Scott v. Arizona Center for Hematology and Oncology PLC et al

Filing 259

ORDER denying 225 Motions to Exclude the Opinions of Dr. Abraham Wyner (Doc. 225 ) and Dr. William Noyes (Doc. [246). FURTHER ORDERED granting 222 Motion for Partial Summary Judgment, with respect to billings under CPT code 77290 before No vember 27, 2013, and otherwise is denied. FURTHER ORDERED denying 233 , 237 Cross-Motion for Summary Judgment. FURTHER ORDERED granting 231 Motion for Leave to File a Statement of Interest. FURTHER ORDERED granting 234 Motion to Seal. The Clerk of Court shall accept for filing under seal the documents lodged on the Court's docket as Docs. 235 , 236 . FURTHER ORDERED Telephonic Hearing set for May 13, 2020 at 3:30 PM to Schedule a Final Pretrial Conference and Trial in this matter. See Order for Details. Signed by Senior Judge David G Campbell on 4/29/20. (MAP)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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United States of America, ex rel. J. Scott,
Plaintiff,

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ORDER

v.

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No. CV-16-03703-PHX-DGC

Arizona Center for Hematology and
Oncology, PLC, et al.,

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Defendants.

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Arizona Center for Hematology and
Oncology, PLC,
Counterclaimant,

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v.

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J. Scott,
Counterdefendant.

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Relator J. Scott has filed a qui tam action against Defendants Arizona Center for

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Hematology and Oncology PLC, doing business as Arizona Center for Cancer Care

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(“AZC”), and Drs. Terry Lee, Daniel Reed, and Christopher Biggs, alleging violations of

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the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq. Doc. 47. AZC counterclaims for

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breach of fiduciary duty. Doc. 122 at 62, 64.1 The parties cross-move for summary

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judgment. Docs. 222, 233. Defendants also move to exclude the opinions of Drs. Abraham

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Citations in this order are to page numbers at the top of each page.

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Wyner and William Noyes (Docs. 225, 246), the government moves for leave to file a

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statement of interest (Doc. 231), and Scott moves to file certain documents under seal

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(Doc. 234). The motions are fully briefed, and oral argument was held by teleconference

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on April 24, 2020. The Court will deny Defendants’ motions to exclude Scott’s experts,

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grant Defendants’ motion for summary judgment in part, deny Scott’s cross-motion for

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summary judgment, consider the government’s statement, and grant the motion to seal.

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I.

Daubert Motions.

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Defendants move to exclude the opinions of Dr. Abraham Wyner, Scott’s statistical

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sampling expert, and Dr. William Noyes, Scott’s medical billing expert. Docs. 225, 246.

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Under Rule 702, an expert may offer “scientific, technical, or other specialized knowledge”

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if it “will assist the trier of fact to understand the evidence,” provided the testimony rests

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on “sufficient facts or data” and “reliable principles and methods,” and “the witness has

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reliably applied the principles and methods to the facts of the case.” Fed. R. Evid.

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702(a)-(d). The proponent of expert testimony has the ultimate burden of showing, by a

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preponderance of the evidence, that the proposed testimony is admissible. See Cooper v.

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Brown, 510 F.3d 870, 942 (9th Cir. 2007); Fed. R. Evid. 104(a). The trial court acts as a

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gatekeeper to assure that the testimony “both rests on a reliable foundation and is relevant

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to the task at hand.” Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597 (1993).

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A.

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Dr. Wyner uses statistical sampling to estimate alleged healthcare overpayments

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received by AZC. He has produced three reports. See Docs. 225-5, 225-6, 225-7.

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Defendants argue that (1) he is not qualified to estimate healthcare overpayments, (2) his

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sampling methodology is not reproducible, (3) his samples are not representative,

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and (4) his reports are replete with errors. Doc. 225 at 1.

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Dr. Abraham Wyner.

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Qualifications.

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Defendants argue that while Dr. Wyner may have academic experience in statistics,

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he has no experience estimating alleged healthcare overpayments and no knowledge of

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relevant government guidelines. Docs. 225 at 6-7, 245 at 4. Defendants contend that he

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has never worked for any government agency on a healthcare audit and cannot opine on

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the amount of overpayments purportedly made by the government to AZC. Doc. 225 at 6.

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Defendants rely on the Medicare Program Integrity Manual (“MPIP”) and the Office of

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Inspector General Toolkit (“OIG Toolkit”) for their argument that an expert must have

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specific experience in Medicare to opine on healthcare overpayments. Doc. 245 at 2. Scott

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responds that Defendants’ characterization of Dr. Wyner’s expertise is too narrow and that

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he is qualified to offer expert opinions regarding statistical analyses. Doc. 232 at 3-4.

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Dr. Wyner has a Bachelor of Science degree in mathematics from Yale University

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and a Ph.D in statistics from Stanford University. Doc. 225-5 at 6. He has served as a

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professor of statistics at the Wharton School of Business at the University of Pennsylvania

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for more than 20 years and has been the director of the undergraduate program in statistics

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since 2005. Docs. 232 at 1, 225-5 at 2, 4. Dr. Wyner has authored works in a number of

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academic journals and has rendered expert opinions on statistics. Doc. 232 at 4. His ability

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to conduct a statistical analysis is not disputed by Defendants.

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Dr. Wyner was retained to estimate healthcare overpayments to AZC. Doc. 225-4

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at 9. Because evaluating all payments processed by AZC is not feasible due to their sheer

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number, he recommended statistical sampling. Id. Dr. Wyner testified:

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Statistical sampling . . . is the process by means of which we estimate a
quantity in a population whose value is impossible to measure without
measuring every individual in the population. And so we do this as a matter
of economy and speed, and it allows us to learn something that would be
impossible otherwise.
Id. at 10.

