Judge v. Jury: $350 Million Medicare Award at Stake in Atlanta

The invalidation of a Florida jury’s nearly $350 million Medicare fraud verdict wasn’t only frustrating for whistleblower Angela Ruckh and her attorneys. It may have also seriously hurt plaintiffs’ ability to fight alleged fraud in the southeast U.S.

Ruckh Nov. 20 will urge the Eleventh Circuit in Atlanta to reinstate the award, which a district judge tossed after concluding she failed to satisfy U.S. Supreme Court standards for demonstrating materiality in a False Claims Act case. The federal government is supporting her appeal.

The judge misconstrued ample evidence of materiality, Ruckh says. Rejecting her appeal could do great harm to the ability of FCA whistleblowers and the federal government to raise a valid case, whistleblower attorneys say.

The decision by Judge Steven Merryday of the U.S. District Court for the Middle District of Florida “takes the most conservative and defense-oriented” view of Supreme Court standards for raising false claims cases, said Mike Bothwell of Bothwell Law Group P.C. in Roswell, Ga.

Prosecution of FCA cases will become “infinitely harder” if the U.S. Court of Appeals for the Eleventh Circuit affirms, he said.

In 2018, the U.S. recovered $2.8 billion from FCA cases, $2.5 billion of which came from cases involving the healthcare industry.

Ruckh convinced a jury in February 2017 that Medicare wouldn’t have paid Consulate Health Care, a nursing home services provider, if Medicare knew the truth about the Consulate’s practice of “ramping,” which misleads Medicare as to the necessity of services, and “upcoding” for services which led to overbilling.

Merryday tossed the verdict nine months later, ruling that the alleged misconduct wasn’t material to government payment decisions under the Supreme Court’s 2016 ruling in Universal Health Servs., Inc. v. United States ex rel. Escobar.

That is, Ruckh didn’t offer meaningful proof that Medicare’s knowledge of the disputed practices was consequential to payment decisions, Merryday concluded.

Medicare knew about the allegations and continued to pay anyway, he said.

“We don’t want every administrative failure by a contractor to be an FCA case, but when you have facts like these, where folks are receiving unnecessary services, how is that not leading to inflated, unnecessary claims,” said Pamela Coyle Brecht of Pietragallo Gordon Alfano Bosick & Raspanti LLP in Philadelphia.

“Medicare has a pay and chase system. The U.S. doesn’t examine every claim in real time. It is entitled to rely on the truthfulness of a claim submitted by a contractor, and then attempt to recoup fraudulent payments at a later date,” she said.

“It undermines the entire purpose of the FCA to say that payments to a contractor, that turn out to be fraudulent, require dismissal of cases for lack of materiality,” she said.

Consulate says materiality was indeed lacking because Ruckh offered no evidence that Medicare had overlooked any alleged deficiencies in audits before deciding to continue paying.

“If the government thought the alleged violations were material, why would they keep paying the claims? There are a host of cases now where the government ‘knowledge’ defense has been successfully raised,” said Aaron Danzig of Arnall Golden Gregory LLP in Atlanta.

‘Wild, Wild West’

The verdict should be reinstated because Ruckh introduced more than enough evidence to show that higher therapy levels lead to increased payments, and using false therapy codes has a natural tendency to influence payments, her brief says.

The U.S. Justice Department supports Ruckh, stating in a brief that materiality for her claims is “obvious,” and that “it is difficult to see how any reasonable jury could have concluded otherwise.”

Brecht said it’s “currently the wild, wild west with regard to the materiality defense, and I would hope that the Supreme Court would shed more light on this issue.”

“There are many reasons why the government would continue to pay a contractor that don’t have to do with excusing fraud,” Brecht said.

More litigation will result if the Eleventh Circuit affirms, “because whistleblowers will be forced to get more aggressive in discovery,” Brecht said. “They will be forced to say I need to know more about what the government knew about defendants’ practices and when it knew it.”

Defendants naturally will be pleased if Merryday’s ruling is affirmed.

But in the event the Eleventh Circuit sides with Ruckh, the silver lining for defendants could come in the form of another materiality case working its way back to the high court’s door.

Several defendants since Escobar have unsuccessfully petitioned the Supreme Court to adopt a clear “no harm, no foul” rule with regard to continued payments. There can’t be any fraud if the government knows but pays, the petitions have argued.

Merryday’s opinion cited one of those continued payment cases, United States ex rel. Harman v. Trinity Indus. Inc.

The Fifth Circuit ruled in that case that a $663 million jury verdict couldn’t stand because the Federal Highway Administration always paid for and approved of a highway guardrail contractor’s product despite knowledge of alleged wrongdoing.