On June 26, 2020, the Eleventh Circuit Court of Appeals reinstated part of a $348 million verdict awarded pursuant to the False Claims Act (FCA). The court also held that a qui tam plaintiff may have standing to bring an FCA claim even after entering into a litigation funding agreement. 

In 2011, a registered nurse brought a qui tam (whistleblower) action against two skilled nursing facilities, alleging violations of the FCA. Specifically, the plaintiff alleged that the skilled nursing facilities engaged in “upcoding” their Medicare claims to indicate that they “provided more services—in quantity and quality—than they, in fact, provided.” The plaintiff also alleged that the skilled nursing facilities engaged in “ramping,” a practice that involves artificially timing certain services to coincide with Medicare’s regularly scheduled assessment periods. Finally, the plaintiff alleged that the skilled nursing facilities caused fraudulent Medicaid claims to be submitted by failing to maintain a “comprehensive care plan,” as required by Medicaid.  

After a month-long trial, a jury determined that the nursing homes violated the FCA and found them liable for the submission of 420 fraudulent Medicare claims and 26 fraudulent Medicaid claims.  The jury awarded $115 million in damages, with $85 million for fraudulent Medicare claims and $30 million for fraudulent Medicaid claims. After applying statutory trebling and per-claim penalties pursuant to the FCA, the district court entered judgment in an amount of $348 million.  

The defendants asked the court to set aside the verdict and moved for judgment as a matter of law, or in the alternative, a new trial. But before the district court ruled on defendants’ motion, the plaintiff entered into a litigation funding agreement, wherein she agreed to sell less than 4% of her interest in the award, should it be reinstated. Under the agreement, the plaintiff did not cede any power to influence or control the litigation.

The district court ultimately granted the defendants’ motion and vacated the jury’s verdict, arguing that the evidence presented at trial was insufficient to prove that the government regarded the billing practices at issue as material to its decision to pay the claims at issue, which is required under the U.S. Supreme Court opinion in United Health Services, Inc. v. Escobar. In Escobar, the U.S. Supreme Court stated, “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.” The district court pointed out that even after the government found out about the alleged upcoding and ramping, it did not stop paying “or even threaten to stop paying” the skilled nursing facilities for the services at issue.  As a result, the plaintiff could not meet the materiality requirement established under Escobar.

The plaintiff then appealed to the Eleventh Circuit and defendants moved to dismiss the appeal.  The defendants argued, among other things, that the plaintiff’s entry into a litigation funding agreement constituted a partial assignment of her interest in the action, which precluded her from acting as a whistleblower under the FCA.

In its partial reversal of the district court’s order, the Eleventh Circuit first addressed the defendants’ standing argument. It pointed out that, although the FCA does not explicitly permit a whistleblower to assign her interest to another party, it does not bar such an assignment either. The Eleventh Circuit also noted that whistleblower only assigned a small fraction of the award and retained full control over the litigation.  As a result, the court held that the plaintiff had standing to bring her FCA claim. 

The Eleventh Circuit then addressed the substance of the appeal. It held that, although the government’s decision to pay a claim despite knowledge that a requirement was violated is “very strong evidence that those requirements are not material,” it is not dispositive.  The Eleventh Circuit noted that the practices of upcoding and ramping, for which the plaintiff offered substantial evidence, are both inherently material as they result the government paying more than what it actually owes. 

“Drawing all inferences in favor of the [whistleblower],” the Eleventh Circuit determined that “a reasonably jury could conclude” that the nursing homes engaged in both upcoding and ramping. Thus, “the evidence at trial permitted a reasonable jury to find that the defendants committed Medicare-related fraud.” With respect to the whistleblower’s Medicaid fraud claims, the Eleventh Circuit upheld the district court’s order vacating the jury’s verdict because the whistleblower never presented evidence that the government would decline to pay claims if it knew that the skilled nursing facilities lacked a “comprehensive care plan.”

The opinion is captioned Angela Ruckh v. Salus Rehabilitation LLC et al., No. 18-10500, 2020 WL 3467393, United States Court of Appeals, Eleventh Circuit, June 25, 2020.   A copy of the Eleventh Circuit’s decision can be read here.

The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with False Claims Act investigations and litigation.  If you need assistance with such a matter, please contact us today.