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FCA cases often involve statistical sampling because, “in view of the enormous

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logistical problems of [proving fraud in complex government programs], statistical

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sampling is the only feasible method available.” United States ex rel. Martin v. Life Care

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Ctrs. of Am., Inc., 114 F. Supp. 3d 549, 560 (E.D. Tenn. 2014) (citing Ill. Physicians Union

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v. Miller, 675 F.2d 151, 157 (7th Cir. 1982)); see United States v. Fadul, No. DKC 11-

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0385, 2013 WL 781614, at *14 (D. Md. Feb. 28, 2013) (“Courts have routinely endorsed

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sampling and extrapolation as a viable method of proving damages in cases involving

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Medicare and Medicaid overpayments where a claim-by-claim review is not practical”).

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Defendants present no evidence that Dr. Wyner is not qualified to conduct such a

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statistical analysis. See Fed. R. Civ. P. 702. Nor do the MPIP and OIG Toolkit require a

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statistician with expertise in healthcare billing. They merely call for “consultation with a

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statistical expert.” Doc. 225-3 at 8. The MPIP states: “The sampling methodology used

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in estimations of overpayments must be reviewed and approved by a statistician or by a

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person with equivalent expertise in probability sampling and estimation methods.” Id. The

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MPIP provides a list of minimum qualifications for statistical experts, which includes:

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The possession of a “Bachelor’s degree . . . in Statistics or in some
related field (e.g., psychometrics, biostatistics, econometrics,
mathematics) with significant coursework in probability and
estimation methodologies, and at least 6 years of experience applying
methods of statistical sampling and interpreting the results”; or

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The possession of a “Doctoral degree in statistics or in some related
field with significant coursework in probability and estimation
methodologies, and at least 1 year of experience applying methods of
statistical sampling and interpreting the results.”

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Id. at 8-9.
Dr. Wyner possesses both qualifications. The fact that he has no experience
healthcare billing does not render his statistical analysis inadmissible under Rule 702,
particularly when Rule 702 “‘contemplates a broad conception of expert qualifications.’”
Alsadi v. Intel Corp., No. CV-16-03738-PHX-DGC, 2019 WL 4849482, at *11 (D. Ariz.
Sept. 30, 2019) (citing Thomas v. Newton Int’l Enters., 42 F.3d 1266, 1269 (9th Cir.
1994)).2

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The cases Defendants cite are not helpful. They deal with experts who sought to
testify outside their area of expertise. See, e.g., Gable v. Nat’l Broad. Co., 727 F. Supp. 2d
815, 833 (C.D. Cal. 2010) (expert in copyright law not qualified to opine on the substantial
similarity between two literary works as he had no “experience, knowledge, training, or
education in the literary field”); Vaxiion Therapeutics, Inc. v. Foley & Lardner LLP, 593
F. Supp. 2d 1153, 1163 (S.D. Cal. 2008) (attorney with no special ethics training or
experience who sought to serve as an expert in legal ethics).
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2.

The Reliability of Dr. Wyner’s Studies.

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Defendants make three arguments regarding the reliability of Dr. Wyner’s studies.

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First, Defendants contend that he failed to disclose the random seeds used to

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generate his random samples. Doc. 225 at 9-10. Dr. Wyner used JMP software to conduct

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his studies. Doc. 225-7 at 3. That software uses a random number generator, which is a

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device that generates a random sample from a larger population displaying no

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distinguishable patterns. Doc. 225 at 3. Dr. Wyner asserts that he did not save the random

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seeds because there was no way to extract them from the JPM software. Doc. 225-4 at

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21-22. Without the seeds, Defendants contend that they cannot replicate his samples or

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verify they are random, thus rendering the samples unreliable under Rule 702. Doc. 225

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at 10.3

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Defendants do not assert, however, that Dr. Wyner failed to use a valid statistical

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program in running his study or that the samples chosen by the software were not in fact

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random. The OIG Toolkit states: “A sample is random if it is generated from a valid

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random or pseudo-random number generator.” Doc. 225-1 at 12. Dr. Wyner used and

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followed the instructions provided by the JMP software, which uses a built-in sampler that

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is “completely random.” Doc. 225-7 at 3. Defendants do not challenge the validity of the

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JMP software or its ability to produce a random sample. The Court therefore cannot

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conclude that Dr. Wyner’s statistical analysis is unreliable.

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Defendants also argue that Dr. Wyner failed to disclose his sampling frames.

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Doc. 225 at 10. The database from which a sample is drawn is known as the sampling

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frame. Doc. 225-1 at 14. Scott contends that Dr. Wyner’s sampling frames are taken from

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Defendants’ own spreadsheets of AZC’s claims for payment. Doc. 232 at 8. Those

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spreadsheets are identified in Dr. Wyner’s reports. Docs. 225-5 at 2, 225-6 at 2.

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Each computer-generated random sample is associated with a “random seed,”
which is used to initialize the random number generator. Doc. 225-1 at 14. When the seed
is entered into the random number generator, it will recreate the previous sample rather
than provide a new set of random numbers. Id. Without the seed, it is not possible to
recreate the random sample. Id.
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Defendants again rely on the MPIM and OIG Toolkit to support this argument, but

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they point to no authority indicating that the toolkits are binding. Doc. 245 at 6-7. Indeed,

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the OIG Toolkit explicitly states that it is merely a “training guide”:

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[It] is not intended to establish formal standards or to restrict the methods
available to the MFCUs to complete their mission. Because statistics is a
broad field with a wide variety of effective and valid methods, a sample or
estimate may be valid even if it does not follow the steps in this guide.
Doc. 225-1 at 3.
Nor does the failure to preserve certain documentation, including the sampling
frames Defendants identify, render the study unreliable. Defendants do not dispute that
their own spreadsheets were used as Dr. Wyner’s sampling frame. And the OIG Toolkit

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explains that “[t]he failure to keep such documentation does not necessarily render a

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sample invalid, but it can make the resulting estimate more difficult to defend.” Id. at 16.

