Eleventh Circuit Finds Standing in False Claims Act Case Where Relator Received Litigation Funding and Reinstates Part of Jury Verdict for Relator

December 16, 2020

By: Stephen B. Stern

    In Ruckh v. Salus Rehab., LLC, 963 F.3d 1089 (11th Cir. 2020), the United States Court of Appeals for the Eleventh Circuit held that a relator who had assigned part of her claim to a litigation funding firm had standing to pursue her qui tam action under the False Claims Act (“FCA”), while also making a number of other rulings regarding a jury verdict.  

    In Ruckh, Angela Ruckh was a registered nurse who filed a qui tam action under the FCA as well as the Florida False Claims Act (“FFCA”) against two skilled nursing home facilities, two related entities that provided management services to the nursing home facilities and 51 other facilities, and another affiliated company, claiming that the defendants committed Medicare and Medicaid fraud.  A jury found the defendants were liable for 420 fraudulent Medicare claims and 26 fraudulent Medicaid claims, and awarded $115,137,095 in damages.  The district court, however, granted the defendants’ motion for judgment as a matter of law or, in the alternative, for a new trial, and set aside the jury’s verdict by finding that the verdict was not supported by the evidence.  

    On appeal, the Eleventh Circuit first addressed the issue of standing.  The defendants contended that the relator (Ruckh) forfeited standing to pursue the appeal because she no longer belonged to the class of qui tam plaintiffs upon assigning part of her interest to a litigation funding firm.  The Eleventh Circuit rejected this argument, finding that the relator had assigned only a small interest (i.e., 4%) of her share of the potential recovery to a litigation funding firm in exchange for immediate liquidity.  Furthermore, the court noted that, pursuant to the assignment agreement, the relator retained sole authority over the litigation and the litigation funding firm had no power to control or influence it.  Although the Eleventh Circuit acknowledged that the FCA does not expressly authorize relators to assign their right to represent the interests of the United States in a qui tam action, the statute also does not prevent such assignments.  The Eleventh Circuit ultimately concluded that the relator retained sufficient interest in the outcome of the lawsuit to meet the “irreducible constitutional minimum” of standing to satisfy Article III of the Constitution.  

    As for the merits of the claim, the Eleventh Circuit noted that the essence of a qui tam action under the FCA is the submission of a false claim to the government, not whether an entity disregarded regulations or implemented improper internal policies, unless such practices result in knowingly asking the government to pay an amount it does not owe.  The court then noted that it had previously adopted the “false certification theory of liability,” which allows a defendant to be found liable under the FCA for falsely certifying its compliance with applicable laws and regulations.  To prevail on such a claim, a relator must prove (1) a false statement or fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the government to pay money or forfeit money due.  Under the “implied false certification theory,” when submitting a claim that omits a violation of statutory, regulatory, or contractual requirements, those omissions can form the basis of liability under the FCA “if they render the defendant’s representations misleading with respect to the goods or services provided.”  To establish a claim under the implied certification theory, “the claim [must] not merely request payment, but also makes specific representations about the goods or services provided" and “the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

    Upon reviewing the evidence presented at trial, the Eleventh Circuit concluded that a reasonable jury could find that the defendants committed Medicare fraud.  One of the alleged forms of fraud was upcoding, which involves submitting bills to Medicare with elevated RUG codes.  The court found that the defendants had elevated their RUG codes two different ways.  First, there was sufficient evidence that the defendants had exaggerated the second letter of the code, which represented to Medicare that they provided more minutes of therapy than was reflected in the residents’ medical records.  Second, there was sufficient evidence that the defendants elevated the third letter of the code, which indicated that they provided more extensive nursing services than reflected in the residents’ medical records.  The evidence of upcoding was presented in part with expert testimony from a registered nurse who audited 300 Medicare claims.  In 56 of the 300 claims audited, the expert found the number of therapy minutes that defendants reported to the government for billing purposes was higher than those reflected in contemporaneous medical records.  Second, the expert found in 45 of 300 claims audited that nursing services reported by the defendants to the government were higher than those reflected in contemporaneous medical records.  Third, the expert found in 50 of the 300 claims audited that the defendants billed for certain complex nursing services that were not reflected in contemporaneous medical records.  The Eleventh Circuit disagreed with the district court’s reliance on the defendants’ explanation for the errors and its conclusion that these misrepresentations amounted to “a handful of paperwork defects,” finding instead that these misrepresentations were in fact material while also noting that the jury could reasonably find that the defendants’ explanation was implausible.

