Grant ex rel. United States v. Zorn

107 F.4th 782

Stephen B. GRANT, ON BEHALF OF The UNITED STATES of America andon behalf of the State of Iowa, Plaintiff - Appellee v. Steven ZORN; Iowa Sleep Disorders Center, P.C.;

Iowa CPAP, L.L.C., Defendants - AppellantsStephen B. Grant, on behalf of The United States of America andon behalf of the State of Iowa, Plaintiff - Appellant v. Steven Zorn; Iowa Sleep Disorders Center, P.C.;

Iowa CPAP, L.L.C., Defendants - Appellees

No. 22-3481

No. 22-3591

United States Court of Appeals, Eighth Circuit

Submitted: December 13, 2023

Filed: July 5, 2024

Appeal from United States District Court for the Southern District of Iowa - Central

Counsel who presented argument on behalf of the appellant/cross-appellee and appeared on the brief was Brian O. Marty, of West Des Moines, IA. Counsel who appeared on the brief was Andrew B. Howie, of West Des Moines, IA.

Counsel who presented argument on behalf of the appellee/cross-appellant and appeared on the brief was Derek R. LaBrie, of Des Moines, IA. Counsel who appeared on the brief was Adam D. Zenor, of Des Moines, IA.

Before SMITH,¹ Chief Judge, GRUENDER and GRASZ, Circuit Judges.

GRUENDER, Circuit Judge.

The False Claims Act ("FCA") and the Iowa False Claims Act ("IFCA") authorize private citizens, known as qui tam relators, to recover from those who make false or fraudulent claims for payment to the United States and the State of Iowa respectively. Relator, Stephen Grant, a sleep medicine practitioner, brought this qui tam action under the FCA and the IFCA against Steven Zorn, Iowa Sleep Disorders Center ("Iowa Sleep"), and Iowa CPAP. After a bench trial, the district court found that the defendants had submitted 1,050 false claims to the United States and the State of Iowa. The district court subsequently imposed a total award of $7,598,991.50. For the reasons set forth below, we affirm in part, vacate in part, and remand for further proceedings consistent with this opinion.

I.

Zorn operated and held substantial ownership interests in Iowa Sleep, a medical practice specializing in sleep medicine, and Iowa CPAP, a medical equipment company. Due to financial difficulties at Iowa Sleep, Iowa CPAP provided loans to Iowa Sleep. Iowa Sleep referred patients to Iowa CPAP for free consultations.

Iowa Sleep accepted state and federal funds for its services through government reimbursement programs like Medicare, Medicaid, and Tricare. The amount that can be billed for services rendered through government healthcare programs depends on a variety of factors, including the time spent with the patient and the complexity of the visit. The government determines the appropriate amount to be reimbursed based on the "code" billed by the provider. In sleep medicine, claims for initial patient visits are coded from 99201 to 99205, and claims for established patient visits are coded from 99211 to 99215. The last number of a code represents the complexity of the visit. Codes ending in the number "5" (e.g., "99205") are considered the most complex and are reimbursed by the government at a higher rate than any other code.

The Centers for Medicare & Medicaid Services ("CMS") oversees claims submitted to the federal government for reimbursement. CMS contracts with third-party administrators like AdvanceMed to handle claims and review, investigate, and audit payments made on behalf of the federal government. CMS, through AdvanceMed, advises service providers on proper billing practices and may notify service providers of suspected discrepancies between submitted claims and actual services rendered.

In September 2016, AdvanceMed sent a letter to Zorn expressing concern that Zorn was overbilling the government for his services. The letter informed Zorn that, between June 2012 and June 2016, he had billed the majority of his established patient visits at codes 99214 and 99215 and all of his initial patient visits at code 99205. AdvanceMed stated that "[m]ore variety would be expected," and it "would like to educate [Zorn's] office" on proper billing practices.

In January 2018, following an audit of patient records from January 2017 to September 2017, AdvanceMed sent another letter to Zorn. This letter informed Zorn that AdvanceMed had "identified overpayments made to" him. The letter suggested that Zorn "[c]onsider and implement corrections to billing procedures that could prevent such errors in the future."

Grant practiced sleep medicine at Iowa Sleep and held 10% ownership interests in both Iowa Sleep and Iowa CPAP. Grant obtained copies of the AdvanceMed letters through Iowa Sleep's office manager. He became concerned that "if there were any forensic ramifications from [Zorn's overbilling], it would fall squarely on [Grant], as well as the knowledge that Dr. Zorn was doing this and [Grant] was not doing anything about it."