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Defendants may use this point for cross-examination, but the Court cannot conclude that it
renders Dr. Wyner’s testimony inadmissible under Rule 702.

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Second, Defendants contend that Dr. Wyner’s samples are not representative.

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Defendants’ expert, Dr. Salve, ran three tests to confirm this – the T-test for equality of

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means, the Kolmogorov-Smirnov test, and the Chi-square test. Doc. 225 at 12-14.4

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Defendants argue that Dr. Salve’s tests indicate that “it is likely that any extrapolations

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from [Dr. Wyner’s] samples to their populations would result in a larger overpayment

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estimate . . . than if the samples were actually representative of the populations from which
they were drawn.” Id. at 14. But Dr. Wyner explains in considerable detail why Dr. Salve’s
tests are not accurately applied to, and are based on a fundamental misunderstanding of,
his statistical analysis. See Doc. 225-7 at 2-8. Defendants do not address this detailed

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response to Dr. Salve’s criticisms in their motion or reply, and the Court cannot conclude

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that the criticisms prove the unreliability of Dr. Wyner’s work.

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Scott argues that Dr. Salve is not credible because he is not a statistician and is a
“quintessential hired-gun expert.” Doc. 232 at 6-7. But Scott does not move to exclude
the Salve opinions, and the Court’s task on summary judgment is not to make credibility
determinations.
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Third, Defendants argue that Dr. Wyner’s reports are “replete with errors that render

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his opinions unreliable under Rule 702 and Daubert.” Doc. 225 at 15. The alleged errors

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generally are numerical differences between the experts, such as 719 claims (Wyner)

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versus 717 claims (Salve). Id. at 15-16. But if the Court finds Dr. Wyner qualified to

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render his opinions and that he has applied reliable principles and methods to the facts of

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this case reliably – as it does – then the Court’s task is not to determine whether his

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conclusions are correct. Daubert, 509 U.S. at 595 (the “focus, of course, must be solely

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on principles and methodology, not on the conclusions they generate”); see also Fed. R.

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Evid. 702, advisory committee’s note to 2000 amendment (proponents of evidence “do not

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have to demonstrate to the judge by a preponderance of the evidence that the assessments

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of their experts are correct, they only have to demonstrate by a preponderance of the

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evidence that their opinions are reliable” (citation and quotation marks omitted)). Dr.

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Wyner’s opinions are sufficiently reliable to be admitted under Rule 702. Defendants will

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be free to challenge the correctness of his conclusions at trial. As the Supreme Court has

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noted, “[v]igorous cross-examination, presentation of contrary evidence, and careful

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instruction on the burden of proof are the traditional and appropriate means of attacking”

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an opposing expert’s opinions. Daubert, 509 U.S. at 596.

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B.

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Dr. Noyes is Scott’s expert on the American Medical Association Current

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Procedural Terminology (“CPT”) code 77290. Doc. 246-9 at 3.5 Defendants contend that

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Dr. Noyes, a radiation oncologist, is not qualified to render opinions regarding the propriety

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of CPT code 77290 as it relates to the delivery of Stereotactic Radiosurgery (“SRS”) and

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Stereotactic Body Radiation Therapy (“SBRT”). Doc. 246 at 1-2.6

Dr. William Noyes.

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CPT code 77290 permits a radiation oncologist to bill for a “complex simulation.”
Doc. 249 at 5-6. Such a simulation is a “dry run” of a specific treatment, without the actual
administration of radiation, and is distinct from simple and intermediate simulations.
Doc. 223-11 at 10. Complex simulations typically happen on the first day of treatments
administered over multiple days. Scott alleges that Defendants consistently failed to do
the work necessary to bill CPT code 77290. See Doc. 1 at 10.
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SRS and SBRT deliver “very high, extremely potent doses of radiation,” with
precision not available through other traditional forms of radiation therapy. Doc.
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Defendants first claim that Dr. Noyes lacks practical experience in SRS and SBRT,

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as he last performed SRS almost 25 years ago and SBRT almost a decade ago. Id. at 10-11.

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Defendants contend that this is critical, as the field of radiosurgery has undergone sweeping

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changes in the last decade alone. Id. at 12. Defendants also argue that Dr. Noyes lacks

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knowledge of applicable guidelines governing billing for SRS and SBRT. Id. at 13.7

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SBRT is one form of a general category of therapy called external beam radiation

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therapy (“EBRT”), where radiation oncologists use a machine called a linear accelerator to

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administer beams of radiation to cancer sites. Id. at 6. Another common form of EBRT is

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intensity modulated radiotherapy (“IMRT”), which Dr. Noyes uses in his radiation

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oncology practice. Id.; Doc. 246 at 11.

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CPT code 77290 is used to bill for complex simulations regardless of the form of

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EBRT used to treat the patient. Doc. 249 at 6. Dr. Noyes explains that “simulations are

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performed for all forms of EBRT, and the basic steps in performing a simulation are the

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same and not tied specifically to the method of EBRT that is being simulated.”

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Doc. 249-2 ¶ 7. Defendants’ expert, Dr. Steinberg, agrees that the different kinds of

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simulations are not tied to the specific forms of EBRT. Doc. 249-1 at 16.

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Defendants argue that because Dr. Noyes is not currently using SRS or SBRT, he

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cannot opine on whether Defendants properly billed for complex simulations when they

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used SBRT. Defendants emphasized during oral argument that each patient, each case,

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and each therapy session is different, and that highly individualized judgments must be

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made as to whether and when complex simulations are needed as part of SBRT treatment.

