David Stone, Presentation at 4th Annual Taxpayers Against Fraud Conference, Assessing and Proving Damages for Settlement and Trial in a Healthcare False Claims Act Case.

October 14th, 2004

At the TAF Education Fund two-day conference in October, 2004, David Stone was the principal speaker in a session entitled “Assessing and Proving Damages for Settlement and Trial in a Healthcare False Claims Act Case,” part of a series of talks and discussions centered on false claims/qui tam case practice.

Outline of Presentation
  1. Differences between Healthcare and Defense Contractor False Claims Act Claims – The Specific Benefits and Pitfalls of a Healthcare False Claims Act case.

    1. 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.

    2. Healthcare fraud is prevalent and costly to the United States.
  2. Proving Damages in a Healthcare False Claims Act Case – Proving Multiple Instances Over Many Years.

    1. 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).

    2. 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).

    3. 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).

    4. 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”).

    5. 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.).

    6. 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.”).

  3. Excessive Fines Implications in a Healthcare False Claims Act Case.

    1. 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.

    2. 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 damagesU.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.”).

    3. 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.”)

  4. Calculating Damages in a Healthcare False Claims Act Case.

    1. 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.”).

    2. 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.”).

    3. 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.