    Another form of Medicare fraud alleged by the relator was ramping.  Ramping involves the impermissible and artificial timing of services to coincide with Medicare’s regularly scheduled assessment periods, which maxims reimbursements.  Because Medicare uses the level of services provided during the assessment period to set reimbursement levels going forward, a provider could manipulate the process by providing more extensive services than needed during the look-back period.  The Eleventh Circuit found that the relator presented sufficient evidence to allow a reasonable jury to conclude the defendants engaged in ramping.  In support of her claim of ramping, the relator testified that she directly witnessed ramping while working at certain facilities.  In addition, the expert testified that she found 112 instances of ramping in her audit.  As one example, the expert found that one patient received far less than the 720 minutes of therapy that was reported by the defendants.  

    The Eleventh Circuit then addressed whether there was sufficient evidence to conclude that one of the management companies knowingly presented or caused to be presented false or fraudulent claims to Medicare.  The court noted that it had not previously addressed the appropriate standard of causation in “cause to be presented” actions under the FCA and adopted a traditional proximate cause test.  To establish such proximate cause, the conduct must be “(1) a substantial factor in inducing providers to submit claims for reimbursement and (2) if the submission of claims for reimbursement was reasonably foreseeable or anticipated as a natural consequence of defendants’ conduct.”  The court concluded that there was sufficient evidence that the management company had caused false claims to be submitted and, thus, it could be held liable under the FCA.  Among other things, evidence was introduced to show that the defendants' employees were “pressured routinely to elevate RUG scores irrespective of the services provided.”  

    As for the Medicaid fraud claims, the Eleventh Circuit concluded that no reasonable jury could find that the defendants committed Medicaid fraud and, thus, the district court correctly granted the defendants’ motion for judgment as a matter of law with respect to this claim.  To this end, the relator’s claim for Medicaid fraud was premised entirely on the allegation that the defendants failed to prepare and maintain comprehensive care plans for their residents.  The Eleventh Circuit held that, even if this allegation was factually correct, the failure to maintain such comprehensive care plans alone cannot establish Medicare fraud as a matter of law.  The court explained that to prevail on such a theory a relator must prove not only that the defendants failed to satisfy these requirements, but that the failure also was material.  In this case, the materiality requirement was not satisfied because, when the failure to maintain such plans was identified and reported to the State of Florida, there was no evidence that the State of Florida refused reimbursement or sought recoupment after this discovery was reported.  The court explained that “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”  While the court acknowledged that the State’s failure to decline payment alone is not fatal to the claim, the relator presented no other evidence to establish materiality and, thus, the claim failed for that reason.

    Based on the foregoing, the Eleventh Circuit denied the defendants’ motion to dismiss for lack of standing and affirmed in part and reversed in part the district court’s granting of the defendants’ motion for judgment as a matter of law or, alternatively, for a new trial.  Specifically, the motion for judgment was affirmed with respect to the Medicaid fraud claims, but it was reversed with respect to the Medicare fraud claims.  The court remanded to the district court to reinstate the jury’s verdict in favor of the relator with respect to the Medicare fraud claims in the amount of $85,137,095.

    The Eleventh Circuit’s decision in Ruckh is significant in multiple respects.  First, with litigation funding firms becoming more prevalent, it is important to understand that a partial assignment of one’s rights in a qui tam action will not necessarily preclude the relator from bringing the claim.  Notwithstanding the court’s ruling in Ruckh, it is not clear whether there is a certain threshold that can be crossed short of a complete assignment that would preclude a relator from bringing a claim.  In addition, the Eleventh Circuit’s ruling establishes the causation standard for “cause to be presented” claims, and it also provided a clear roadmap on the types of conduct that can result in liability for Medicare fraud claims, while also delineating how materiality can be determined with respect to Medicaid (or Medicare) fraud claims.