan wasn’t initial We all want the robust materiality standard That Robert has detailed and and you know given a couple of great examples of how that has impacted favorably from a defendant’s perspective False Claims Act Investigations, but there’s a flip side, right? So judge Mayer today also said in that case that government officials Paid and continued to pay to this day despite the disputed practices long ago known to all who care to know so The government might make some payment suspension decision where but for The decision and that’s the bar they wouldn’t It is for me I’ve recently Had this happen in two different cases where early in the investigation CMS came in and suspended and You’ve run into that but you know if they don’t suspend just as Bob and Sandy were outlining And they make payments on the claims at issue. Is that going to come back to by DOJ a trial in terms of? disputing the materiality element I’m having a lot of difficulty quite frankly with CMS dealing with them is not Easy to do much less to get any response whatsoever in Bob, I don’t know if you’ve run into that, but it is a I’m seeing that happen now post Escobar Well in Kristen I think you can weigh in a little bit on that issue and some other interpretations of materiality post Escobar and especially on Yeah, I canna not in the health care world as much but I handled a case recently in the Northern District of Georgia government contracts fraud case where it was on us versus agility public warehousing company and You know, we really in our motion to dismiss really Argued strongly that we thought that the you know that the alleged misstatements were not Material the government had Renewed the government contract at issue for many years. There’d been transparency in the disclosures that had been made in the context of the contract and they continued to pay and they continued to renew and There weren’t any suspensions of payment or anything along those lines quite quite to the contrary But judge thrash didn’t agree that those factors were enough to to show that it wasn’t material and on Awareness point it was interesting. He found that just because there had been a Key Tam filed in 2005 that didn’t that didn’t necessarily put the government on notice DLA who had the contract with agility, you know was not thought to be on notice even though DOJ had The allegations many many years before so I would agree that although the pendulum is swinging, you know Not not entirely and have you you know, whether it’s in health care or non healthcare experienced other post escobar decisions Yeah, they Not me personally, but the Ninth Circuit for example Has had a bunch of opposed Escobar decisions and they’re too recently just found Materiality not to be enough to to get to grant summary judgment. So I think that you are still seeing a split Among the circuits on particularly on the materiality question and what will be enough to show that it wasn’t material So, you know, we’re all used to Having the government be required to prove materiality in in white collar cases and insider trading cases and the standard does seem to be enhanced in some of these False Claims Act cases And other issues that we’re seeing a rise in False Claims Act issues that also have implications In criminal fraud cases that you know Jack I’m gonna ask you to speak about have to do with falsity objective falsity and knowledge So for a long time with respect to False Claims Act cases The government would try to do an end-around if they were able to prove falsity that they assume that you know The company of the defendant had had knowledge and I think particularly post Escobar that’s been unpacked a little bit jack We’re very happy to have you here for for a lot of reasons, but I think one of the biggest ones is a Sarah care And just kind of taking a step back and giving a little bit of history pre Sarah care it’s it’s not the first time that a court had addressed the issue of whether something was false whether something was Objectively false and what that standard is has evolved and I think it will continue to you if and when we get this Eleventh Circuit decision on Sarah care well, and I think By the way, Brian asked me to speak about six months ago And he said surely won’t have the Aesir care opinion by that much. And you said yes. I said, I’m optimistic But here we are so a little history on it. I may have spoken about it last year, but the This is a hospice case if key Tam filed rigidly Milwaukee and then a second case in Birmingham and a third in Atlanta and fairly quick succession and in that order ended up being transferred to Birmingham Probably around 2010. So it’s been a long time in the works, but the The key issue is whether or not the medical records Relating to the patients in the statistical sample that the government pulled Whether they supported the terminal prognosis of the patients So what the government did on their poll? they pulled a Sample of 233 patients each with a length of stay of at least one year on a Syracuse hospice program Their expert took a look at those medical records, and he concluded that 124 of those records did not support the certified physicians terminal prognosis The judge at some point I forget now just when but she on our motion she bifurcated the trial Setting phase 1 solely on the issue of falsity and then everything else knowledge of falsity damages Extrapolation if that came into play Would be in phase 2 we never reached phase 2 we What what had happened was that the the government had represented in answers to contingent interrogatories that On the issue of what evidence that they have a falsity how do they intend to prove that? their answer was we’ll prove it strictly on the medical records and our experts opinion they represented that a number of different times to the court because that was a that was a hot issue and