# Opposition Brief — Bourseau v. United States (No. 08-558) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_0776%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 2008 ## Text No. 08-558 ite teas In the Supreme Court of the Gnited States ROBERT [. BOURSEAU, ET AL., PETITIONERS Vv. UNITED STATES OF AMERICA ON PETITION FORA WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT BRIEF FOR THE UNITED STATES IN OPPOSITION EDWIN S. KNEEDLER Acting Solicitor General Counsel of Record MICHAEL F. HERTZ Acting Assistant Attorney General DOUGLAS LETTER DANIEL R. ANDERSON ROBERT J. MCAULIFFE Attorneys Department of Justice Washington, D.C. 20530-0001 (202) 514-2217 QUESTIONS PRESENTED 1. Whether petitioners were properly held liable under the “reverse false claims” provision of the False Claims Act, 31 U.S.C. 3729(a)(7), based on their submis- sion of Medicare cost reports in which petitioners over- stated their reimbursable costs and thereby reduced or concealed their obligation to repay the Medicare pro- gram for overpayments. 2. Whether the government sustained damages from petitioners’ submission of Medicare cost reports that re- duced or concealed petitioners’ obligation to make im- mediate repayment of overpayments that petitioners had received from the Medicare program. 3. Whether the court of appeals correctly held that the district court’s award of treble damages did not vio- late the Excessive Fines Clause of the Eighth Amend- ment or the Due Process Clause of the Fifth Amend- ment. TABLE OF CONTENTS Page eee rere eee ee Perr ry eye 1 PN isc Gin-a es gp ieg dea ho Rae BA Re 1 IIE ony ak Wb oa hue 6 ee Ode ee ke eget eee 2 SE ss ovo Mika e ee Tae weed nea ee oeeae 6 cena 7 SIN oa) acerca waite manele baie ewe eta aie apd eee 22 TABLE OF AUTHORITIES Cases: Cook County v. United States ex rel. Chandler, ee ee SNE lac vaca eked eke erence kes 21, 22 Costner v. URS Consultants, Inc., 153 F.3d 667 NL I oo ies oo kas ae aed Clee ne hea one 13 Gray v. Bicknell, 86 F.3d 1472 (8th Cir. 1996) ......... 14 Hays v. Hoffman, 325 F.3d 982 (8th Cir), cert. denied, ee Se ee Eo ow ow os oa ec eee ceeen 14 Neder v. United States, 527 U.S. 1 (1999) ..... 5, 6, 8, 9, 10 Providence Hosp. v. Shalala, 52 F.3d 213 (9th Cir. Pe a ar Ree eee Re a ee ea eae 3 Rabushka ex rel. United States v. Crane Co., 122 F.3d 559 (8th Cir. 1997), cert. denied, 523 U.S. 1040 SO Rots cae wat: Veh ticket ei Goede aan ioe eer aw aaa 13 State Farm Mut. Auto. Ins. Co. v. Campbell, 5388 U.S. MI ogo Sys ns 5s eke Cha eo eee 21 United States v. Bajakajian, 524 U.S. 321 (1998) ...... 20 United States v. Bornstein, 423 U.S. 303 (1976) ........ 22 United States v. Hibbs, 568 F.2d 347 (3d Cir. 1977) ..... 19 United States v. Mackby, 339 F.3d 1013 (9th Cir. 2003), cert. denied, 541 U.S. 936 (2004) ........ 6, 20, 21 (III) Cases—Continued: Page United States v. Miller, 645 F.2d 473 (5th Cir. 1981) .... 19 United States v. Newfert-White Co., 390 U.S. 228 I edn RE ere ta Gell tae ag Dl aor a rk 11 United States v. Rogan, 517 F.3d 449 (7th Cir. 2008) ... 12 United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group, Inc., 400 F.3d 428 (6th Cir.), cert. denied, 546 U.S. 1063 (2005) ... 10,11, 12, 21 United States ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189 (10th Cir. 2006), cert. denied, 128 Se ne em a ee gr aid eg Sag ove oS AD 12 United States ex rel. Cantekin v. University of Pittsburgh, 192 F.3d 402 (3d Cir. 1999), cert. denied, 531 U.S. 880 (2000) ....................4-- 13 United States ex rel. Costner v. United States, 317 F.3d 883 (8th Cir.), cert. denied, 540 U.S. Sy re a recs tats Ba We en hee & 13, 14 United States ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 908 (4th Cir. 2003) ... 13 United States ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196 (D.C. Cir. 1995), cert. denied, ee I oes a ee weu vawewn 16, 19 Winters v. United States ex rel. A+ Homecare, Inc., Se ad I ccc as eo eceuw acu ceeecedew eds 15 Constitution, statutes and regulations: U.S. Const.: Amend. V (Due Process Clause) ..........ccccccces 21 Amend. VIII (Exeessive Fines Clause) ............ 20 False Claims Act, 31 U.S.C. 3729 et seq. ..............- 4 DEED een cub capes s vereannd sce teks 4,5 V Statutes and regulations—Continued: Page ee 7, 8, 9, 10, 19 nc ccc ewe c cc eessees 19 SP os os ss ss --s- ~~~ passim Medicare Act, 42 U.S.C. 1395¢ et seg. ..............226.. 2 el wind ee cee yccescceccess an 42 U.S.C. 1395d (2000 & Supp. V 2005) .............. 2 42 U.S.C. 1395g(e) (2000 & Supp. V 2005) ............ 2 EE 2 20.2.0. 9eeta) Gapp. V 2005) ................. 2 OE 2 42 C.F.R.: Pt. 405: DT i Sew soe mw eew en 3 Pt. 412: EE ee 2 ES 2 EE - - ec cc cece cece: oa eal Ce i ewa tween 2 es enc abweeceewwen 2 ee odin w was ceca ccasawen 3 ek, cee eusecves 4,6, 17 na vec cc ee ee ees ise dvsaea ee Vi Miscellaneous: Page H.R. Rep. No. 660, 99th Cong., 2d Sess. (1980) ......... 