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But Dr. Noyes’s opinion is not based on his evaluation of the treatment Defendants

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provided in each case, but on Defendants’ medical records – specifically, the fact that those

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246-3 ¶ 11. SRS and SBRT are safer and less invasive forms of cancer treatment than
standard surgery, and are more cost effective than conventional radiation therapy.
Id. ¶¶ 13-14.
Defendants particularly challenge Dr. Noyes’s conclusion that the services AZC’s
physicians provided in connection with each daily fraction of SBRT treatments do not
constitute complex simulations, and that even if they do, “[t]here is no clinical justification
for an additional complex simulation to be performed prior to the delivery of each and
every SBRT therapy.” Doc. 246 at 10.
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records do not show that complex simulations were performed when Defendants billed for

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them under CPT code 77290. See Docs. 246-9 at 5 (Defendants’ records either “showed

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the use of cone beam computerized tomography (“CBCT”) scans for imaging and not

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complex simulation,” or included “no documentation for any simulations”); 246-14 at 5

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(“in the sample I reviewed, I saw no evidence in the documentation that [Defendants] were

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doing complex simulations”).

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simulations as a matter of course with every SBRT fraction, and Dr. Noyes’s review of the

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records seems to confirm that fact. He found such billings for every fraction, and found

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they were always improper based on Defendants’ medical records. Doc. 246-9 at 5 (“I

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found that in all the cases in the sample I reviewed CPT code 77290 was billed

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improperly.”). Thus, Dr. Noyes’s opinion is not based on second-guessing the complex

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simulations decisions made by Defendants in individual SBRT cases. It is based on the

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fact, according to Scott and Dr. Noyes, that Defendants consistently bill for complex

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simulations they did not perform.

Scott contends that Defendants charged for complex

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What is more, Dr. Noyes performs hundreds of complex simulations per year and is

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qualified to opine on whether Defendants’ medical records show complex simulations.

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Challenges to his lack of expertise with SRS and SBRT technology can be raised on cross-

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examination.

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6818945, at *3-4 (D. Ariz. Mar. 22, 2016) (denying a motion to exclude a medical billing

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expert because her 30 years of general experience in medical billing and past engagement

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by attorneys were sufficient qualifications); Contreras v. Brown, No. CV-17-08217-PHX-

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JAT, 2019 WL 2080143, at *3 (D. Ariz. May 10, 2019) (denying a motion to exclude a

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medical billing expert where the expert’s general experience in the medical field, and

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familiarity with billing practices nationally, provided sufficient foundation in her area of

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expertise).

See Wichansky v. Zowine, No. CV-13-01208-PHX-DGC, 2016 WL

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Dr. Noyes is also qualified to opine on when doctors can bill under CPT code 77290.

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He completed a four-year residency in radiation oncology and has been practicing radiation

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oncology for more than 20 years. Doc. 249-2 ¶ 3-4. He has received specific training on

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how to perform and document simulations, including when and how complex simulations

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may be billed under CPT code 77290. Id. ¶¶ 10, 12. Dr. Noyes has also worked in the

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development of CPT codes, including with the American Society of Therapeutic Radiation

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Oncology (“ASTRO”) and the American College of Radiation Oncology (“ACRO”).

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Id. ¶ 13. In particular, he was a member of ASTRO’s Code Utilization and Applications

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Committee, the body responsible for considering issues relating to development and

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utilization of CPT codes. Id. He served as a senior editor on two of their coding guides

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and was responsible for answering questions submitted by insurance companies, the

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Centers for Medicare and Medicaid Services (“CMS”), and the public. Id.
Defendants’ Daubert motion to exclude the opinions of Drs. Wyner and Noyes will

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be denied.8

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II.

Summary Judgment.

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A.

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AZC is a cancer treatment center with a radiation oncology department. Doc. 222

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at 2-3. Radiation oncology involves the controlled use of radiation to treat cancer. The

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process generally involves six steps: (1) consultation with the patient; (2) preparation for

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the treatment, including simulation; (3) physics and dosimetry work to customize each

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treatment; (4) treatment delivery; (5) treatment management; and (6) follow-up care.

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Doc. 223 ¶¶ 1, 17. According to ASTRO, steps two and three are often repeated by medical

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necessity during the treatment course. Id. ¶ 18.

Background Information.

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Citing Rule 26(a)(2)(B)’s disclosure requirement, Defendants move to strike Dr.
Noyes’s declaration submitted in opposition to Defendants’ motion as exceeding the scope
of his expert reports. Doc. 252 at 2. But the Court’s Case Management Order, consistent
with Rule 26, states that expert reports must set forth “the testimony the witness is expected
to present during direct examination, together with the reasons therefor.” Doc. 74 at 3
(citing Rule 26 advisory committee’s note to 1993 amendments) (emphasis added). The
intent is to disclose trial testimony. Courts may receive additional evidence when
considering Daubert motions, and often hear testimony directly from experts when
deciding such motions. Rule 26 therefore does not provide a basis for striking Dr. Noyes’s
declaration in this Daubert motion. If Defendants believe information in the declaration
should be excluded from trial because it was not included in Noyes’s Rule 26 reports, they
certainly may object at trial.
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Some of AZC’s patients are insured under federal programs such as Medicare,

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which require AZC to submit claims to be paid for treatment. Doc. 222 at 3. There are

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rules and guidelines dictating the conditions under which Medicare and similar programs

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will pay for particular medical services. Id. Radiation oncology billing involves the use

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of CPT codes, which establish a uniform process for billing medical services.

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Doc. 223 ¶¶ 24-25. The five-character CPT codes are used by payors to help determine

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the amount of payment a doctor receives for services provided. Id. ¶¶ 24-25.