Ultimately, we moved toward trial and the judge decided to hold them them to that representation because it really had litigated the case around that Representation and that was really the basis for the bifurcation Tried the case over the phase one over a period of eight weeks the The jury then returned answers to special interrogatories finding many of those claims to be false That is finding, you know, the medical record did not support the terminal prognosis we then reconvene with the judge she gave the jury a few days off we reconvened and To talk about phase two and and getting that portion of the trial moving forward and scheduled And I’ll never forget she walked into the room into chambers. And she said okay, this is gonna be a very interesting conversation and She said I have concluded I’ve been racking my brain about This outcome and she said I have concluded that I’ve committed a reversible error in not granting the jury charges that we had requested basically that the there needed to be Objective falsity and that a mere difference of medical judgments between experts was insufficient to establish falsity Issue became what to do about it. We moved orally for new trial she granted it on the spot clearly having made up her mind and then we reconvened a few days later and she said you know, I’ve been researching this further and considering the evidence and I’ve preliminary concluded that the government really proved nothing on falsity and I’m inclined pursuant to rule 56 F 3 to grant. Sua sponte summary judgment There were a lot of rule books being flipped under the table at that point I was amongst them And sure enough there was so she under 56 f3. You have to give the opposing party time to brief We then briefed ultimately she entered the following March Summary judgment in our favor. That’s now been briefed and on appeal We argued that back in March of 17 So we have been anxiously awaiting some opinion from the Eleventh Circuit on it was a very interesting Case in argument certainly But Most troubling for the court Well, I I think that some the fact that they number one they were quite clear that that their evidence of falsity was strictly limited to the the medical records of 124 patients their expert found to be ineligible from the sample and That it would only be their their medical expert after the fact review of those in his opinion. That would establish Falsity as opposed to having the clinicians themselves testify. Yes, they they put up no clinicians. They put up no physicians So she held them to that at that point and ultimately she did give them the opportunity to Offer evidence that would connect falsity to any particular patient otherwise and they finally Acknowledged that they had no other evidence of falsity as to the page those 124 patients. So, you know if the government’s going to prove their falsity case on a sample and then attempt to extrapolate later to a Hundreds of millions of dollars. I mean the 11th certainly the Eleventh Circuit case law is clear clawsome, perhaps beginning that the scene Akwonton, you’ve got to prove falsity in the claim itself And they said we have no other evidence of falsity as to any of these patients We have no evidence that anything in these medical records and false We have no evidence from any of our clinicians That any of these patients were not Terminally ill and so she she held them to that You know, I think what’s one of the things that’s interesting about as Sara cares is the overall theory of liability and Robert sandy I wondered how much you all have seen this but you know historically Theory of medical lack of medical necessity has not been the most successful from from the government’s perspective particularly Particularly in the hospice setting when there is so much subjectivity involved but here you clearly have the government coming in trying to exercise their retrospective clinical judgment on the basis of one expert who is gonna say that Well and let me add a couple a couple of points from from the case, it’s very unusual for a couple of reasons First of all Hospice as you mentioned Brian, I mean the guidance on hospice It’s probably I’m not sure and Bob and I were talking about it earlier. I’m not sure I’ve seen any other area of Medical necessity of medicine of the standards. It’s so utterly deferential to a physician’s judgment the statute says it’s based on the physician’s judgment only has to do is certify the regs mirror that then the regs say Basically doctor, we’re not going to tell you how to reach that judgment but when you do it consider at least the primary diagnosis all over other comorbid diseases all secondary conditions all Subjective and objective medical findings all medications. And as long as you do that you’re good. So There is no kind of objective standard The government tried to rely on LCD guidance. They finally admitted those we’re not binding in the LCDs in hospice in any event Say if you meet these elements, these criteria points patient is eligible But the patient can be eligible Even if they don’t meet these points and again deferring even in the LCDs themselves to the physicians clinical judgment So in in hospice, I think it’s it’s particularly judgmental as a matter of law and you know predicting you overlay that with You know, it’s not based. It’s not like a doctor diagnosing today Does this patient have pneumonia if so is a simple pneumonia is it complex pneumonia? This is diagnosing every condition in combination Assessing the combined burden of those things on that unique patient and our patients averaged about 85 years of age And then making a prediction in the future as you as to whether or not you think it’s likely they’re going to die in the next six months if that combined condition runs, its ordinary course, whatever that means so it’s a I’m not sure there are other areas of Medicine that are