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| David S. Stone
- Taxpayers Against Fraud Seminar October 15, 2004 Assessing
and Proving Damages
for Settlement and Trial in a Healthcare False Claims Act Case |
Outline of Presentation
| I. |
Differences
between Healthcare and Defense Contractor False Claims
Act
Claims – The Specific Benefits and Pitfalls of
a Healthcare False Claims Act case.
| A. |
Healthcare
False Claims Act cases have multiple claims over
many years and there is a limit to the damages
per claim.
1. Implications for
settlement – because the damages are smaller
in the healthcare False Claims Act cases the Government
may express a lack of interest in prosecuting the case.
This issue is significant because the Government does
not factor penalties into any settlement formula.
2. Implications for
trial – Defendants will argue that the amount
of damages is de minimus for each healthcare claim.
It becomes a burden to prove each individual claim
at trial implicating a cost- benefit analysis of the
case and may decrease the Government’s incentive
to intervene and prosecute the matter. |
B. |
Healthcare fraud is prevalent
and costly to the United States. |
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| II. |
Proving Damages in a Healthcare False
Claims Act Case - Proving Multiple Instances Over Many
Years.
| A. |
The conventional calculation
of compensatory damages in a False Claims Act
case usually involves the calculation of the
amount the Government overpaid for the service
or product in question. It is the amount paid
out, by reason of the false statements over and
above what the Government would have paid out
if the claims were truthful.
U.S. ex rel. Marcus v. Hess, 317 U.S. 537, 552 (1943) (holding that the measure
of damages is the difference between what the Government actually paid and the
amount it would have paid had it known the truth about the defendant’s
false or fraudulent claim). |
B. |
Average Wholesale Price (“AWP”) – definition
is vague. Courts have not really addressed it
in the False Claims Act setting, but have attempted
to come to terms with AWP in a variety of other
matters.
In re Pharm Indus. Average Wholesale Litig., 321 F.Supp.2d 187, 207 (D.Mass.
2004) (discussing average wholesale price determinations in calculating damages). |
C. |
Difficulties arise because
the duration and frequency of conduct make
it difficult to secure witnesses and documents
creating a void in a healthcare false claims
case.
1. “Upcoding” - a common
form of healthcare fraud in which Medicare or
Medicaid is billed for medical services or equipment
designated under a code that is more expensive
than what a patient received.
U.S. ex rel. Bledsoe v. Comm. Health Sys., Inc., 342 F.3d 634, 638 n.3 (6th
Cir. 2003) (healthcare false claims action alleging that defendants unbundled
services and improperly billed Government).
2. “Unbundling” - where a healthcare provider initially issues
a service in one package and breaks the service down into its subparts and
find codes for the components that exceeds the amount for the initial bundled
service.
U.S. ex rel. Bledsoe v. Comm. Health Sys., Inc., 342 F.3d 634, 638 n.4 (6th
Cir. 2003). |
D. |
Fed. R. Evid. 406 Using Habit or Routine to Prove
Damages in a Healthcare False Claims Act case.
Meyer v. U.S., 638 F.2d 155, 158 (10th Cir. 1980) (medical malpractice action
where patient sued dentist for failure to warn of attendant complications from
tooth extraction. The court allowed dentist’s testimony that while he could
not recall the specific procedure at issue it was his “habit, custom and
routine to advise patients of potential risks of . . . extraction”).
1. Courts are in disagreement as to the number of instances that must be established
before recognizing a certain practice rises to the level of habit or routine.
Reyes v. Missouri Pac. R.R. Co., 589 F.2d 791, 795 (5th Cir. 1979) (recognizing
defendant’s four prior convictions for public intoxication, over a three
and one-half year period were insufficient to be considered habit); Thompson
v. Boggs, 33 F.3d 847, 854 (7th Cir. 1994) (sustaining trial court’s rejection
that police officer used excessive force on arrestees as a matter of habit where
affidavits failed to set out requisite number of instances);
W.H. Breshears, Inc. v. Federated Mut. Ins. Co., 38 F.3d 1219, 1219 (9th Cir.
1994) (three similar instances where agents misrepresented level of coverage
inadequate to assert that this was the company’s routine practice);
State v. Mary, 368 N.W.2d 166, 169 (Iowa 1985) (reversing trial court and remanding
for failing to allow evidence regarding the habit of medical facility personnel
in obtaining blood samples where 10-12 instances of conduct at issue were offered
to support assertions);
U.S. v. Collins, 1994 WL 678504, at * 2 (7th Cir. Dec. 5, 1994) (affirming conviction
for, among other things, possession of a firearm where witness testified that
although she could not recall defendant carrying a gun all the time, it was defendant’s
habit to always carry a gun).
2. Significance of routine practice in a business organization.
Mobil Exploration & Prod. U.S. Inc. v. Cajun Constr. Servs., Inc., 45 F.3d
96, 99 (5th Cir. 1995) (plaintiff attempted to introduce evidence that defendant
routinely issued short truckloads of limestone to plaintiff. While plaintiff
had no direct evidence that this practice occurred on every shipment received,
plaintiff asserted that it was defendant’s practice or routine to short
the shipments. The court concluded “if the district court determines on
remand that [plaintiff] has proven that [defendant] had a routine practice of
short-loading its trucks at both third-party suppliers and its own yards by a
preponderance of the evidence, the district court can infer, without any additional
evidence, that [defendant] loaded its deliveries to [plaintiff] according to
that routine practice. If the district court determines further that the routine
practice resulted in short loads, the district court can infer additionally the
extent to which the loads delivered to [plaintiff] by [defendant] were short”). |
E. |
The
Anti-trust damages rule where the defendant’s
conduct makes it difficult to ascertain or prove
damages.