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AZC hired Scott in 2008 to serve as the billing manager of its radiation oncology
department.

Doc. 222 at 4.

He was responsible for overseeing day-to-day billing

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operations, including properly analyzing claims for accuracy and completeness, serving as

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AZC’s expert on coding and billing processes, ensuring that AZC’s billing operations were

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conducted in a manner consistent with payor rules and guidelines, and keeping up-to-date

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with current coding, billing, and compliance requirements. Id.

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Scott filed this lawsuit in 2016, alleging that AZC and its treating physicians, Drs.

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Lee, Reed, and Biggs, submitted false claims for reimbursement from Medicare, Medicaid,

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and Tricare in violation of the FCA. See Docs. 1, 47. The FCA authorizes individuals

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such as Scott, known as “relators,” to file civil qui tam suits against persons who present

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false claims to the government. 31 U.S.C. § 3730. Scott’s claims are based on five alleged

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billing schemes: (1) Defendants falsely billed CPT code 77290 for complex simulations in

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SBRT (“Scheme One”); (2) Defendants improperly billed CPT code 77470 for special

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procedures they did not perform (“Scheme Two”); (3) Defendants filed claims for

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medically unnecessary computerized tomography (“CT”) scans (“Scheme Three”);

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(4) Defendants billed for inappropriate brachytherapy treatments (“Scheme Four”); and

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(5) Defendants improperly billed both private and federal insurance programs for the same

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treatment, resulting in overpayments that were not refunded (“Scheme Five”). Doc. 47.

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The Court dismissed all of Scott’s claims based on Schemes Four and Five.

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Doc. 76. The remaining claims are based on Schemes One, Two, and Three, and allege

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that Defendants improperly billed CPT codes 77290 (a complex simulation in connection

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with SBRT), 77470 (a special treatment procedure), and 77295/77301 (second CT scans in

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conjunction with developing breast and prostate cancer treatment plans). Scott also claims

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that Defendants fired him in retaliation for asserting these claims. Doc. 47 at 60.

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B.

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A party seeking summary judgment “bears the initial responsibility of informing the

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district court of the basis for its motion, and identifying those portions of [the record] which

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it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v.

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Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the evidence,

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viewed in the light most favorable to the nonmoving party, shows “that there is no genuine

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dispute as to any material fact and the movant is entitled to judgment as a matter of law.”

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Fed. R. Civ. P. 56(a). Summary judgment is also appropriate against a party who “fails to

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make a showing sufficient to establish the existence of an element essential to that party’s

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case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S.

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at 322. Only disputes over facts that might affect the outcome of the suit will preclude

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summary judgment, and the disputed evidence must be “such that a reasonable jury could

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return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

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248 (1986).

Legal Standard.

Defendants’ Summary Judgment Arguments.

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C.

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Defendants make five arguments: (1) statistical sampling cannot be used to establish

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liability under the FCA; (2) Scott has no evidence that Defendants submitted false

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claims; (3) Scott has no evidence of scienter; (4) Scott’s claims period for CPT code 77290

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is overbroad; and (5) Scott has failed to mitigate his alleged retaliation damages.

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1.

Statistical Sampling.

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Defendants argue that because Scott’s claims involve subjective, fast-specific,

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clinical determinations by treating physicians, liability cannot be established through

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statistical sampling. Doc. 222 at 6. Scott asserts that statistical sampling is widely used in

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FCA cases to prove liability and damages, and is appropriate here. Docs. 237 at 4-8, 244.

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Scott relies heavily on Tyson Foods Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016), a

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case that is helpful but not conclusive. Tyson held that statistical sampling could be used

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in a class action to determine the average amount of time employees took to don and doff

4

protective clothing – time for which they should have been paid by their employer – and

5

that a statistical class-wide analysis could be used to show that individual issues would not

6

predominate over common issues for purposes of class certification. This conclusion was

7

reached in part because the employer had failed to maintain records that could be used to

8

determine how long each employee took to don and doff the protective clothing. As the

9

Supreme Court noted, “respondents sought to introduce a representative sample to fill an

10

evidentiary gap created by the employer’s failure to keep adequate records,” and “there

11

were no alternative means for the employees to establish their hours worked[.]” Id.

12

at 1047. No similar gap exists here. Scott does not contend that the medical records for

13

each procedure are unavailable.

14

But the Supreme Court did not limit its holding to cases where evidence is

15

unavailable. Indeed, it specifically declined to adopt a general rule on the proper use of

16

statistical evidence. Id. at 1046 (“the Court would reach too far were it to establish general

17

rules governing the use of statistical evidence”). Tyson instead explained that “[w]hether

18

and when statistical evidence can be used to establish classwide liability will depend on

19

the purpose for which the evidence is being introduced and on the elements of the

20

underlying cause of action[.]” Id. (quotation marks and citation omitted).

21

Thus, while Tyson did not establish a general rule that approves Scott’s proposed

22

use of statistical evidence, neither did it reject statistical evidence as inadequate to meet a

23

burden of proof or as a denial of due process, as Defendants contend. Instead, Tyson treated

24

statistical evidence like other forms of proof, noting that “[a] representative or statistical

25

sample, like all evidence, is a means to establish or defend against liability.” Id. Courts

26

must determine whether the evidence is reliable:

27

statistically inadequate or based on implausible assumptions could not lead to a fair or

28

accurate estimate of the uncompensated hours an employee has worked.” Id. at 1048-49.

