Supreme Court Leaves Fifth Circuit False Claims Act Ruling Intact

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.