Yesterday, in U.S. v. Rogan, 2008 U.S. App. Lexis 3508 (7th Cir. Feb. 20, 2008), Chief Judge Easterbrook of the Seventh Circuit wrote a unanimous opinion addressing materiality and three damage issues that FCA defendants have been pushing all over the country. Coming from a paragon of the University of Chicago with its world renowned economic analysis of the law, the materiality and damage analysis is very persuasive and poignant.
The case involves an FCA action by the U.S. against the manager (and financial beneficiary) of a company involved in illegal kickbacks for referring Medicare and Medicaid patients. Rogan wanted to expand the materiality aspect of the FCA to require live testimony from a government employee “that the government was sure to enforce the statute.” The Court rejected the expansion because it undermined the point of the statute, which was to protect against gullible, careless, overworked, harried, or inattentive government employees.
The Court in error next suggested that reliance is an element of an FCA case, but made it indistinguishable from the materiality requirement.
Defendants are wont to argue that while they do not qualify for payment, because services were rendered for which payment would have been made under other circumstances, the government is not damaged in the value of the services. This issue should have been foreclosed by Peterson v. Weinberger, 508 F.2d 45, 52-53 (5th Cir.), cert. denied, 423 U.S. 830 (1975), but FCA defendants continue to argue some variation of this. The unanimous panel completely rejected this argument as Medicare and Medicaid are not payments for services, but rather subsidies for patients. Moreover, when the conditions of payment are not satisfied, the entire amount of money received must be paid back.
The Court also allowed for statistical analysis–rejecting the argument that every element be proven for every claim. The Court properly saw this as a “formula for paralysis.”
Finally, the Court passes on the issue of excessive fines, but provides some indication of where it will go on the Amerigroup appeal. The opinion starts properly with the suggestion that the excessive fines clause might well not apply to civil actions under the FCA. The opinion also properly focuses on the conduct that is penalized. The third promising part of the analysis is that it indicates that there is a deference to Congress’s assessed penalties (as opposed to ad hoc jury assessments). Indeed, the Court proposes, in the frame of economic analysis, that because this type of fraud is so hard to detect, the penalty might very well be too low. However, the Court does seem to get confused by mentioning the Supreme Court’s analysis of proportionality of punitive damages under the Fifth Amendment, since the excessive fines comparative is to the category of bad acts assessed by Congress and not to the individual damages proven at trial (as in a punitive damages case).