it that extreme the other thing I was gonna mention is that the government expert? In his testimony said well, this is my opinion. This patient is not eligible They’re not terminally ill but no, I can’t say the other opinion of the certified physician was wrong And he didn’t he couldn’t say that our our experts opinions Then as to ten of the patients in the sample, he actually changed his position And I don’t know why he did this in his testimony. But when asked well, which time were you wrong? He said I wasn’t wrong at the time And I said the patient was eligible I was right and when I said the patient was ineligible good answer so we had a very unusual set of circumstances Combined with the bifurcation. So that’s really what the judge was looking at government. What have you actually? proven on the element Yeah, just one quick point. I’m a medical necessity In case any of you folks do one of those cases especially in the False Claims Act context They are generally very easy cases to win I have won a couple against the government United States versus Peru and United States x-ray Lawson versus Aegis therapies And the reason they’re there easy is sometimes the clinician will be picked out because they use a particular billing code at a higher frequency than their their peers and So the government will think that they’re up coding Because they the the clinician at the end of the day can’t roll out that it’s patient population is any different from their peers? The reason those cases are easy at the end of the day is the clinician has skill in the game skin in the game, so they will go through the medical record very carefully and be able to Generally identify why they thought that enhance service was needed for that particular patient and as you as the lawyer go through each and every claim with the physician at the end of the day and again These cases usually False Claims Act cases as as we used to explain when I was at the Department of Justice They’re all gray. If they’re black and white as we would explain as DLJ lawyer said be criminal matters Just the fact that they’re the criminal matter was declined and we’re here pursuing the civil fraud remedy should tell you it’s in a gray area Once you have the clinician, they’re testifying and can connect up the dots Usually not only can you win but in the the pre-boot case which had to do with the pulmonologist? The the district court judge was so outraged by the government’s action It actually sanctioned the government and our client got back five hundred thousand in attorneys fees so they’re they’re really cases if you get a medical necessity case that you should Those are ones that you can you can generally win last year this program We talked a little bit about a perception that there were some expanding theories of liability from the government’s perspective in both civil and criminal Health care fraud cases and saying I want to ask you in just a minute about some examples of that But before we leave the the issue of medical necessity I think there’s there’s an important criminal case along those lines the United States versus Paulus which I think the seventh seventh Sixth Circuit just issued its Month or two ago, and you know I think that the criminal defense lawyers robber probably thought it was going to be easy to win They lost a trial the district court judge overruled the the jury’s decision. And then the the circuit court just issued Yeah, I was going to ask Jack how that that opinion it’s a cardiologist that was prosecuted Essentially for doing what the government said were unnecessary angiograms and stents and The alleged false representation or statement was the percentage of blockage stenosis and the government’s position was they had an expert that testified said that That in his opinion they were only 20 or 30 percent blocked and and There was some suggestion that there was some standard that it needed to be 70 percent block But it was not clear whether that was really a standard or not and the jury convicted and the judge overturned that conviction And essentially said you haven’t proved falsity Because basically it’s you know, the thing I learned the judge said from trial is listening to the experts. It’s subject to interpretation or opinion and that’s not enough and The Sixth Circuit Said basically just the opposite we believed we were clear they cite a case But we want to make it explicit now the degree of stenosis is a fact capable of proof for disparate a Doctor who deliberately inflates the blockage he sees on an angiogram has told a lie If he does, so to build a more expensive procedure than he has committed fraud so How does that square with with your case Jack where it does seem like? The government’s evidence is Essentially expert opinion and let me add a little bit more color to it in his argument to the district court judge, you know Dr. Paulus, he pointed the testimony of government witnesses at trial to establish that Cardiologists often disagree with one another about the extent of stenosis and the appropriateness of stent procedures he argued that the government’s circumstantial evidence fall short because the government’s presentation of Internally conflicting patient testimony the volume of stent placements and his compensation Do not permit a reasonable jury conclude that he had the requisite fraudulent intent. So I think the idea is that There can be a mere difference of opinion as to experts when you’re looking at the angiograms as to what the level of blockage was And to answer Sandy’s question sandy is clearly distinguishable They did pop in a Immediately filed a 28-day notice with the Eleventh Circuit and you know you get like 350 words and we’ve responded Pointing out that it’s distinguishable But I do think it is and you know as I mentioned diagnosing pneumonia for example as a single diagnosis While there may be some