The roller coaster ride of U.S. ex rel. Ruckh v. Genoa Healthcare, LLC continues. In a previous post, we wrote about the staggering $348 million judgment entered following a jury verdict against a management company and skilled nursing facilities (SNFs) owned by Consulate Health Care. The jury found the defendants committed False Claims Act (FCA) violations by artificially inflating Resource Utility Group (RUG) levels for Medicare therapy patients and falsely certifying that the SNFs had created timely and adequate patient care plans required by Medicaid. Following the judgment, defendants filed a motion for judgment as a matter of law under Federal Rule of Civil Procedure 50(b), and as we noted here, the district court judge took the extraordinary step of overturning the judgment on materiality grounds.
In the latest turn, the Eleventh Circuit reversed the district court’s decision in part and reinstated most of the jury verdict. While the district court, in applying Escobar’s materiality standard, had found “an entire absence of evidence” of materiality, the Eleventh Circuit reached the opposite conclusion, holding that “plain and obvious” evidence of materiality supported a jury verdict of $85 million in single damages. The appellate court ordered the district court to enter judgment in treble that amount, plus per-claim statutory penalties under the FCA. That comes to over $255 million.
Relator Submitted Evidence upon Which Jury Could Find FCA Violation on Medicare Claims
The Eleventh Circuit concluded the evidence at trial permitted a reasonable jury to find that the defendants committed Medicare-related fraud in the provision of therapy services to their nursing home patients. The court focused on two improper practices alleged by the relator: upcoding and ramping. Regarding upcoding, the court pointed to evidence at trial that the defendants had submitted bills to Medicare with improperly elevated RUG codes by representing to Medicare that they provided a greater number of therapy minutes and more extensive nursing services than reflected in their residents’ medical records. The Eleventh Circuit likewise pointed to evidence supporting a jury conclusion that the defendants engaged in ramping, the practice of manipulating the timing of services to coincide with Medicare’s scheduled assessment periods to maximize reimbursements.
The court concluded that both of these practices were material, as they directly affected the payments Medicare made to the defendants’ SNFs. Because the defendants artificially and impermissibly inflated the level of services they provided when billing Medicare, the government paid the defendants more for their services than it owed.
Relator’s Medicaid Claims Cannot Meet Escobar Standard
In a lone bright spot for the defendants, the Eleventh Circuit upheld the district court’s decision that there was insufficient evidence upon which the jury could have found the defendants liable for Medicaid fraud. That claim was based on allegations that the defendants routinely submitted claims for Medicaid reimbursement without preparing and maintaining comprehensive care plans, as required by law. The appellate court pointed to the absence of any evidence that the state ever declined payment for violations of this kind.
More critically, however, the court explained that an implied certification claim such as this can support a jury verdict under Escobar only where the relevant claim not only requests payment but also “makes specific representations about the goods or services provided.” Because the relator failed to connect the absence of care plans to specific representations regarding the services provided, they could not establish materiality as a matter of law. The court also noted that the relator did not allege, much less prove, any deficiencies in the Medicaid services provided.
Litigation Funding Agreement Did Not Affect Relator’s Standing
One more aspect of the Eleventh Circuit’s decision bears noting. The defendants claimed that the relator lacked standing to pursue her claims after entering into a litigation funding agreement, under which the relator relinquished 4% of her share of the judgment to the funding entity. The appellate court disagreed, noting that the relator assigned only a small portion of her claim and expressly retained complete control over it according to the funding agreement. Under those facts, the Eleventh Circuit concluded the relator maintained a sufficient interest to meet the “irreducible constitutional minimum” of standing under Article III.
Whether the defendants will seek review in the Supreme Court remains to be seen, but given the massive size of the judgment, it seems likely they would make the attempt. The case could give the Supreme Court an opportunity to revisit and clarify Escobar, which has been subject to varying application in the circuit courts. While that split will need to be sorted out eventually, it is unclear whether Ruckh brings that issue to a head in a manner that would pique the Supreme Court’s interest.
What is clear, as we are reminded by Ruckh, is that litigating an FCA claim is a risky proposition. The jury imposed liability, the district court reversed as a matter of law, and the Eleventh Circuit reached a diametrically opposite conclusion. That is quite the roller coaster ride, one that highlights the significant uncertainty FCA litigants face. And, that uncertainly is all the more unsettling given the huge stakes at play.
For more information on this lawsuit and the risks of FCA litigation, contact the author.