On Wednesday, November 20, a three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit heard oral argument in the closely watched False Claims Act (FCA) case of United States ex rel. Ruckh v. Salus Rehabilitation, Inc.  The case involves questions regarding how to interpret and apply the FCA’s materiality standard set forth in the Supreme Court’s decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).

Factual and procedural history of the Ruckh case

The relator in the case, Angela Ruckh, filed an FCA case in the Middle District of Florida, alleging that a nursing home operator and its affiliates had submitted false claims to Medicare by (1) upcoding, which was defined as submitting a claim with a higher level of therapy coding than that which was actually provided to patients; and (2) ramping, which referred to a practice whereby the defendants would allegedly provide more therapy to patients during government assessment periods, which resulted in increased billing and violated agency guidance that ramping was an abusive practice.  With respect to the Medicaid claims, the relator had argued that the defendants had submitted false claims to the Florida Medicaid program by not creating or maintaining comprehensive care plans for patients, which was an express condition of payment in Florida’s Medicaid regulations.  After a month-long trial, a jury found that the defendants were liable under the FCA, and the district court entered a $347 million judgment of damages and penalties.

Months later, and in response to the defendants’ motion for judgment notwithstanding the verdict, the district court set aside the entire $347 million judgment.  In making this decision, the district court held that the relator had not proven that any of the alleged false claims submitted to Medicare or Medicaid were material based on the “rigorous” and “demanding” materiality standard espoused in the Supreme Court’s Escobar decision.  The district court further explained that the relator did not present any evidence that the government had refused or threatened to refuse to pay the defendants’ claims despite the lawsuit.  In addition, the district court held that the relator had not proven that the defendants knew that any alleged false claims submitted to the government were material.  The relator appealed.

Arguments raised during oral argument

During the oral argument, the Eleventh Circuit primarily focused on whether and how the FCA’s materiality standard should be applied to both factually false and legally false claims.  Specifically, the panel distinguished between the evidence present (and not present) in the record as to materiality for the Medicare claims and the Medicaid claims.

When specifically considering the evidence presented regarding materiality for the upcoding issue, the court questioned how one could even argue that coding for therapy not provided could be anything but material to the government’s reimbursement decision.  In supporting the relator’s appeal as an amicus curiae, the Department of Justice argued that the question of materiality in these types of factually false claims should be measured based on whether the false information was “important” to the transaction in question at the time the claim was submitted.  The DOJ argued that submitting a claim with a higher level of therapy coded than that actually provided was obviously “important” to the government and thus material to the government’s payment decision.  The panel seemed more likely than not to agree with this argument, going so far as to question whether Escobar even applies to these types of factually false claims given that the Supreme Court’s discussion of materiality in the Escobar opinion came after its holding that implied false certification is a viable theory of FCA liability.  Although other circuits have applied Escobar’s stringent materiality standard to other theories of FCA liability, how the Eleventh Circuit rules on this question could create complications for FCA defendants, who often face a combination of implied certification claims, express certification claims, and factually false claims in their FCA cases.

The panel seemed more skeptical, however, as to whether it was reasonable for a jury to conclude that the alleged false claims regarding ramping or the failure to maintain comprehensive care plans were material to the government’s decision to pay.  Specifically, the court repeatedly questioned both the relator’s counsel and the DOJ as to whether there was any evidence that the Florida Medicaid agency had ever initiated any enforcement or recoupment proceedings against a nursing home operator for failing to create or maintain a comprehensive care plan.  Despite the fact that the relator’s expert had opined that the Florida Medicaid agency would automatically deny a claim for payment if it was aware that a comprehensive care plan did not exist for a Medicaid beneficiary, one member of the panel noted that he could not see how the care plans were material to the fraud itself.

Importantly, the Eleventh Circuit panel discussed and considered additional arguments that could dispose of the appeal on procedural grounds without even addressing the district court’s interpretation of Escobar’s materiality standard.

  • First, the defendants had filed a motion to dismiss the relator’s appeal, arguing that the relator did not have standing because she had assigned 4 percent of any recovery obtained from the case to a third-party litigation funder. Although the FCA allows the government to assign its interest in the case to a relator, because the FCA does not expressly allow a relator to reassign the government’s interest, the defendants argued that the relator no longer had standing to bring the action by reassigning her interest.  This argument did not gain significant traction with the Eleventh Circuit panel, and it is unlikely that the panel will dispose of the case pursuant to this procedural argument.
  • Second, the relator had argued that the district court improperly considered the defendants’ arguments challenging the jury’s finding of materiality and knowledge as to the Medicare false claims because those issues had not been properly preserved for appeal pursuant to the Federal Rules of Civil Procedure. Although the relator’s counsel presented this argument to the panel, the panel did not challenge the defendants on the issue during the oral argument.

Interestingly, the panel also questioned the parties on the damages methodology used by the relator to calculate and extrapolate damages despite the fact that the district court did not rest its ruling on any damages calculation issue and the parties had not briefed the issue.  Although it is unlikely that the court will consider this issue directly in ruling on the appeal, the question of whether statistical sampling and extrapolation are an appropriate way to measure damages in FCA cases remains an important issue for FCA defendants.

Prediction as to what the court will decide

Based on the panel’s questions during oral argument, we believe that it is unlikely that the court will resolve the case based on procedural grounds.  As to the merits, it is more likely than not that the Eleventh Circuit will find that the relator’s allegations regarding the submission of false claims for upcoding the amount of therapy actually provided are either not subject to the heightened materiality standard set forth in Escobar or that the jury reasonably found that those false claims were material.  On the other hand, the panel challenged the relator and the DOJ as to whether sufficient evidence was presented as to materiality for the Medicare ramping claims and the Medicaid claims.

Even if the Eleventh Circuit finds that the district court erred in setting aside the jury’s $347 million verdict based on only one of the three theories of falsity, it is possible that the court could remand the case back to the district court for a new trial if the Eleventh Circuit finds that the original jury’s verdict cannot be parsed on a theory-by-theory basis as it relates to falsity.

Although it is unknown when the Eleventh Circuit will issue its opinion regarding the Ruckh case, it is likely that it could be many months until we see a ruling.  We will continue to keep an eye on this case and provide an update once the court issues its opinion.