judgment in that there. There are there are clinical tests that can can prove that one way or the other This is that the Poulos case was as sandy outlined Estimating the degree of blockage in the in the order around the heart there is they cited to the American? Hospital Association of Heart Association rather right? They have a standard of about 70 percent If it’s 70 percent blockage or above you can stent if it’s somewhere between 50 and 70 It may be okay, if it’s generally if it’s below 50, it’s highly questionable the the circuit court pointed out that the I mean there was direct evidence of falsity in that case there were People that knew the doctor and witnessed his procedures. He said he was just blatantly falsifying information They found him to basically be lying about it There was also some some what they call it interim interim serve or variability there’s some science on that that yes, there’s some degree of opinion about it But generally doesn’t vary more than about 20% and some of the evidence was You know from the government’s expert was it was 20 to 40 percent blockage and and doctor Paulus might be at 80 percent So there were some issues there. The court also would be sixth circuit I think my interpretation of this citation to a sera care is that it was approvingly Sixth Circuit said but opinions are not and have never been completely Insulated from scrutiny at the very least opinions may trigger liability for fraud when they are not honestly held by their maker Or when the speaker knows of facts that are fundamentally incompatible with his opinion Citing to a sera care and a parenthetical note holding that certain good faith medical diagnosis by doctor cannot be false There was no evidence in a sera care of bad faith Certifications any doctors and I think that’s another distinction here I could do Brian. We we tried to study this question academically in the context in a couple of cases meaning take up the population of objective expert clinicians to see which codes they assigned in different types of coding and to see is there sort of a normal rate of Disagreement just because experts are going to disagree on this stuff And of course, it’s highly variable based on the type of coding but what we were finding was that In the type of coding we were looking at there’s kind of a five to ten percent sort of normal rate of disagreement Not that anybody’s right or anybody’s wrong There’s just there’s a degree of judgment involved and when we tried to argue was that In this repayment situation the company really ought to only be liable for the disagreement or the variance rate above that sort of a normal normal rate So, you know this particular situation wasn’t very conclusive But it was going down the road of trying to point out and trying to quantify with some mathematical certainty That clinicians will differ about this stuff and how do you deal with objective falsity in such a world? when talking about further the interplay between Civil and criminal investigations, you know It used to be at least it seemed that more frequently than not you would see a declination Of a criminal case that would then go civil sandy Kristin, I’m gonna ask you guys for some examples of the opposite which we’ve seen recently in which a civil key team has spurred on a parallel criminal investigation which which ended up really taking over and I think Agility there was some of that going on in your case Yes, Brian there definitely was the the case that had started as key Tam and was investigated for some time Ultimately segwayed into a criminal case alleging various kinds of government contracting fraud and that case really did take over in the criminal or the civil case at that point took about a backseat the company was located in Kuwait and so from both perspectives, but from the civil perspective and service they really didn’t make many efforts at service while the criminal case proceeded and then only much much further down the road did the Did the civil case start to to you know, heat up again? And did they try to serve the matter? So yeah it was interesting in our case where the key team really did take a backseat and really Was in effect stayed for several years while the criminal case I mean there are numerous examples of criminal cases that started as Key teams, I mean the Columbia a case where I represented Columbia years ago 20 years ago. I mean the key team Stayed under seal for I don’t know ten years or something like that I mean, you know, it was a massive case and it happens. I think the case that Brian was referring to that Is a case here here in the Northern District of Georgia it’s the case that Brian’s very involved in and Rick Dean is involved in and it’s it’s a case that that involved tenant healthcare and several hospitals that they at the time they owned that operated in the Atlanta area and one was in South Carolina and it started as a Key Tam in the Middle District of Georgia thing and it turned into a criminal investigation It’s still pending the there there are two hospital executives have been indicted there was an enormous amount of Pressure that was put on Tennant sort of along the lines of what we’ve what we’ve heard in some other panels today and they ultimately Did a resolution that included guilty pleas for some hospitals that were subsidiaries they were able not to get Debarred But but and paid just an enormous amount of money five hundred million dollars, I think where they Would with a CIA and these two? executives unfortunately from my perspective have been indicted and in a pretty aggressive manner and Are going you know, we’re gonna have a trial sometime probably in the next year and all of it arose from Its you know, it’s an interesting case because it it’s it’s basically a kickback case and there was a There was an organization called clinica that provided clinical services