11 11 S. Rep. No. 345, 99th Cong., 2d Sess. (1986) ........... United States Department of Health and Human Services, Provider Reimbursement Manual ee aes whine e Weld i 8.4% 3, 4, 15, 16, 17 Jn the Supreme Court of the Gnited States No. 08-558 ROBERT I. BOURSEAU, ET AL., PETITIONERS v. UNITED STATES OF AMERICA ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT BRIEF FOR THE UNITED STATES IN OPPOSITION OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1-33) is reported at 531 F.3d 1159. The opinion of the district court (Pet. App. 34-70) and the district court’s order amending the opinion and judgment (Pet. App. 73-80) are not published in the Federal Supplement but are available at 2006 WL 2961105 and 2006 WL 3949169, respectively. JURISDICTION The judgment of the court of appeals was entered on July 14, 2008. A petition for rehearing was denied on August 19, 2008 (Pet. App. 838-84). The petition for a writ of certiorari was filed on October 23, 2008. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). (1) 2 STATEMENT 1. The Medicare program provides health insurance to persons 65 years of age and over, as well as to individ- uals receiving Social Security disability benefits. See 42 U.S.C. 13895¢e. Under Part A of the program, Medicae Act, 42 U.S.C. 1395c et seqg., Medicare beneficiaries are entitled to have payments made on their behalf to hospi- tals, including psychiatric hospitals, or to other Medicare providers as reimbursement for certain hospi- tal care and related services. 42 U.S.C. 1395d (2000 & Supp. V 2005). Medicare reimburses providers for that portion of their reasonable cost of providing services that is incurred on behalf of Medicare beneficiaries. 42 U.S.C. 1395x(v)(1)(A). Fiscal intermediaries—private entities, generally insurance companies, acting pursuant to agreements with the Centers for Medicare and Medicaid Services—play a principal role in administer- ing payments to Medicare providers. See 42 U.S.C. 1395h; 42 C.F.R. 421.3.’ In order to ensure adequate cash-flow to the provid- ers, intermediaries make large estimated payments (called interim payments) to providers at frequent inter- vals, based on the provider’s estimated treatment costs for Medicare patients, subject to reconciliation at the end of the cost reporting year. 42 U.S.C. 1395g(e) (2000 & Supp. V 2005); 42 C.F.R. 413.60, 413.64." The regula- tory scheme therefore specifically contemplates that ' The fiscal intermediaries are now referred to as “Medicare admini- strative contractors.” 42 U.S.C. 1395h(a) (Supp. V 2008). * During the time period at issue in this case, psychiatric hospitals were reimbursed on a cost basis, see 42 C.F .R. Pt. 413, rather than un- der the prospective payment system, see 42 C.F.R. 412.400 et seq., which was made applicable to psychiatric hospitals in 2005, see 42 C.F.R. 412.20(b). 3 providers will at times be overpaid and at other times underpaid. Each hospital annually submits to the appro- priate intermediary a cost report that provides a final accounting of its actual costs for the year. 42 C.F.R. 413.20. If the provider’s cost report reflects that the Medi- care program has overpaid the provider during the year, “a full refund is to be remitted with the report.” United States Department of Health and Human Services, Pro- vider Reimbursement Manual Pt. I, § 2409.1.A.2 (2005) (PRM). If the cost report indicates that the provider was underpaid, the intermediary is directed to make a tentative retroactive adjustment, after correcting any obvious errors or inconsistencies in the cost report and offsetting any unrecovered overpayment. PRM § 2408.2; 42 C.F.R. 413.64(f)(2). After a more complete audit of the cost report, the intermediary issues a final notice of provider reimbursement (NPR) “reflecting the intermediary’s determination of the total amount of re- imbursement due the provider,” which serves as “the basis for making the retroactive adjustment * * * to any program payments made to the provider during the period.” 42 C.F.R. 405.1803. When an intermediary believes either that a provider is involved in bankruptcy proceedings or that insolvency proceedings will shortly be instituted, the intermediary is directed to take steps to prevent overpayments to the provider. In such circumstances, “any payments to the provider will be adjusted by the intermediary, notwith- * The PRM “is an extensive set of informal interpretative guidelines and policies published [by the agency which administers the Medicare program |to assist intermediaries and providers in applying the reason- able cost reimbursement principles.” Providence Hosp. v. Shatala, 52 F.3d 213, 218 (9th Cir. 1995). 4 standing any other regulation or program instruction regarding the timing or manner of such adjustments, to a level necessary to insure that no overpayment to the provider is made.” 42 C.F.R. 413.64(i). The PRM simi- larly directs intermediaries not to make additional pay- ments to potentially insolvent providers as part of a ten- tative initial adjustment based on the provider’s cost report, but instead to wait until a final NPR is issued. PRM § 2408.2. 2. The United States filed this action against peti- tioners under the False Claims Act (FCA), 31 U.S.C. 3729 et seqg., and for unjust enrichment and common law fraud. The government alleged that petitioners had de- frauded the Medicare program while operating Bayview Hospital and Mental Health Systems (Bayview), a Cali- fornia psychiatric hospital owned and operated by peti- tioners through their partnership California Psychiatric Management Services (CPMS). The government con- tended that petitioners had submitted various cost re- ports seeking reimbursement for costs that either were not actually incurred or were not eligible for Medicare reimbursement. Under the FCA, persons who commit a variety of acts involving false claims against the federal govern- ment are liable to the United States for civil penalties “nlus 3 times the amount of damages which the Gov- ernment sustains because of the act of that person.” 