By Eileen K. Leslie, CPA, CFE
October 28th, 2016
Courts have allowed statistical sampling and extrapolation for decades, particularly to determine damages or calculate losses in cases involving large data sets. Frequent usage of these techniques can be seen in matters ranging from mass torts to antitrust and employment law cases.
“Sampling is not new or unusual,” notes the U.S. Government Accounting Office (predecessor to today’s Government Accountability Office) in a 1992 Revised Manual titled, “Using Statistical Sampling.” The GAO goes on to describe that in a sample survey, “data are collected from a sample of a population … to determine the prevalence, distribution, or interrelationship of events and conditions.”
A sample is defined by the GAO as a subset of the overall population of possible information sources, while the process of sampling involves the selection of those sources.
The application of statistical sampling and extrapolation methodologies is increasingly being seen in False Claims Act cases. As FCA litigation grows in complexity—often covering thousands of Medicare claims over a period of multiple years—courts have ruled favorably on the use of statistical sampling to determine liability as well as damages in a number of recent cases, some of which are outlined below.
Court Rulings on the Use of Statistical Sampling in FCA Cases
The U.S. District Court for the Middle District of Florida ruled in 2015 that “no universal ban on expert testimony based on statistical sampling applies in a qui tam action (or elsewhere), and no expert testimony is excludable in this action for that sole reason (although defects in method, among other evidentiary defects, might result in exclusion).” The case was U.S. ex rel. Ruckh v. Genoa Healthcare LLC et al., Case No. 8:11-cv-1303-T-23TBM.
Statistical sampling was also allowed by a Massachusetts federal court in the matter United States ex rel. Loughren v. UnumProvident Corp., where a large volume of disability claims required resolution. An initial trial was held based on a sampling of false claims. The court determined in the first trial that extrapolation was an acceptable way to calculate the number of total false claims.
A federal court in Tennessee also allowed statistical sampling to prove liability under the False Claims Act in the case United States ex rel. Martin v. Life Care Centers of America. The dispute involved Medicare fraud allegedly perpetrated by a corporate owner of skilled nursing facilities.
The court ruling in the Life Care matter states,
“… statistical sampling may be used to prove claims brought under the FCA involving Medicare overpayment, but it does not and cannot control the weight that the fact finder may accord to the extrapolated evidence. Rather, the burden of determining the weight of the evidence lies with the fact finder.”
“Limiting FCA enforcement to an individual claim-by-claim review would open the door to more fraudulent activity,” according to the Tennessee court, because fraudsters would correctly interpret this as a deterrent to the prosecution of future FCA cases.
Industry observers are also closely watching the case U.S. ex rel. Michaels et al. v. Agape Senior Community Inc. et al., case numbers 15-2145 and 15-2147, which is pending before the U.S. Court of Appeals for the Fourth Circuit as of this writing. The court is being asked to rule on the use of statistical sampling to determine liability and damages claims in FCA cases.
The Accountant’s Role in Statistical Sampling
Accountants and auditors, who are governed by the professional guidelines of the American Institute of Certified Public Accountants (AICPA), often use statistical sampling techniques when analyzing large data sets to uncover evidence of potential fraud, or for other purposes. When they do so, accountants must strictly adhere to a comprehensive set of industry standards.
In the AICPA publication titled “Audit Sampling - Audit Guide,” accountants and auditors are taught to consider the items listed below when performing statistical and non-statistical audit sampling:
• Determining the test objectives
• Defining the population
• Defining the period covered by the test
• Estimating the population characteristics
• Determining the sample size
• Developing sample size guidelines
• Defining the sampling unit
• Conducting walkthroughs
• Identifying deviation conditions
• Determining the method of selecting the sample (simple random, systematic, haphazard, or block)
• Considering sampling risk in assessing the effectiveness of controls
• Evaluating the sample results
An accountant who brings a deep understanding of both the False Claims Act and the appropriate use of statistical sampling can be particularly helpful to a whistleblower attorney who seeks to prepare a case involving high volumes of healthcare claims, such as Medicare billing submissions.
About Investigative CPA, LLC
Investigative CPA, LLC, founded by Eileen K. Leslie, specializes in False Claims Act (FCA) investigations on a national basis.
Ms. Leslie is a Certified Public Accountant (CPA, 2004), a Certified Fraud Examiner (CFE, 2007), and holds a Master of Taxation (2003). She worked for the Department of Justice in both the United States Attorney’s Office (2010 to 2014) and the Federal Bureau of Investigation (FBI, 2004 to 2007). Additionally, she has held positions in public, private and forensic accounting firms. She is also a proud United States Air Force veteran.
She works closely with qui tam attorneys and government agencies nationwide to investigate FCA claims, uncover fraud, calculate damages, and provide forensic financial consulting services. She focuses on ensuring maximum recovery of damages to the government and other injured parties.
Beyond FCA investigations, Ms. Leslie has performed a variety of criminal fraud investigations and non-government civil fraud examinations and fraud assessments. She has also investigated violations of the Anti-Kickback statute and the Stark Law.
Contact Ms. Leslie to discuss a potential whistleblower case or other fraud matter.
This article is provided for educational purposes only. It is not intended to provide legal advice or an opinion in regard to any topic discussed. The blog should not be used as a substitute for legal advice from a licensed attorney in your state.
Material for this article was taken from a collection of industry sources relating to the subject. Every case is different and circumstances vary widely depending on the governing state or federal law, policy provisions, and related considerations.