United States: Supreme Court Leaves Fifth Circuit False Claims Act Ruling Intact

In Short

The Background: In early December, the Supreme Court denied a whistleblower's request to review the Fifth Circuit's affirmance of the district court's dismissal of a False Claims Act ("FCA") case. This denial left the dismissal of a $61.8 million FCA suit untouched and solidified the Fifth Circuit's ruling, which underscores limitations for relators relying on statistical data alone for their FCA claims.

The Situation: In United States ex rel. Integra Med Analytics LLC v. Baylor Scott & White Health, No. 19-50818, 816 F. App'x 892 (5th Cir. May 28, 2020), the Fifth Circuit affirmed the dismissal of a set of FCA allegations against Baylor Scott & White Health ("BSW") concerning fraudulent upcoding of Medicare claims. Like other cases brought by Integra Med Analytics ("Integra"), a serial relator responsible for multiple FCA cases across the country, the claims against the provider were largely based on statistical data derived from publicly accessible Medicare inpatient claims data. Plaintiff requested Supreme Court review of the Fifth Circuit's decision in late October of 2020.

The Result: The petition for certiorari was denied, cementing the Fifth Circuit ruling that the heightened pleading standard for fraud is not met where the allegations are largely based on statistical data that are "consistent with both the claimed misconduct and a legal and 'obvious alternative explanation.'"

Looking Ahead: This particular  outcome is a blow to professional whistleblowers who seek to bring cases predicated largely on purported statistical anomalies found in publicly accessible data. Nonetheless, other courts around the country continue to wrestle with the weight to afford statistical evidence and the quantum of additional evidence that may be needed to meet the pleading requirements for FCA matters. In short, defendants (particularly outside of the Fifth Circuit) may still face challenges in fending off similar data-analytics-based FCA cases, particularly where alleged statistical anomalies are paired, even weakly, with particularized allegations of fraud.

Last May, the Fifth Circuit affirmed a complete dismissal with prejudice of a $61.8 million FCA case against BSW. The relator in that case was Integra, a professional, corporate whistleblower specializing in performing data analytics on publicly accessible datasets (such as Medicare data) to identify patterns of purported fraud. Integra alleged, largely on the basis of this statistical data, that BSW schemed to increase the use of diagnosis codes relating to comorbidities in hospital inpatients in order to fraudulently inflate its Medicare revenue. The district court and Fifth Circuit made swift work of finding these allegations inadequate. In October of last year, Integra appealed the Fifth Circuit's ruling to the Supreme Court, seeking review of pleading standards for FCA claims as applied to statistical data. The Supreme Court denied certiorari in early December.

Integra's case against BSW is an example of a now too-familiar pattern in FCA cases: corporate relators specializing in data analytics file FCA complaints alleging that "statistical evidence" (typically derived from publicly accessible Medicare claims data) shows the existence of fraudulent conduct. Those bare allegations may or may not be buttressed with claims by individuals (sometimes identified by the corporate whistleblower through platforms like LinkedIn) purporting to have witnessed aspects of a fraud. The Integra  case against BSW followed this playbook to the letter: in its second amended complaint, Integra claimed to have applied "unique algorithms and statistical processes" to publicly accessible Department of Health and Human Services, Centers for Medicare & Medicaid Services ("CMS") data, allegedly finding a "significantly" higher rate of major complication or comorbidity ("MCC") coding in inpatient claims data compared to the national average for other hospitals for a six-year period. A BSW medical coder's statements were also utilized to allege organizational pressures to upcode.

Many courts have seen through these types of allegations and have dismissed the actions. The United States Department of Justice ("DOJ") has also entered the fray against professional relators—pursuant to the so-called Granston  memo, DOJ successfully filed a dozen dismissals in 2018 and 2019 against a series of cookie-cutter cases generated by a single, corporate whistleblower. In the Integra  case, the Fifth Circuit panel affirmed dismissal, ruling that the relator's statistical data was "consistent with both the claimed misconduct and a legal and 'obvious alternative explanation'"—and thus not an adequate allegation of fraud. Specifically, the Court found that the relator's statistical analysis was "equally consistent" with BSW being ahead of most health care providers in following CMS guidelines for using MCC codes. Indeed, data in Integra's complaint indicated that the health care industry followed suit a few years later.

In its petition to the Supreme Court, Integra argued that the Fifth Circuit's ruling "signals an impossible pleading standard for FCA relators relying in part on statistical analyses," requiring these firms to consider "and rule out every possible alternative explanation" behind the statistical data sets. The Supreme Court appears to have been unmoved, and its denial of certiorari solidifies the Fifth Circuit's approach to claims predicated on statistical outliers. Though this was a blow to big-data relators, it may not be fatal: multiple FCA cases relying on statistical analysis are still pending before various district courts and at least one circuit court around the country, and the Fifth Circuit's ruling was only unpublished. Indeed, U.S. ex rel. Integra Med Analytics, LLC v. Providence Health and Servs. No. 17-cv-1694 (C.D. Cal.), yet another data analytics case brought by Integra, is currently before the Ninth Circuit. SeeU.S. ex rel. Integra Med Analytics, LLC v. Providence Health and Servs. No. 19-56367 (9th Cir.). We will be monitoring developments in that and other data-analytics matters.

Three Key Takeaways:

1. The Supreme Court's denial of certiorari leaves standing the Fifth Circuit's ruling that statistical outliers that are "consistent with a legal and obvious alternative explanation" are not sufficient to establish fraud under the heightened pleading standard applicable to FCA claims.
2. This is a significant, but not fatal, blow to big-data relators at this point—other FCA cases based on data analytics are continuing to work their way through the courts with varying degrees of success.
3. Unless and until there is uniformity regarding the limited significance of statistical evidence in establishing false claims under the FCA, providers should expect to see more opportunistic FCA cases brought based upon data analytics and for traditional relators (such as employees or former employees) to utilize such data to bolster their claims.