31 U.S.C. 3729(a). Section 3729(a)(7), commonly known as the FCA’s “reverse false claims” provision, imposes liability upon any person who “knowingly makes, uses, or causes to be made or used, a false record or state- ment to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C. 3729(a)(7). The district court held that peti- 5 tioners had violated Section 3729(a)(7) by submitting their 1997, 1998, and 1999 cost reports, which decreased the amount CPMS owed Medicare by $5,219,195. Pet. App. 59-67; id. at 75. In particular, the court found that CPMS had fraudulently included in its cost reports in- terest ostensibly charged to CPMS by one of its credi- tors, which was never paid by CPMS and which was un- related to the treatment of Medicare patients at Bay- view; bankruptcy fees unrelated to care for Medicare patients; a fictitious rent expense; costs associated with space that was not used for patient care; and manage- ment fees paid to a related entity that provided no man- agement services. /d. at 42-52. Pursuant to 31 U.S.C. 3729(a), the district court awarded the United States treble damages in the amount of $15,657,585, as well as $31,000 in civil penalties. Pet. App. 75. 3. The court of appeals affirmed. Pet. App. 1-33. Like the district court, the court of appeals concluded that the government had proved all the elements neces- sary to establish liability under the FCA’s reverse false claims provision—7.¢., that petitioners had (1) knowingly (2) made, used, or caused to be made or used a record or statement that was (3) materially (4) false, (5) with the purpose to conceal, avoid, or decrease an obligation to pay money to the government. /d. at 10-27. The court of appeals rejected petitioners’ argument that the false costs claimed on the cost reports were not material to the implementation of the Medicare pro- gram. Pet. App. 25-27. Applying the standard estab- lished by this Court in Neder v. United States, 527 U.S. 1 (1999), the court of appeals concluded that the false statements contained in CPMS’s cost reports “were ma- terial because they had the potential effect, or natural tendency, to decrease the amount CPMS owed Medicare 6 in overpayments.” Pet. App. 27; see id. at 26 (quoting Neder, 527 U.S. at 16 (“[i]n general, a false statement is material if it has ‘a natural tendency to influence, or [is] capable of influencing, the decision of the decision- making body to which it was addressed.”) (brackets in original). The court of appeals also rejected petitioners’ con- tention that CPMS’s fraudulent cost reports did not damage the United States. Pet. App. 27-31. The court explained that “[dlamages for a reverse false claim con- sist of the difference between what the defendant should have paid the government and what the defendant actu- ally paid the government.” /d. at 30. The court con- cluded that petitioners “had a legal obligation to pay the government money at the time they submitted the cost reports,” id. at 23, and that “the difference between what CPMS should have repaid the government and what it did repay the government [was] $5,219,195,” id. at 30. The court rejected petitioners’ argument that their precarious financial position relieved them of any obligation to repay the overpayment. /d. at 27-28. The court explained that, under the relevant Medicare regu- lation, special care should be taken to prevent over- payments to potentially insolvent providers. /d. at 28 (citing 42 C.F.R. 413.64(i)). The court of appeals rejected petitioners’ argument that the district court’s award of treble damages plus civil penalties violated petitioners’ constitutional rights. Pet. App. 31-33. Examining the four relevant factors identified in United States v. Mackby, 339 F.3d 1018, 1016 (9th Cir. 2003), cert. denied, 541 U.S. 936 (2004), the court concluded that (1) making false claims to the government was a serious offense, (2) the government had sustained harm to its fiscal interests and to the in- 7 tegrity of the Medicare program, and (3) petitioners fell squarely within the class of persons targeted by the FCA. Pet. App. 33. The court found that one Mackby factor—the fact that the district court had imposed the maximum penalty permitted under the FCA—favored petitioners. Jd. at 32. The court of appeals concluded, however, that nothing prohibited the district court from awarding the maximum amount, and that when all four factors were considered in the aggregate, the award was not grossly disproportionate to the gravity of petition- ers’ offenses. /d. at 33. ARGUMENT The court of appeals’ decision is correct and does not conflict with any decision of this Court or of any other court of appeals. Further review is not warranted. 