for undocumented women That were pregnant and and Those women under a particular program were entitled to certain Medicaid coverage for emergency ie deliveries and the Allegation is is that is that? the tenant hospitals entered into what the government claims or protects well contracts but contracts with This this clinic to provide various consulting and other management services the Klan the allegation is that that the clinic referred business and as a result Fraud occurred kickbacks occurred because because allegedly the protection well relationship was based on Referrals all of this arose from From a quitan that pinned it for quite a while. I think that’s what you were talking I thought you’re gonna talk about well care. I could have talked about That was even worse well If you don’t mind and you know using the United States versus white side of the 2002 Case out of your home district as a backdrop, just you know If you don’t mind sandy So a little bit about so so Whiteside is the Columbia HDA case and and in that case a few executives Got indicted And and and they got convicted and and the conviction was overturned in the Eleventh Circuit because they the Circuit concluded that that there was no act as race that there was no falsity because the alleged false statement was based on a on what the woods was consistent with a reasonable interpretation of A of a reg regulation and so basically what the court said was, you know If if if the statement you made if the thing you do that case had to do with how you classify Dec but but if the statement you make is based on a reasonable interpretation of a statute or a contour or a contract or a rule then there’s no falsity and and And you know, it’s consistent with a number of cases over the years where where courts have pushed back when when when the statement is based on on a rule that is ambiguous or a statute of the big us or some contract provision and you know, you have a debate as to what it means, you know, and we know every day we have contract cases and the plaintiff says that it means this and the defendant says it means this and you know, and eventually a judge decides it but you know, should that be the basis of a of a False statement case, you know, if there are if there are reasonable interpretations And so and so that was you know, that was a very important case in the Eleventh Circuit Whiteside wolf fast forward to 2015 Though the WellCare investigation which is the case. It also emanated in Tampa Welker is a big HMO they were They were a big Medicaid provider there was maybe a behavioral health program that was financed by Medicaid and basically, there was a state statute that Was passed, you know sort of at midnight That was never debated or anything and it’s essentially what the statute said. Is that in this program that 80% of The funds that go to in this case an HMO Should be and the language was Expended for the provision of behavioral health care and so and and there was never a rule there was never a regulation There was never a court ruling but the question was what the hell did that mean? expended for the for the provision of behavioral health care and in the mental health industry Most HMOs didn’t directly provide behavioral health care they would Contract with what’s called BHO so behavioral health organizations that specialized in that and they would pay them Typically a sub kappa. So this was a capitated system. And so the HMO would get a Capitation to provide that the the health care they would sub capitate or they would subcontract with a behavioral health organization and would pay them typically 85% of Whatever the capitation was and then the service would be provided. And the question was that when well care in this case as did many HMOs created their own behavioral health organization And so the the government came in and said you have committed this massive fraud because you are sub Kappa tating to a BH to your own BHO and therefore You you know, you’re and you’re filing a report that said you spent 85 percent or 80 percent Based on the sub imitation when in fact you only spent X number of dollars You know what you actually would it actually cost to to afford direct care and that’s what the whole case is about and Frankly, the the trial took place against the two individuals went on for four months. The jury was out for 21 days They took they took a vacation during the judge They were hung totally hung the judge had in ten days off of a Memorial Day Weekend and they came back in a few days later. They had this Mixed verdict where nobody was convicted of conspiracy But everybody was convicted of one or two false statement counts and frankly. I and a lot of people thought that it would be reversed in the Eleventh Circuit under under Whiteside because the argument the defense was Is that hey this language That says extended for the provision of behavioral health care that’s subject to interpretation and it’s never even been interpreted and our interpretation was reasonable that we could do what we did and You know the Eleventh Circuit in an opinion that you know It’s called United States vs clay for har Barrens and kale Just basically blew off Whiteside. I don’t think they didn’t reverse Whiteside, but they just blew it off They said well, they said it was clear. The the language was clear and You know what, but that’s what happened So I’m talking about a couple of sort of DOJ policy changes, but before we do I want to just take a minute to talk about some recent developments and the government’s attempted use of Statistical sampling which you know could potentially impact some some due process concerns and Jack, you know We’ve talked about obviously the government for a long time has used statistical sampling and extrapolation to prove damages Right and we’ve seen over the last 12 18 24 months a relatively new phenomenon Which