In March 2018, Grant filed this qui tam action on behalf of the United States and the State of Iowa (collectively, "the government") against Zorn, Iowa Sleep, and Iowa CPAP, alleging the defendants had violated the FCA and the IFCA by knowingly overbilling the government for initial and established patient visits. See 31 U.S.C. § 3729(a)(1); Iowa Code § 685.2. He further alleged that the defendants had violated the FCA and the IFCA by knowingly soliciting and directing referrals from Iowa Sleep to Iowa CPAP in violation of the Anti-Kickback Statute and the Stark Law. See 42 U.S.C. §§ 1320a-7b(b)(2)(A), 1395nn(a)(1)(A). The government declined to intervene in the action. See 31 U.S.C. § 3730(b)(2); Iowa Code § 685.3(2)(b).

Zorn fired Grant from Iowa Sleep in September 2018. Grant subsequently amended his complaint to include a claim for retaliation under the FCA and the IFCA against Iowa Sleep. See 31 U.S.C. § 3730(h); Iowa Code § 685.3(6). He alleged that Zorn fired him for reporting potential FCA and IFCA violations to the government.

During discovery, Grant requested 1,167 medical files from the defendants. Believing Grant's request to be too burdensome, the defendants asked Richard Braak, a certified public accountant, to randomly select thirty-one patient files from a list of Zorn's patient files. Braak randomly chose thirty-one files, all of which pertained to initial patient visits, and the defendants provided these thirty-one files to Grant.

Instead of asking the district court to compel the defendants to produce additional patient files, Grant retained Ted Lodden, a certified public accountant, to determine whether the thirty-one file sample size provided by the defendants was representative of Zorn's entire billing practice. Lodden did not independently calculate the statistical validity of the thirty-one file sample size. Nevertheless, he testified that extrapolation from the thirty-one files to the entirety of Zorn's billing practice was appropriate.

The defendants subsequently filed a motion to exclude Lodden's testimony under Daubert and Federal Rule of Evidence 702. They asserted that Lodden's testimony on extrapolation was entirely speculative since it was based on a sample size not proven to be statistically valid. The district court concluded that a statistically valid sample was not necessary for extrapolation in this case and declined to exclude Lodden's testimony.

Grant also retained Nizar Suleman, a sleep medicine physician, as an expert witness. In his expert report, Suleman compared Zorn's billing rates to publicly available data on average billing rates. Suleman concluded that Zorn had overbilled for his services. For their part, the defendants retained James Alexander, a physician and medical coding consultant, as their expert witness. In his expert report, Alexander reviewed the sample of thirty-one patient files and determined that, depending on the amount of services received by patients, either twenty or twenty-four of those files were billed inaccurately.

The defendants filed a motion to exclude Suleman's testimony under Daubert and Federal Rule of Evidence 702. In opposition to the defendants' motion, Grant produced a "supplemental" report authored by Suleman. In this additional report, Suleman examined the same thirty-one patient files reviewed by Alexander and concluded that Zorn had overbilled in all thirty-one cases. In their reply brief in support of their motion to exclude Suleman's original testimony, the defendants also argued that Suleman could not testify as to the thirty-one files because his additional report was an untimely and improper rebuttal report. The district court excluded some of Suleman's original testimony. It also concluded that the defendants were not prejudiced by the information contained in Suleman's additional report and declined to exclude it.

The defendants moved for summary judgment, arguing that Grant's claims were barred by the public disclosure provisions of the FCA and IFCA, which prohibit qui tam claims based on information available in the public domain. See 31 U.S.C. § 3730(e)(4); Iowa Code § 685.3(5)(c). The defendants further argued that they should be awarded summary judgment on the Anti-Kickback Statute and Stark Law claim due to insufficient evidence of an illegal kickback or self-referral scheme. The district court rejected the defendants' public disclosure defense but awarded summary judgment to the defendants on the Anti-Kickback Statute and Stark Law claim.

After a bench trial, the defendants renewed their request to dismiss the claims pursuant to the public disclosure provisions of the FCA and IFCA. The district court rejected this request and instead found the defendants liable on several claims. The district court held that Iowa Sleep had violated the anti-retaliation provisions of the FCA and IFCA by firing Grant. Accordingly, the district court awarded Grant $50,000 in backpay and $300,000 in special damages resulting from emotional distress. The district court, however, declined to award any punitive damages under the anti-retaliation provisions of the FCA and IFCA.

The district court also concluded...