1. Petitioners contend (Pet. 14-18) that the false statements on their cost reports were not “material” to the government’s administration of the Medicare pro- gram, and that the court of appeals’ analysis of material- ity conflicts with decisions of the Eighth Circuit. Con- — trary to petitioners’ contention, the evidence in this case satisfied both the “natural tendency” test adopted by the Third, Fourth, Sixth, Seventh, Ninth, and Tenth Cir- cuits, and the “outcome materiality test” that petitioners contend has been adopted by the Eighth Circuit. a. Although the FCA does not contain a distinct ma- teriality element, the submission of a false statement to a government official does not, in and of itself, violate the statute. The most commonly-invoked provision of the FCA imposes liability upon a person who “knowingly presents * * * [to the federal government] a false or fraudulent claim for payment or approval.” 31 U.S.C. 3729(a)(1). When a defendant’s asserted liability under 8 Section 3729(a)(1) is premised on a false statement made on or in connection with a claim form, the false state- ment will not render the “claim” itself “false or fraudu- lent” unless the statement is potentially relevant to the government’s payment decision. The FCA provision at issue in this case imposes lia- bility on one who “knowingly makes [or] uses * * * a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C. 3729(a)(7). Under Section 3729(a)(7), a false statement that has no potential bear- ing on the government’s collection of funds is not appro- priately characterized as being made or used “to con- ceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” Thus, while the FCA contains no separate materiality element, the per- tinent hability provisions require proof of a logical con- nection, substantively analogous to a requirement of “materiality” as that term has traditionally been under- stood, between a defendant’s false statement and the government’s payment or collecticn of money. b. Petitioners contend (Pet. 11, 15) that, in order to establish that a defendant’s misrepresentation was ma- terial under Section 3729(a)(7), the United States must prove that the defendant’s actions actually deprived the government of money it was lawfully due. That argu- ment lacks merit for at least three reasons. i. In Neder v. United States, 527 U.S. 1 (1999), this Court stated that “actionable ‘fraud’ had a well-settled meaning at common law,’ and that “the well-settled meaning of ‘fraud’ required a misrepresentation or con- cealment of material fact.” Jd. at 22. Consistent with that traditional understanding, the Court construed the federal mail fraud, wire fraud, and bank fraud statutes 9 to contain a materiality requirement. /d. at 20-25. The Court further explained that, “[iJn general, a false state- ment is material if it has a natural tendency to influence, or is capable of influencing, the decision of the decision- making body to which it was addressed.” Jd. at 16 (brackets, inter: al quotation marks, and citation omit- ted). The Court in Neder made clear, however, that a con- viction under those federal fraud statutes does not. re- quire proof that the victim actually relied on the false representations or was damaged by the defendant’s mis- conduct. See 527 U.S. at 24-25. The Court treated those elements of common-law fraud as separate from the re- quirement that a defendant’s misrepresentations be ma- terial. See ibid. The Court held that “the elements of reliance and damage would clearly be inconsistent with the statutes Congress enacted” because those statutes refer to “‘scheme[s] to defraud,’ rather than the com- pleted fraud.” Jd. at 25. In light of the Neder Court’s holding that the government may prove materiality without proving reliance or damages, there is no basis for petitioners’ contention that a misrepresentation is necessarily immaterial if it did not ultimately deprive the government of money it was lawfully due. ii. The text of the FCA also does not support petition- ers’ contention that liability under the Act depends on proof of an actual effect on the government’s payment or recoupment decision. Under 31 U.S.C. 3729(a)(1), any person who “knowingly presents” a “false or fraudulent claim” to the federal government is liable for damages and civil penalties. Because Section 3729(a)(1) attaches liability upon presentment of a false or fraudulent claim, rather than actual payment on that claim, the question whether the provision was violated in a particular case 10 should be resolved based on the facts as they existed at the time of presentment. Whether a particular false statement would have the “natural tendency” to affect the government’s payment decision can be determined without reference to events (such as the government’s actual disposition of the claim) that postdate the claim’s submission. Thus, just as Congress’s decision to pro- hibit certain “scheme{s] to defraud” was held to reflect a decision not to require proof of reliance and damages under the federal fraud statutes at issue in Neder, see 527 U.S. at 24-25, Congress’s focus on the “present- [ment]” of false claims under 31 U.S.C. 3729(a)(1) mani- fests a similar intent. Similarly, the reverse false claims provision, Section 3729(a)(7), focuses on the “mak[ing]” or “use[]” of false records or statements. Although Section 3729(a)(7) im- poses the additional requirement that the false record or statement be made or used “to conceal, avoid, or de- crease an obligation to pay or transmit money or prop- erty to the Government,” that language is most sensibly construed simply to require a logical connection between the false record or statement and a defendant’s obliga- tion to pay money or property