Bigelo v. RKO Radio Pictures, Inc., 327 U.S. 251, 265 (1946) (comparison of business
receipts before and after defendants’ unlawful action afforded sufficient
basis for jury’s computation of damages where defendants’ actions
prevented a more precise measure as the elementary concepts of “justice
and public policy require that the wrongdoer shall bear the risk of uncertainty
which his own wrong has created.). |
F. |
Equity Arguments when a defendant
destroys the evidence necessary to prove damages.
Welsh v. U.S., 844 F.2d 1239, 1246-47 (6th Cir. 1988) (affirming award against
veteran’s administration hospital where patient died following brain surgery
where, among other things, the hospital failed to maintain or lost required records
of patient care. The court recognized that when the “customary approach
would result in placing the burden upon a party who is not in a better position
to produce the required proof, the courts have not hesitated to allocate the
burden to the opposing party.”). |
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| III. |
Excessive Fines Implications
in a Healthcare False Claims Act Case.
| A. |
The Court or the
defendant(s) may determine that the False Claims
Act penalties outweigh actual damages making it difficult
to properly value the case in terms of settlement
and trial. |
B. |
False Claims Act penalties are punitive.
Vermont Agency of Natural Res. v. U.S. ex rel. Stevens,
529 U.S. 765, 786 (2000) (“the very idea of
treble damages reveals an intent to punish…”);
1. Limitations on the amount of penalties in a False Claims Act case. Courts
have applied an excessive fines analysis to the penalty provisions of the False
Claims Act and are unlikely to uphold a judgment of penalties which is more than
10 times the amount of the compensatory damages
U.S. v. Cabrera-Diaz, 106 F.Supp.2d 234, 242 (D.P.R. 2000) (declining to impose
civil penalties under FCA where court deemed penalties to be excessive).
U.S. v. Mackby, 339 F.3d 1013, 1019 (9th Cir. 2003) cert. denied 124 S.Ct. 1657
(2004) (healthcare fraud relating to physical therapy care in which defendant
submitted 1,459 false claims totaling $58,151.64 and court awarded treble damages
of $174,454.92 in addition to $550,000.00 in civil fines. The court determined
that the “size of penalty is not grossly disproportional to [defendants]
level of culpability and the harm caused.”). |
C. |
Treble damages
serve a compensatory and remedial purpose in addition
to punitive objectives under the False Claims Act.
Cook county Illinois v. U.S. ex rel. Chandler, 538 U.S. 119, 130 (2003) (in false
claims case against county hospital the Supreme Court recognized that “it
is important to realize that treble damages have a compensatory side, serving
remedial purposes in addition to punitive objectives . . . some liability beyond
the amount of fraud is usually necessary to compensate the Government completely
for the costs, delays, and inconveniences occasioned by fraudulent claims.” “The
treble damages provision was, in a way, adopted by Congress as a substitute for
consequential damages.”) |
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| IV. |
Calculating Damages
in a Healthcare False Claims Act Case.
| A. |
The inherent and unique difficulties
of calculating damages in a healthcare False Claims
Act case.
U.S. v. Krizek, 192 F.3d 1024, 1029 (D.C. Cir. 1999) (where healthcare providers
billed Government for treatment to patients in excess of a twenty-four- hour
day district court instructed to “include private pay patients in its recalculation
of the number of hours the [plaintiffs] billed on each of the five twenty-four
hour days . . . then . . . determine the number of false claims by recalculating
the number of patient sessions after the twenty-four-hour days and eliminating
any overlap.”).
U.S. ex rel. Quinn v. Omnicare, Inc., 2004 WL 1933626 * 11 (3d Cir. Sept. 1,
2004) (healthcare False Claims Act suit filed for alleged fraud for re-selling
and re-dispensing prescriptions already paid for by the Government. Court found
no cause of action because in “absence of any Medicaid or other regulation
requiring provider pharmacies to credit at a specific rate, we cannot impose
[False Claims Act] liability.”). |
B. |
The value of goods or services
to calculate healthcare damages.
Minn. Assoc. of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032,
1053 (8th Cir.) cert. denied 537 U.S. 944 (2002) (healthcare false claims case
where anesthesiologists charged Government, for among other things, services
they did not provide, but were provided by nurse anesthetists. The defendants
claimed that the Government sustained no damages because the Government paid
for the anesthetist’s time, which was charged at the same rate. The Court
disagreed, concluding that the Government sustained damages in the amount that
the anesthesiologists charged because they billed at a higher rate than the anesthetists
and were in essence double-billing the Government for both the anesthetists and
anesthesiologist’s time).
Mikes v. Straus, 274 F.3d 687, 703 (2d Cir. 2001) (“a worthless services
claim asserts that the knowing request of federal reimbursement for a procedure
with no medical value violates the Act irrespective of any certification.”). |
C. |
Alternative theories for calculating
damages. Some defense counsel suggest that the
Government actually saves money when inadequate
care is provided to nursing home residents when
death results, thus saving the Government the attendant
costs of further care. |
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