Healthcare fraud costs Americans as much as $300 billion a year. But uncovering fraud in a healthcare system as sprawling and complex as ours—Medicare alone processes over 1 billion claims annually from over 1 million providers—is like digging for needles in a breathtakingly huge haystack. That’s why the federal government relies heavily on the False Claims Act’s qui tam provisions to encourage ordinary people to blow the whistle on fraud by filing private civil lawsuits.

False Claims Act whistleblowers (called “relators”) must prove that a defendant knowingly submitted a fraudulent claim for payment to the government. This is painstaking, time-consuming work, and in cases against large corporate healthcare providers that submit thousands of claims (or more) every year, finding and proving each and every fraudulent claim is often impractical.

 In a groundbreaking healthcare fraud case, the court recognized this reality when it allowed the relators to use statistical analysis on a manageable subset of representative claims submitted by a chain of skilled nursing facilities. That case, U.S. ex rel Martin v. Life Care Centers of America, recently ended in a record-breaking settlement—paving the way for statistics to grow in importance in holding healthcare providers accountable.

 Exploiting veterans and the elderly

Tennessee-based Life Care Centers of America Inc., a national chain of skilled nursing facilities, was accused of knowingly billing Medicare and TRICARE (the federal health insurance program for veterans) for rehabilitative therapy services that were “medically unreasonable, unnecessary, and unskilled.”

The whistleblowers were two former Life Care employees, registered nurse Glenda Martin and occupational therapist Tammie Taylor. Martin and Taylor alleged that for years, Life Care supervisors ordered therapists to keep patients in rehab for longer than medically necessary in order to max out Medicare’s 100-day skilled nursing benefit. Therapists were also pressured to provide patients with excessive amounts of therapy types that the patients didn’t need or couldn’t benefit from in order to qualify for Medicare’s “ultra high” reimbursement rate meant for the patients requiring the most intensive rehab. Life Care allegedly billed almost 68 percent of its Medicare rehabilitation days at the ultra high rate, or nearly twice the national average.

And Life Care retaliated against employees who complained about the company’s “unnecessary rehab therapy designed primarily to increase Life Care’s revenue rather than meet patient needs.” More than half of employees who gave their names were fired within three weeks of filing their complaints.

Life Care and its owner, billionaire Forrest L. Preston, agreed to pay $145 million to settle the allegations. While the recovery is obviously significant, it is important to see the number in context. Life Care received over $4.2 billion in Medicare payouts during the time period relevant to the case.

The U.S. Department of Justice, which joined forces with the relators, touted the late-October settlement as its largest ever with a skilled nursing chain. The case took eight years to resolve.

A massive case

Life Care had 54,396 patient admissions at 200 skilled nursing facilities nationwide—for a total of 154,621 claims at issue during the relevant time period. Rather than sift through every single claim, the relators and the government sought to use statistical analysis to extrapolate from 400 randomly selected patient admissions at 82 facilities “where Medicare was the primary payer [and] more than 65% of those facilities’ rehabilitation therapy days were at the Ultra-High … level of reimbursement.” The plaintiffs then sought to introduce the findings and the testimony of expert statisticians as evidence that Life Care was liable under the False Claims Act.

Courts have long approved the use of statistical analysis to calculate damages in False Claims Act cases. But whether they could be used to establish a defendant’s liability was a novel question.

A civil plaintiff must prove each element of her claim “by a preponderance of the evidence,” i.e. that her allegations are more likely than not to be true, with particularized evidence. The thrust of Life Care’s arguments was that the relators would be unfairly relieved of that burden if they were allowed to generalize based on a relatively small subset of claims.

The court rejected Life Care’s position and allowed the relators to put on their statistical evidence. It stated that while relators could produce particularized evidence of every violation, doing so “would require the devotion of more time and resources than would be practicable for any single case.” In any event, they would still be introducing specific evidence of violations present in the subset. Noting that statistics have been used in litigation “for decades,” the court also reasoned that allowing the relators to put on statistical evidence was not the same as accepting that evidence. Life Care would still have the opportunity to depose and cross-examine the relators’ experts and to offer its own expert analysis and testimony to support its position.

The importance of statistical analysis in False Claims Act cases

Looking to the bigger picture, the court recognized the implications were Life Care to get its way:

If the Court were to reach the conclusion urged by the Defendant—that a claim-by-claim review is required in every FCA action and that statistical sampling is never permissible—potential perpetrators of fraud would be emboldened by the fact that a claim-by-claim review is often impractical. Armed with the knowledge that [plaintiffs and] the government could not possibly pursue each individual false claim, large-scale perpetrators of fraud would reap the benefits of such a system…. The Court is unable to conclude that such a result is consistent with the purpose and history of the FCA.

As the court recognized, allowing plaintiffs to use statistics will be critical to holding healthcare providers accountable as the scale of the healthcare system—and its potential for fraud—continues to grow.

“The Life Care case is an important victory in the ongoing efforts to prevent large scale fraud,” said Jeffrey F. Keller, partner at Keller Grover LLP. “Potential whistleblowers should view cases like this as an encouraging sign that a complicated fraud can still be presented to a court in a manageable way. It will have important implications in other cases going forward.”