the government is now seeking to use statistical sampling and extrapolation not to prove damages but to prove liability With the argument being will help. There’s too many claims. We can’t look at them All right. We’ll use a statistically valid sample come up with a sample size Extrapolate it and then that’s what we’ll use to prove liability Well, that’s right. And and it really in these cases particularly these health care cases where there may be thousands of small claims The government’s Argument with the court is we we can’t we won’t be able to enforce the laws and if we have to prove every claim They’re not very receptive to due process responses from defendants, but probably the two key cases out there or the life care case up in the Eastern District of Tennessee judge Matisse Ruled in that that that evidence could come in to prove By inference by extrapolation both actual liability under the False Claims Act Stating that providing individualized proof would require the devotion of more time and resources than would be practicable Then he also said while defendant makes several compelling arguments regarding the inherent limitations associated with statistical sampling These arguments are better considered by the fact-finder rather than the court That case subsequently settled after that. The other case is the Michael’s us ex rel Michaels versus a cop a senior community up in the, South Carolina That was a case where the judge held, otherwise the district court judge, you know certifying the issue He was not going to permit it to come in To prove liability and it went up to the it was a non intervening case They had reached a settlement the other issue was whether the government had say-so over that ultimately the Fourth Circuit Decided not to take up the extrapolation issue issue. I think they said they Granted that improvident blame that just kicked it by a point after they punted that and after that that case settled as well I will mention the wall versus vista care case out in Dallas Another hospice case kind of on the backside several months after the Asura care Opinion and judge Barr out there. What I think is a well-reasoned opinion Rejected the use of extrapolation saying that the review of the patient’s was just too individualized to be able to to do that and rejecting the methodology founding she found problems in the Methodology as well and rejects her on that basis. Jaqen Sandy, I’m gonna ask you guys to talk about the Granton and brand memos But before we do just sort of a practice pointer of a relatively new development Which implicates False Claims Act settlements and potential tax implications, Tom? Sure Sure So somebody familiar with the section 13 306 of the Tax Act that has changed the tax deductibility Of settlements in the False Claims Act situation for those who’ve been involved in it There’s been a lot of disagreement the years over what portion can be deducted of a settlement the idea being Mostly that it’s the piece that’s compensatory to the government. What was the government’s economic harm and for those who’ve been involved in? Negotiations, you know, there’s a lot of back-and-forth and both sides always start out with a very principled analysis of the economic harm and apply multipliers but by the time you get to an actual settlement number There’s a lot of horse trading and you kind of lost track of what people’s actual view was of the economic harm so I’ve worked with a number of clients where they have to go back after the fact and Reconstruct the settlement negotiation to to demonstrate what their view of the economic harm was? Because that’s the portion that they can they can deduct for settlement purposes So I would just just know we don’t really have time to get into the details here But just know for folks that happens and changes and some clarifications With the latest tax act that talk about again what piece is deductible and which is not the other thing I would note is They’re just an observation something we’ve seen popping up lately is where the IRS has come in after the fact after a settlement and pointed out this is in the context of a kickback case has raised the point that Deere company you just Essentially admitted that all of these marketing expenses were really kickbacks Therefore you shouldn’t have been deducting them on your tax returns all these years. So going back and trying to reopen Some series of prior periods to look at them and that too very similarly involves having to go back and reconstruct The whole settlement negotiation and figure out which of these except the settlement amount we paid how much of this really was prohibited kickback type expenses Jack and sandy I know that you both have recently had some high higher level conversations with with Department of Justice officials regarding recent policies on reliance on self regulatory guidance to advance False Claims Act cases and also potential government involvement in meritless cases brought in FCA Cases and what’s the latest from your perspective? Well, so We have this DOJ dialogue group that the ABA criminal justice sections had for a number of years and with the exception of aj gonzalez all the other AG’s since the early 90s have met with folks that that The criminal justice section and jack Selden has chaired that group for the last few years and we we met recently with attorney general sessions and rod Rosenstein and And one of the things we raised with him was the recent Memo that was issued by Rachel Brand when she was still there She headed up Civil Division of Justice and it was issued earlier this year January 25th to 2018 it had to do with limiting the use of agency guidance documents and basically False Claims Act and other affirmative civil enforcement cases and the essence of it of the memo that she issued was that basically, it says that that that Department litigators