to the United States. Sec- tion 3729(a)(7) requires knowing concealment or avoid- ance, but it does not require that the defendant’s mis- conduct culminate in any particular result. See United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group, Jue., 400 F.3d 428, 445-446 (6th Cir.), cert. de- nied, 546 U.S. 1063 (2005). And there is no reason to suppose that Congress, having focused on the potential (rather than the actual) effect of a claimant’s conduct in 31 U.S.C. 3729(a)(1), would require proof of an actual impact on the federal fisc in the later-enacted Section 3729(a)(7). To the contrary, the legislative history 11 strongly indicates that the two provisions should be con- strued in pari materia. See S. Rep. No. 345, 99th Cong., 2d Sess. 18 (1986) (Section 3729(a)(7) “provide|[s ] that an individual who makes a material misrepresenta- tion to avoid paying money owed the Government would be equally liable under the Act as if he had submitted a false claim to receive money.’’); H.R. Rep. No. 660, 99th Cong., 2d Sess. 20 (1986) (Section 3729(a)(7) reflects the view “that there is no reason to treat a false claim filed against the Government to fraudulently reduce an obli- gation owed to the Government differently from orie filed for the purpose of fraudulently obtaining money.”). iii. “[E }valuating materiality based on the potential effect rather than actual result is more consistent with the underlying purpose of the FCA.” A+ Homecare, 400 F.3d at 446. This Court “has broadly interpreted the statute to cover ‘all fraudulent attempts to cause the Government to pay out sums of money.’” /bid. (quoting United States v. Neifert-White Co., 390 U.S. 228, 233 (1968)). The logical implication of petitioners’ theory, however, is that a claimant who seeks to obtain govern- ment funds through fraud will escape FCA liability alto- gether if the government detects the misrepresentation before payment is made and thereby avoids an actual financial loss. Creation of such a loophole would subvert Congress’s intent to deal comprehensively with efforts to obtain federal money or property by dishonest means. c. The court of appeals concluded that the false statements on petitioners’ cost reports “were material because they had the potential effect, or natural ten- dency, to decrease the amount CPMS owed Medicare in overpayments, despite the fact that cost reports were never audited.” Pet. App. 27. That conclusion is consis- tent with the Sixth Circuit’s ruling in A+ Homecare, the 12 only other appellate decision directly on point. As in this case, the defendant in A+ Homecare included a false cost in its cost report, but the intermediary de- layed completing its audits pending the outcome of the fraud investigation. A+ Homecare, 400 F.3d at 456.* The Sixth Circuit concluded that, under Section 3729(a)(7), a court’s determination of materiality should be “based on the potential effect rather than actual re- sult” of the defendant’s false statement, zd. at 446, and that the intermediary’s failure to complete the audit was “irrelevant in this case * * * because the mere act of placing the false accrual on the Cost Report is sufficient to find [defendant] liable under the FCA,” 7d. at 446 n.13. The same analysis applies here. d. The Ninth Circuit’s “natural tendency” test is consistent with the standard for FCA liability adopted by five other circuits. Those courts have recognized that, so long as the defendant’s false statements reason- ably could have influenced the government’s payment or collection of money, the FCA does not require proof of any actual fiscal impact. See United States v. Rogan, 517 F.3d 449, 452 (7th Cir. 2008); United States ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189, 1204 (10th Cir. 2006), cert. denied, 128 S. Ct. 388 (2007); A+ Homecare, * Petitioners assert that their fraudulent cost reports were not audi- ted because the fiscal intermediary knew of CPM%S’s precarious finan- cial situation and the PRM precludes any action with respect to the cost reports of a provider suspected of insolvency. Pet. 6, 8, 17, 22-23. As discussed below, petitioners misunderstand the pertinent regulatory and PRM provisions. See p. 17, infra. Moreover, petitioners are incor- rect as a factual matter. The trial record disclosed that the intermedi- ary discontinued its audit because, after receiving an allegation of fraud, the Medicare program initiated an investigation culminating in this FCA action by the United States. See C.A. E.R. 242-243; C.A. Supp. E.R. 25-26. 13 400 F.3d at 446; United States ex rel. Harrison v. West- inghouse Savannah River Co., 352 F.3d 908, 913, 916- 917 (4th Cir. 2003); United States ex rel. Cantekin v. University of Pittsburgh, 192 F.3d 402, 415-416 (3d Cir. 1999), cert. denied, 531 U.S. 880 (2000). Petitioners contend (Pet. 11, 15) that the court of ap- peals’ decision in this case conflicts with the Eighth Cir- cuit’s decision in Costner v. URS Consultants, Inc., 153 F.3d 667, 677 (1998) (Costner /). Petitioners construe the decision in Costner I as requiring the government to show “that the defendants’ actions actually caused the United States to pay out money it was not obligated to pay or actually deprived the United States of money it was lawfully due.” Pet. 11. The Ninth Circuit in this case likewise understood the Eighth Circuit to