- 13 -

“Representative evidence that is

1

If reliable, statistical evidence may be admitted at trial and the jury must then decide

2

whether it satisfies the plaintiff’s burden of proof:

3
4
5
6
7
8
9

Once a district court finds evidence to be admissible, its persuasiveness is, in
general, a matter for the jury. Reasonable minds may differ as to whether
the average time Mericle calculated is probative as to the time actually
worked by each employee. Resolving that question, however, is the nearexclusive province of the jury.
Id. at 1049.
A case more directly on point is Ratanasen v. California, Department of Health
Services., 11 F.3d 1467 (9th Cir. 1993). Dr. Ratanasen challenged a claim by the California

10

Department of Health Services (“DHS”) that he had “submitted payment claims to Medi-

11

Cal for services he had not actually rendered.” Id. at 1468. DHS’s claim was based on “a

12
13

sample of 300 Medi-Cal beneficiaries out of a total of 8,761 beneficiaries for whom
Ratanasen had submitted claims during the period in question.” Id. at 1469. Like

14

Defendants in this case, Ratanasen objected to the use “of a random sample, which was

15

then used to calculate an estimated overpayment,” arguing that “to reach a true

16
17
18
19
20
21
22
23
24

overpayment, each file would have to be examined on its own.” Id.
In addressing Ratanasen’s argument, the Ninth Circuit reviewed the decision of four
circuit courts of appeals and one district court that had approved the use of statistical
sampling in similar situations. Id. at 1469-71. The court reached this conclusion: “We
now join other circuits in approving the use of sampling and extrapolation as part of audits
in connection with Medicare and other similar programs, provided the aggrieved party has
an opportunity to rebut such evidence.” Id. at 1471.9
The Ninth Circuit’s decision in Ratanasen comports with the clear weight of
authority on using statistical evidence in medical fraud cases. See United States v. Rogan,

25
26
27
28

9

The Ninth Circuit also recently approved the use of statistical evidence in a class
action to recover compensation from an employer. See Ridgeway v. Walmart Inc., 946
F.3d 1066, 1087 (9th Cir. 2020) (“Statistical examples . . . are a means of proving a
case. . . . These types of evidence are only permissible when the evidence is reliable in
proving or disproving the elements of the relevant cause of action.”) (quotation marks and
citation omitted).
- 14 -

1

517 F.3d 449, 453 (7th Cir. 2008) (rejecting as “a formula for paralysis” defendant’s

2

argument that the district court in a health care fraud case must address each of the 1,812

3

medical claims forms); United States v. Lahey Clinic Hosp., Inc., 399 F.3d 1, 18 n.19 (1st

4

Cir. 2005) (statistical sampling may be used to establish amount of Medicare overpayments

5

because “sampling of similar claims and extrapolation from the sample is a recognized

6

method of proof”); Chaves Cty. Home Health Serv. v. Sullivan, 931 F.2d 914, 922-23 (D.C.

7

Cir. 1991) (statistical sampling procedures may be used to determine health care provider’s

8

liability for claiming Medicare reimbursement with respect to services not covered by the

9

Medicare statute); Yorktown Med. Lab, Inc. v. Perales, 948 F.2d 84, 89-90 (2d Cir. 1991)

10

(use of statistical sampling and extrapolation to establish a laboratory’s liability for

11

overcharging Medicaid program is consistent with due process in light of the low risk of

12

error, the government’s interest in minimizing administrative burdens, and the

13

government’s interest in eliminating fraud); Mich. Dep’t of Educ. v. U.S. Dep’t of Educ.,

14

875 F.2d 1196, 1205-06 (6th Cir. 1989) (random sampling and statistical methods of

15

extrapolating the sample results to a large universe of claims may serve as evidence of

16

whether the claims complied with statutory limitations on federal payments).

17

Defendants contend that Ratanasen is inapposite because it arose out of a

18

government audit and not an FCA case. But nothing in Ratanasen limits its holding to

19

audits. And contrary to Defendants’ assertion, many courts have allowed statistical

20

sampling in FCA cases. See, e.g., Rogan, 517 F.3d at 453; Life Care, 114 F. Supp. 3d

21

at 556; United States v. Americus Mortg. Corp., No. 4:12-CV-2676, 2017 WL 4083589, at

22

*4 (S.D. Tex. Sept. 14, 2017); United States v. Fadul, No. CIV.A. DKC 11-0385, 2013

23

WL 781614, at *14 (D. Md. Feb. 28, 2013); United States ex rel. Loughren v. Unum

24

Provident Corp., 604 F. Supp. 2d 259, 261 (D. Mass. 2009); United States ex rel. Harris

25

v. Bernad, 275 F. Supp. 2d 1, 8 (D.D.C. 2003).

26

Defendants argue that the use of statistical sampling would violate their right to due

27

process of law. Doc. 222 at 8. The argument seems to be that if Scott is permitted to prove

28

that Defendants made a false claim on a particular occasion without presenting direct

- 15 -

1

evidence of that false claim – if Scott instead can prove the false claim by showing that it

2

was statistically probable that Defendants submitted a false claim on that occasion – then

3

Defendants will be denied due process on that claim. The Court disagrees for at least three

4

reasons.

5

First, while it certainly is true, as Defendants emphasize, that Scott must “prove all

6

essential elements of the cause of action, including damages, by a preponderance of the

7

evidence,” 13 U.S.C. § 3731(d), nothing in the FCA or the Constitution suggests that a

8

preponderance of the evidence cannot be provided by reliable representative evidence.

9

AZC cites no case that so holds.

10

Second, Defendants’ argument seems to ignore the nature of the preponderance of

11

the evidence standard. Id. That standard considers probabilities – it does not require direct

12

proof. As Ninth Circuit Model Jury Instruction 1.6 explains: “When a party has the burden

13

of proving any claim or affirmative defense by a preponderance of the evidence, it means

14

you must be persuaded by the evidence that the claim or affirmative defense is more

15

probably true than not true.” (Emphasis added). Such probability can be proved by a

16

variety of means, including indirect evidence.