may not use non-compliance with guidance documents from various agencies as a basis for proving violations of applicable cases like False Claims Act cases, which is was Surprising to all of us because I mean take the welker case I was talking about there There was no rule but there were various things that the government was relying on in that case that had come out of the agency not through the rulemaking process, but you know that was sub-regulatory guidance And so we we raised that with attorney General Sessions who? Who deferred to that would be a polite way of putting it to to ride Rosenstein and and we asked You know, where does this you know, does this apply to criminal cases, too? Because if it only applies to civil cases, let me what about it? We gave some examples what about these criminal cases where you know, a lot of the evidence is basically, you know anecdotal or sub-regulatory guidance Over the years from from the agencies we didn’t get an answer but Jack you may have some update on that I think that was a good description. I mean, we just what we explained was. We find it to be anomalous – you can Have no civil liability, but you can be convicted of a criminal acts based on that shouldn’t there be some? Consistency here. And by the way, when our committee goes then we’re not we’re not grilling the Attorney General or deputy or anything We’re we’re bouncing ideas and and they’ve been very receptive to to having these meetings in these conversations at the close of the meeting One of the deputy Rosa Stein’s principal deputies at that time Zac terwilliger who’s now, the Acting US attorney in the Eastern District of Virginia I had been communicating with him a little bit about it because we didn’t want to walk in and just drop this issue And on the way out. He said this is an issue where we’ve got a group examining currently and that was the last I heard On the last issue on on Branston, you know We talked a little bit about whether it would actually have an impact right and it’s always interesting to see with these Department of Justice policy changes whether they actually will or won’t and Robert I’m curious to hear your experience or you what your Predictions are and Sandy. It sounds like with your practice you have had some experience with that already Well, I mean granson just so people know that that’s another one of these memos that was issued you know by sort of the new Justice Department on January 10th of 2018 issued by Michael Grant stone whose commercial litigation branch fraud section to commercial to attorneys in DOJ and it has to do with the factors for evaluating dismissal of false key teams basically pursuant to a particular And and basically what he does, I mean it’s really interesting memo I mean he sets forth various examples of where would be Appropriate for a DOJ even though they haven’t intervened to move to dismiss Keaton aware there were you know meritless claims preventing parasitic or opportunistic actions preventing interferences with agency policies or programs controlling litigation brought on behalf the United States preserving government resources safeguarding classified information Addressing egregious procedural errors. So there’s a number of examples and we had a case actually Not too long in Tampa where we finally convinced The only part I would add is The way at least going back to the time I was at DOJ with the civil fraud section The significant pediment at least back then was always senator Grassley and his perceived closeness to the relators bar and There was a great fear that of deal J when its declines intervene as a non-party in the case starts Dismissing these actions it would create their parents that DLJ is in cahoots or had been cool Cohabitated by the defendants and defense industries and not only that but then responsible governmental officials would be hauled before senator grassley to Address those concerns directly. So there’s there’s a political Basis for DL J sis toric reluctance to move in to dismiss frivolous cases and I think as long as Senator Grassley stays within the Senate and And he perceives the False Claims Act as being his baby. I think that that reluctance will will continue in DL J notwithstanding Memos that it might issue periodically. Otherwise well before we conclude does anyone have any questions for the panel? Yes, ma’am When that typically comes up Is that the relator is? afforded an opportunity for a hearing Generally upon the dismissal and there’s a circuit split on that precise issue So the DC Circuit for example says that in essence DL J has unfettered discretion and Just by virtue of it the constitutional command that the Attorney General shall take care. That laws are Effectuated so that unless the relator can show that the government has been corrupted in some fashion a responsible governmental decision makers Have been bribed or their judgment has been corrupted in some other fashion. The court is not going to permit any discovery By the relator now the Ninth Circuit in the Sequoia orange case of course goes in a different direction and is let at least left open the possibility that Discovery can be available in appropriate cases to determine whether the government’s exercise The discretion was arbitrary and capricious which is a lower standard and and there’s other courts that most of them are Say they need not decide whether they joined a DC Circuit or the Ninth Circuit, but even Using the lower standard of the Ninth Circuit have always uniformly in every case have validated that the government’s can decide to dismiss a qui tam case and Have had a high threshold on allowing relators discovery of the government’s decision-making process prior to that point All right. Well, I think it’s time for a short break. Please join me in thanking this great panel you

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