have ap- plied an “outcome materiality test,” which the Ninth Circuit regarded as inconsistent with its own “natural tendency” standard. Pet. App. 26. For two reasons, any tension between the legal standards adopted by the Ninth and Eighth Circuits in this area provides no basis for further review here. i. More recent decisions of the Eighth Circuit indi- cate that the court has not yet settled on a precise stan- dard for defining the circumstances under which a defen- dant’s misrepresentations will give rise to FCA liability. In United States ex rel. Costner v. United States, 317 F.3d 883, cert. denied, 540 U.S. 875 (2003) (Costner 17), the Eighth Circuit characterized its earlier decision in Rabushka ex rel. United States v. Crane Co., 122 F.3d 559, 563 (1997), cert. denied, 523 U.S. 1040 (1998), as merely “suggestling] that outcome materiality is the proper standard,” and similarly regarded Costner J as only “impl[yzng| a materiality standard stricter than mere relevancy.” Costner /], 317 F.3d at 887 (emphases 14 added). The court in Costner I] concluded that it “need not decide the precise contours of the materiality re- quirement” because there was no evidence to show that the defendant’s alleged false statement “was even rele- vant to [the agency’s] payment decision.” /bid. The Eighth Circuit subsequently reiterated that Costner II had “confirmed that a showing of materiality is implicit in the FCA, though we did not define ‘the pre- cise contours’ of this requirement.” Hays v. Hoffman, 325 F.3d 982, 992, cert. denied, 540 U.S. 877 (2003) (quoting Costner I], 317 F.3d at 887). In Hays, the de- fendants conceded in their reply brief “that the false claims were material if they were capable of influencing the government’s payment decision.” J/bid. (internal quotation marks and citation omitted). The Eighth Cir- cuit noted that “[t]he district court’s instructions in- cluded that concept in a definition of materiality,” and the court further observed that the defendant’s false representations were “capable of influencing, and did in fact influence, the government’s Medicaid reimburse- ment decisions.” /bid. The court of appeals concluded that “the instructions ‘taken as a whole and viewed in light of the evidence and the applicable law, fairly and adequately submitted the issues in the case to the jury.’” Jbid. (quoting Gray v. Bicknell, 86 F.3d 1472, 1485 (8th Cir. 1996)). Costner J] and Hays suggest that the Eighth Circuit has thus far declined to choose be- tween the “natural tendency” test employed by the court of appeals in this case, and the more demanding “out- come materiality” standard advocated by petitioners. Because the Eighth Circuit has not defined the “precise contours” (Costner 1], 317 F.3d at 887) of its materiality standard and has not unequivocally chosen the standard petitioners urge, any tension between the existing Ninth 15 and Eighth Circuit precedents does not warrant this Court’s review. ii. Even if a fully developed circuit conflict did exist, this case would be an unsuitable vehicle for resolving it, because there is no reason to suppose that petitioners would have escaped FCA liability under the “outcome materiality” standard that petitioners advocate. The FCA’s reverse false claims provision imposes liability on any person who knowingly uses “a false record or state- ment to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C. 3729(a)(7). As the court of appeals correctly ex- plained, petitioners “had a legal obligation to pay the government money at the time they submitted the cost reports.” Pet. App. 238; see id. at 58 (“Hospitals are re- quired to remit a full refund of overpayments to Medi- care at the time they file their cost reports.”); see also PRM § 2409.1.A.2 (“When the provider files a cost re- port indicating that an overpayment has occurred a full refund is to be remitted with the report.”). Petitioners’ fraudulent conduct therefore resulted in a different “outcome’”—.e., a failure to repay the Medicare pro- gram the amount that an accurate cost report would have identified as due and owing—than would have oc- curred if petitioners had complied with their legal obli- gations. Petitioners do not contend that any decision of the Eighth Circuit has held Section 3729(a)(7) to be in- applicable in circumstances like these. This Court recently denied a petition for a writ of certiorari regarding the FCA’s materiality standard from the Sixth Circuit’s decision in A+ Homecare, in which the court of appeals upheld an FCA judgment in a Medicare reimbursement case substantially similar to this one. See Winters v. United States ex rel. A+ 16 Homecare, Inc., 546 U.S. 1063 (2005). There is no rea- son for a different result in this case. 2. The court of appeals correctly concluded (Pet. App. 27-30) that petitioners’ false cost reports damaged the United States. Contrary to petitioners’ contention (Pet. 17-19), that holding does not conflict with the deci- sions of any other court of appeals. a. Petitioners contend that the government could not prove damages in this case because it could not show that it “relied on a false claim or representation in mak- ing a payment decision.” Pet. 17 (citing United States ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 199-200 (D.C. Cir. 1995), cert. denied, 516 U.S. 1068 (1996)). Unlike