17
18
19
20
21
22
23
24
25
26
27

Third, Defendants’ argument would eliminate common forms of indirect evidence.
For example:
Evidence of a person’s habit or an organization’s routine practice may be
admitted to prove that on a particular occasion the person or organization
acted in accordance with the habit or routine practice. The court may admit
this evidence regardless of whether it is corroborated or whether there was
an eyewitness.
Fed. R. Evid. 406. This rule specifically recognizes that indirect evidence may be used to
prove an event, even when there is no corroborating or direct evidence of the event. Indeed,
evidence of habit or routine is much like statistical proof – a defendant’s actions at other
times is used to prove how it most likely acted during the event in question.
The law on direct and circumstantial evidence makes the same point:

28
Evidence may be direct or circumstantial. Direct evidence is direct proof of
- 16 -

1
2
3
4

a fact, such as testimony by a witness about what that witness personally saw
or heard or did. Circumstantial evidence is proof of one or more facts from
which you could find another fact. You should consider both kinds of
evidence. The law makes no distinction between the weight to be given to
either direct or circumstantial evidence. It is for you to decide how much
weight to give to any evidence.

5
6

Ninth Circuit Model Jury Instruction 1.12. Simply stated, the law does not require direct

7

proof of a fact. Facts may be proven by indirect evidence if the jury finds the indirect

8

evidence sufficiently persuasive.

9

If sufficiently reliable to be admitted under Rule 702, the Court concludes that

10

statistical evidence may be admitted to prove Scott’s claims in this FCA case. Defendants

11

have provided no basis for the Court to conclude that such evidence would violate their

12

right to due process of law. See Yorktown, 948 F.2d at 89-90 (use of statistical sampling

13

and extrapolation to establish liability for overcharging Medicaid program is consistent

14

with due process in light of the low risk of error, the government’s interest in minimizing

15

administrative burdens, and the government’s interest in eliminating fraud); Life Care, 114

16

F. Supp. 3d at 570 (FCA medical billing case, holding that “Defendant will be afforded

17

due process by having the opportunity to depose the Government’s [statistical] expert,

18

challenge the qualifications of the Government’s expert, retain its own expert, and to

19

present all of this evidence at trial.”).10

20

Defendants asserted during oral argument that statistical sampling is inappropriate

21

in this case because each patient, each illness, and each treatment is different, and

22

generalization through statistics cannot possibly account for the many individual variables

23

that affect whether a particular procedure in a particular case was warranted. But as

24

discussed above with respect to CPT code 77290, Dr. Noyes does not purport to make

25

individualized determinations about whether a complex simulation was warranted by the

26

circumstances of a particular case. (Nor does Defendants’ expert, Dr. Steinberg.) Dr.

27
28

10

The Court acknowledges that there may be situations where statistical sampling
is not appropriate. See, e.g., Cimino v. Raymark Indus., Inc., 151 F.3d 297 (5th Cir. 1998).
- 17 -

1

Noyes instead asserts that Defendants’ billings under CPT code 77290 were improper

2

because their own medical records show that they did not perform the complex simulation

3

for which they billed. He found this to be true in 100% of the cases he examined, a

4

percentage which tends to corroborate Scott’s assertion that complex simulations were

5

billed by Defendants routinely whenever SBRT fractions were administered.

6

Doc. 246-9 at 11-34. Dr. Noyes’s opinions on CPT codes 77470, 77295, and 77301 are

7

also based solely on his review of medical records. Docs. 223-15; 223-16. Defendants

8

will be free at trial, if they choose, to cross examine Scott’s experts on how their statistical

9

analysis can account for individual patient variations.

See

10

One other point is important. The Supreme Court has observed that, in complex

11

cases such as this, “a representative sample is ‘the only practicable means to collect and

12

present relevant data’ establishing a defendant’s liability.” Tyson Foods, 136 S. Ct. at 1046

13

(citing Manual of Complex Litigation § 11.493, p.102 (4th ed. 2004)). Scott’s complaint

14

alleges that AZC submitted at least 4,000 false claims. Doc. 47 at 17-18. No reasonable

15

trial could include individualized proof of 4,000 separate occurrences of fraud. And as one

16

district court has observed:
Defendant’s position – that statistical sampling simply cannot be applied to
an FCA case involving Medicare overpayment – is broad and potentially farreaching. If accepted, it would materially limit the efficacy of the FCA as a
tool to combat fraud against the government. . . . If the Court were to reach
the conclusion urged by the Defendant – that a claim-by-claim review is
required in every FCA action and that statistical sampling is never
permissible – potential perpetrators of fraud would be emboldened by the
fact that a claim-by-claim review is often impractical.

17
18
19
20
21
22
23

Life Care, 114 F. Supp. 3d at 571.

24

Defendants have had a full opportunity to develop their response to Scott’s

25

statistical evidence, and will have a full opportunity to present their defense at trial. The

26

jury will be instructed clearly on Scott’s burden of proof, and will decide whether Scott’s

27

evidence meets that burden. Due process will not be denied.

28

///

- 18 -

1

2.

False Claims.

2

An FCA claim includes four elements: “(1) a false statement or fraudulent course

3

of conduct, (2) made with scienter, (3) that was material, causing (4) the government to

4

pay out money or forfeit moneys due.” United States ex rel. Hendow v. Univ. of Phx., 461

5

F.3d 1166, 1174 (9th Cir. 2006). “Evidence of an actual false claim is the sine qua non of

6

a False Claims Act violation.” United States v. Kitsap Physicians Serv., 314 F.3d 995,

7

1002 (9th Cir. 2002). Defendants contend that Scott cannot present evidence of any false

8

claims submitted by Defendants.

9

a.

10

CPT Code 77290.
i.

Objective Falsity Argument.

