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United States ex rel. Michaels v. Agape Senior Community, Inc.

United States District Court, D. South Carolina, Rock Hill Division

June 25, 2015

United States of America ex rel., Brianna Michaels and Amy Whitesides, Plaintiff-Relators,
Agape Senior Community, Inc.; Agape Senior Primary Care, Inc.; Agape Senior Services, Inc.; Agape Senior, LLC; Agape Management Services, Inc.; Agape Community Hospice, Inc.; Agape Nursing and Rehabilitation Center, Inc. d/b/a Agape Rehabilitation of Rock Hill a/k/a Agape Senior Post Acute Care Center — Rock Hill a/k/a Ebenezer Senior Services, LLC; Agape Senior Foundation, Inc.; Agape Community Hospice of Anderson, Inc.; Agape Hospice of the Piedmont, Inc.; Agape Community Hospice of the Grand Strand, Inc.; Agape Community Hospice of the Pee Dee, Inc.; Agape Community Hospice of the Upstate, Inc.; Agape Hospice House of Horry County, Inc.; Agape Hospice House of Laurens, LLC; Agape Hospice House of the Low Country, Inc.; Agape Hospice House of the Piedmont, Inc.; Agape Rehabilitation of Conway, Inc.; Agape Senior Services Foundation, Inc.; Agape Therapy, Inc.; Agape Hospice; Hospice Piedmont; Hospice Rock Hill; and Carolinas Community Hospice, Inc., Defendants.


JOSEPH F. ANDERSON, Jr., District Judge.

On December 7, 2012, this qui tam action was initiated by Brianna Michaels and Amy Whitesides (the "Plaintiff-Relators") on behalf of themselves and the United States of America (the "Government") claiming damages and other relief under the civil False Claims Act, 31 U.S.C. § 3729, et seq., the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b, et seq., and the Health Care Fraud Statute, 18 U.S.C. § 1347. The Government declined to intervene as a plaintiff in this action on March 5, 2013.

The Plaintiff-Relators were formerly employed at one or more of the institutions operated by the Defendants. The Defendants (collectively referred to herein as "AGAPE") consist of a network of twenty-four nursing homes located throughout South Carolina, each containing some form of "AGAPE" in their names. The Plaintiff-Relators allege that AGAPE orchestrated a widespread fraudulent scheme of submitting false claims to the federal healthcare programs of Medicare, Medicaid, and Tricare, seeking reimbursement for nursing home-related services.

At the risk of oversimplification, it can be stated that the claims asserted in this action center primarily on two types of reimbursements sought by AGAPE from the federal healthcare programs: payments related to hospice care, and payments related to what are known as "general inpatient services." As with virtually ever aspect of this case, the Plaintiff-Relators and AGAPE disagree on the total number of patients involved and the total number of claims submitted by those patients. Regardless of who is correct on this issue, the total number of claims involved in the trial will be staggering. AGAPE contends that there were 19, 820 patients admitted to AGAPE's facilities during the applicable time period for whom approximately 53, 280 claims were submitted. Plaintiff-Relators contend that the patient population is only 10, 166 patients, who filed a total of 61, 643 claims. In any event, Plaintiff-Relators' counsel represents to the Court that they have retained two experts, each of whom receives $400 per hour for file review. These experts estimate they spend between four and nine hours reviewing each patient's chart. Thus, the review of a single patient's services would cost between $1, 600 and $3, 600 dollars. Using the conservative figure submitted by Plaintiff-Relators (10, 166 patients), this means that the total outlay for expert file review (not including depositions, trial testimony, and the like) is between $16.2 million and $36.5 million.[1]

During discovery, it became necessary for the Court to rule on a pivotal issue regarding damages in the case. The issue involved the question of whether Plaintiff-Relators would be able to prove damages by using a statistical sampling method. This particular method would involve the careful examination of a specified percentage of randomly selected claims. If it could be proven that a certain percentage of those claims were in fact fraudulent, then Plaintiff-Relators would project that percentage on the total universe of claims submitted by AGAPE to the Government. This issue arose during discovery when the parties became engaged in a controversy regarding the designation of expert witnesses and the methodology to be used by those witnesses. It appeared to both the Court and the parties that a ruling on this critical threshold issue would significantly impact the parties' preparation for trial. Therefore, the Court received briefing on the issue, heard argument thereon, and concluded that it would not allow the Plaintiff-Relators to use statistical sampling in determining damages.

Shortly thereafter, the Court suggested that the parties consider conducting a "bellwether" trial as to 100 of the allegedly false claims. In a bellwether trial, a sample of cases large enough to yield reliable results is tried to a jury, after which the remainder of the case is tried to a separate jury. The outcome of the bellwether trial can often be beneficial for litigants who desire to settle such claims by providing information on the value of the remainder of the case as reflected by the jury verdict in the bellwether trial.

Use of a bellwether trial is particularly appropriate in this case because unlike large class actions, which most often involve a significant degree of overlap regarding common factual issues, each and every claim at issue in this case is fact-dependent and wholly unrelated to each and every other claim. For this reason, the representative sample of the claims associated with a smaller number of patients may easily be selected for a separate trial because those claims, and the claims asserted in the remainder of the case, are independent of each other.

Both parties agreed to this approach, and claims relating to 95 AGAPE patients were identified for the bellwether trial. Plaintiff-Relators later voluntarily reduced this number to 38 patients. The bellwether jury trial was scheduled to begin May 5, 2015.

On November 25, 2014, the parties and the Government engaged in mediation efforts. In early January 2015, shortly before all expert reports were due, the parties again engaged in mediation, this time before United States Magistrate Judge Mary Gordon Baker. In the first mediation session, both the Government and the Plaintiff-Relators were allowed to participate. In the second mediation, the Government was not invited and did not participate.

In mid-January, the parties informed the Court that a settlement had been reached as to the entire case, with AGAPE paying the sum of $2.5 million in full settlement of all claims. The Court thereupon stayed all deadlines and cancelled the scheduled trial.

The Government promptly signaled its intention to object to the settlement, relying upon a statute, 31 U.S.C. § 3730(b)(1), which on its face gives the United States Attorney General the right to prevent a settlement even in a case where the Government has declined to intervene.

After the Government objected, the Court conducted several status conferences in an effort to see if there could be some type of amicable resolution to the matter. When these conferences proved unsuccessful, AGAPE moved to enforce the settlement. The Court heard extensive oral argument on AGAPE's motion (ECF No. 263) on June 16, 2015. The motion squarely presented the question of whether the Attorney General has an absolute, unreviewable veto over the settlement of False Claims Act cases for which the Government has declined to intervene.

During the aforementioned status conferences and during the debate on the motion to enforce the settlement, it became clear that the basis for the objection by the Government was its belief that the total potential damages to the Government in this case would be around $25 million. The Government posits that the proposed settlement-representing 10 percent of what the Government believes is the potential recovery at trial-is insufficient. The Government arrived at its potential recovery figure by using an "error rate" in the "20-60% range" derived from an expert review of what the Government refers to as "cherry picked" claims. While the Government's methodology for evaluating this case is not altogether clear to this Court, suffice it to say that the Government has used some form of statistical sampling extrapolated to the universe of potential claims in its damages calculation.

The Court is thus faced with a unique dilemma: The Government, claiming an unreviewable veto right over the tentative settlement in this case, objects to a settlement in a case to which it is not a party, using as a basis of its objection some form of statistical sampling that this Court has rejected for use at the trial of the case. It thus appears that these two issues-the question of veto authority of the Government, coupled with this Court's rejection of the statistical sampling model-should ...

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