Schwedt, however, this case involves the FCA’s reverse false claims provision, which prohibits the making or use of “a false record or statement to con- ceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C. 3729(a)(7). Both in general and in this case, the harm that ean naturally be expected to result from a violation of Section 3729(a)}(7) is a failure by the government to receive funds owed to the United States, rather than the disbursement of federal money to persons who are not entitled to receive it. There is consequently no basis for petitioners’ con- tention (Pet. 17), in a suit filed under Section 3729(a)(7), that the government’s ability to prove damages depend- ed on evidence that it “relied” on petitioners’ false state- ments in “making a payment decision.” As explained above (see p. 15, supra), the court of appeals correctly held that petitioners “had a legal obligation to pay the government money at the time they submitted the cost reports” showing an overpayment by the Medicare pro- gram. Pet. App. 23; see id. at 58; PRM § 2409.1.A.2. 17 The government therefore was damaged when petition- ers submitted cost reports that fraudulently reduced the amount that CPMS was required to repay the govern- ment. Petitioners contend that immediate reimbursement of any overpayment is required “unless the provider was in bankruptcy or insolvent, which was the case here.” Pet. 22; see Pet. 6 (contending that, under PRM § 2408.2, “no action is taken on a cost report submitted by a provider when the provider is potentially insolvent or is the subject of bankruptcy proceedings”). The court of appeals correctly rejected that reading of the perti- nent regulatory and PRM provisions. See Pet. App. 27- 28. Rather than relieving potentially insolvent providers of any obligation to repay overpayments, the provisions at issue protect the Medicare program by directing in- termediaries to take particular care to avoid overpay- ments to such providers. The applicable Medicare regu- lation provides that, “notwithstanding any other regula- tion or program instruction regarding the timing or manner of such adjustments,” when an intermediary believes that a provider may be insolvent, “any pay- ments to the provider will be adjusted by the intermedi- ary * * * toa level necessary to insure that no over- payment to the provider is made.” 42 C.F’.R. 413.64(i). The PRM similarly states that the intermediary should not make a tentative adjustment payment to a poten- tially insolvent provider on the basis of the provider’s unaudited cost report. PRM § 2408.2. In any event, to the extent that petitioners’ disagreement with the court of appeals’ damages analysis turns on the proper inter pretation of the Medicare regulations and the PRM, pe- titioners do not allege a conflict in the circuits on that issue, nor do they identify any other reason that the dis- 18 puted question of Medicare law would warrant this Court’s review. b. Petitioners also contend (Pet. 23) that the United States was not damaged by petitioners’ fraud because the intermediary took no action to collect even the fraudulently reduced amounts that CPMS’s cost reports acknowledged had been overpaid by the Medicare pro- gram. That assertion is factually inaccurate. By filing a claim in the bankruptcy proceedings, the government has attempted to collect the overpayments that were acknowledged on CPMS'’s cost reports but that CPMS did not immediately remit. Pet. App. 35. Even if the government had forgone any effort to collect the smaller amount of CPMS’s acknowledged debt to the Medicare program, the United States would still have been damaged by petitioners’ fraudulent un- derstatement of the sum owed to the United States and their attendant failure to pay that additional debt. In arguing that the government was not harmed by their fraudulent conduct, petitioners appear to contend (see Pet. 23) that, because the intermediary made no effort to collect the smaller amount that petitioners conceded was owed, it would likewise have ignored the much larger debt that an accurate cost report would have identified if petitioners had acknowledged the existence of the larger debt but had failed to pay it when the cost report was submitted. That contention is both factually speculative and legally flawed. To determine whether (and how greatly) the government was harmed by peti- tioners’ fraudulent understatement of CPMS’s debt to the United States, the courts below correctly took as their point of comparison the money that the govern- ment would have obtained if petitioners had fully com- plied with their legal obligations—i.e., if they had ac- 19 knowledged the additional debt and had promptly paid it in accordance with applicable Medicare rules. c. Petitioners contend (Pet. 17, 23-24) that the court of appeals’ damages analysis conflicts with that of the D.C. Circuit in Schwedt. As noted above, however, the court in Schwedt did not construe the FCA’s reverse false claim provision, but rather addressed the require- ments for showing damages in an FCA action for sub- mitting “a false or fraudulent claim for payment or ap- proval,” 31 U.S.C. 3729(a)(1), or submitting “a false re- cord or statement to get a false or fraudulent claim paid or approved,” 31 U.S.C. 3729(a)(2). See Schwedt, 59 F.3d at 199. In that context, the court held that reliance on the false record, statement, or claim in making or approving a payment was necessary to prove damages. Id. at 200. A violation of Section 3729(a)(7), by contrast, injures the United States whenever the wrongdoer fails to pay the government the fraudulently concealed debt, even though no federal official relies on the false statement in making any payment decision.’ To the extent petition- ers rely on Schwedt for the broader proposition that damages are allowable under the FCA only if they were proximately caused by the defendant’s fraud, 59 F.3d at 200, the decision of the court of appeals is not to the con- trary. Rather, the court determined that $5,219,195 was “the difference between what CPMS should have repaid the government and what it did repay the government” * The Fifth and Third Circuit decisions on which the court in Schaweadt relied, see 59 F.3d at 200 (citing United States v. Hibbs, 568 F.2d 347 (3d Cir. 1977), and United States v. Miller, 645 F.2d 473 (Sth Cir. 1981)), are similarly distinguishable because neither involved reverse false claims. 20 and further confirmed that “none of the disputed costs was allowable.” Pet. App. 30-31. 3. The court of appeals correctly rejected petition- ers’ constitutional challenges to the treble damages award against them, see Pet. App. 31-33, and that hold- ing does not conflict with the decision of any other court of appeals. a. Petitioners contend (Pet. 20) that the court of appeals adopted a categorical rule that “a District court is prohibited from reducing a judgment below statutory limits based on the excessive fines clause.” The court of appeals issued no such holding. Rather, the court ap- plied its earlier decision in United States v. Mackby, 339 F.3d 1013, 1016 (9th Cir. 2008), cert. denied, 541 U.S. 936 (2004), which, consistent with this Court’s decision in United States v. Bajakajian, 524 U.S. 321 (1998), con- cluded that an award violates the Excessive Fines Clause if it is grossly disproportionate to the gravity of the defendant’s conduct, Mackby, 339 F.2d at 1016. See Pet. App. 32. The court in Mackby identified four fac- tors to be considered in determining whether an award is grossly disproportionate: (1) the severity of the of- fense and its relation to othe criminal activity; (2) the maximum penalty faced; (3) the harm caused; and (4) whether the defendant falls within a class of persons targeted by the applicable law. 339 F.3d at 1016-1017. In this case, the court of appeals concluded that the first, third, and fourth Mackby factors favored the United States because (1) making false claims to the government is a serious offense, (2) the government sus- tained harm to its fiscal interests and to the integrity of the Medicare program, and (3) petitioners fell squarely within the class of people targeted by the FCA. Pet. App. 38. The court found that the second Mackby factor 21 favored petitioners “because the district court imposed treble damages and the maximum amount of allowable civil penalties.” Jd. at 32. Looking at all four factors together, the court of appeals concluded that the award was not grossly disproportionate to the gravity of peti- tioners’ offenses. /d. at 33. That conclusion was correct. Petitioners caused the making of false statements and false reports in order to reduce by more than $5 million the amount CPMS owed Medicare, and that amount has never been repaid. Based on that conduct, the district court imposed judg- ment against petitioners for $15,657,585 in treble dam- ages and for a civil penalty of $31,000. Pet. App. 75. That award is no more excessive than the treble dam- ages awarded against the defendant in A+ Homecare, 400 F.3d at 454, or the award of nearly 12 times the gov- ernment’s damages upheld in Mackby, 339 F.3d at 1015- 1019. b. Petitioners’ challenge under the Fifth Amend- ment’s Due Process Clause (Pet. 20-21) also lacks merit. As the district court noted, an FCA damages award is not the product of a jury verdict and does not have the potentially arbitrary quality of a classic punitive dam- ages award. Pet. App. 78-79. Moreover, treble damages are well within the suggestion in State Furm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408, 425 (2003), that single-digit multiples of compensatory damages do not run afoul of the Due Process Clause. See Pet. App. 79 n. 3. And as this Court recognized in Cook County v. United States ex rel. Chandler, 538 U.S. 119 (2003), some part of an FCA award “beyond the amount of the fraud is usually ‘necessary to compensate the Government completely for the costs, delays, and inconveniences occasioned by fraudulent claims,’” zd. at ra A 130 (quoting United States v. Bornstein, 423 U.S. 303, 315 (1976)), and for the unavailability of prejudgment interest and other consequential damages, 7d. at 131. The Court in Chandler explained that, while treble dam- ages under the FCA “will exceed full compensation in a good many cases,” ibid., they are significantly different from “classic punitive damages,” zd. at 132. CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. EDWIN S. KNEEDLER Acting Solicitor General MICHAEL F.. HERTZ Actizig Assistant Altturney General DOUGLAS LETTER DANIEL R. ANDERSON ROBERT J. MCAULIFFE Attorneys JANUARY 2009 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_0776%3A2. Public record. Not legal advice.