11

Scott contends that a complex simulation did not occur before each fraction of

12

SBRT treatment. Doc. 47 at 13-14. This contention is based on Dr. Noyes’s review of

13

AZC’s medical records. Doc. 254 ¶ 124. Dr. Noyes concluded that complex simulations

14

were not shown by the medical records, as it appeared that AZC physicians were merely

15

performing image guidance, which is not the same as a complex simulation. Id. ¶ 122;

16

Doc. 246-9 at 5.

17

Defendants contend that summary judgment is warranted in an FCA case where a

18

plaintiff cannot present evidence that a claim was “objectively false.” Defendants derive

19

this “objective falsity” requirement from United States v. AseraCare, 938 F.3d 1278 (11th

20

Cir. 2019), a case which held that “the mere difference of reasonable opinion between

21

physicians, without more, . . . does not constitute an objective falsehood” and cannot

22

support an FCA claim. Id. at 1301. Defendants also cite United States ex rel. Winter v.

23

Garden Regional Hospital and Medical Center, Inc., Case No. CV 14-08850-JFW, 2017

24

WL 8793222 (C.D. Cal. Dec. 29, 2017), a California district court case which held that “to

25

prevail on an FCA claim, a plaintiff must show that a defendant knowingly made an

26

objectively false representation,” and that “subjective medical opinions . . . cannot be

27

proven to be objectively false.” Id. at *6.

28

- 19 -

1

The Ninth Circuit recently reversed the district court decision in Winter and held

2

that the FCA does not require proof of objective falsity: “Under the plain language of the

3

statute, the FCA imposes liability for all ‘false or fraudulent claims’ – it does not

4

distinguish between ‘objective’ and ‘subjective’ falsity or carve out an exception for

5

clinical judgments and opinions.” Winter ex rel. United States v. Gardens Reg’l Hosp. &

6

Med. Ctr., Inc., 953 F.3d 1108, 1117 (9th Cir. 2020). Although the Ninth Circuit suggested

7

that its holding could be harmonized with AseraCare, it made clear that “to the extent that

8

AseraCare can be read to graft any type of ‘objective falsity’ onto the FCA, we reject that

9

proposition.” Id. at 1119 (citation omitted). The Third Circuit also recently rejected

10

AseraCare’s “objective falsity” requirement. See United States v. Care Alternatives, 952

11

F.3d 89, 99-100 (3d Cir. 2020).

12

As part of their objective falsity argument, Defendants contend that because their

13

expert, Dr. Steinberg, reviewed the same medical records as Dr. Noyes and found that

14

complex simulations did properly occur with each SBRT fraction, Scott cannot establish

15

falsity under the FCA. Defendants assert that “a reasonable difference of opinion among

16

physicians reviewing medical documentation ex post is not sufficient on its own to suggest

17

that those judgments – or any claims based on them – are false under the FCA.” AseraCare,

18

938 F.3d at 1297.

19

The Court does not agree. A “doctor’s clinical opinion must be judged under the

20

same standard as any other representation.” Winter, 953 F.3d at 1113. As the Ninth Circuit

21

explained in its recent decision:

22
23
24
25
26

A doctor, like anyone else, can express an opinion that he knows to be false,
or that he makes in reckless disregard of its truth or falsity. See 31 U.S.C.
§ 3729(b)(1). We therefore hold that a false certification of medical
necessity can give rise to FCA liability. We also hold that a false certification
of medical necessity can be material because medical necessity is a statutory
prerequisite to Medicare reimbursement.

27
28

- 20 -

1

Id.; see also United States v. Paulus, 894 F.3d 267, 275 (6th Cir. 2018) (doctor “opinions

2

are not, and have never been, completely insulated from scrutiny,” and “may trigger

3

liability for fraud when they are not honestly held by their maker”).

4

Nor does the Court agree with Defendants’ contention that a contrary medical

5

opinion is never enough, standing alone, to prove the falsity of a medical billing claim.

6

The Ninth Circuit stated in Winter that “an opinion can establish falsity.” 953 F.3d at 1120.

7

And the Third Circuit recently held, in response to AseraCare, that “a difference of medical

8

opinion is enough evidence to create a triable dispute of fact regarding FCA falsity.” Care

9

Alternatives, 952 F.3d at 99-100. Thus, in FCA cases as in others, the “reliability and

10

believability of expert testimony . . . is exclusively for the jury to decide.” Paulus, 894

11

F.3d at 277 (citations omitted); see also Wyler Summit P’ship v. Turner Broad. Sys., Inc.,

12

235 F.3d 1184, 1192 (9th Cir. 2000) (“Weighing the credibility of conflicting expert

13

witness testimony is the province of the jury.”). The opposing opinions of Drs. Noyes and

14

Steinberg create an issue of fact that must be resolved at trial.

15

What is more, Scott does not rely solely on the testimony of Dr. Noyes. He also

16

presents evidence that a 2013 audit of Defendants’ medical practice – by auditors selected

17

by Defendants themselves – found that billing of complex simulations for each SBRT

18

fraction under CPT code 77290 was improper. Doc. 223-23 at 9. The audit cited numerous

19

examples. See Doc. 236-16 at 2, 6-7, 10-12 (stating that it is “not appropriate . . . to bill a

20

daily simulation for isocenter location, as image guidance is included in the SBRT delivery

21

codes.”) (under seal). The audit also cited instances of Defendants improperly billing CPT

22

code 77290 that corroborate Dr. Noyes’ opinion.

23

documentation in the chart indicating that a complex simulation occurred on this date of

24

service”); id. at 5 (“there is no documentation to indicate that a complex simulation was

25

performed on this date of service. It would not be appropriate to bill a complex simulation

26

for the boost physics plan.”); id. at 8-9 (“This was billed incorrectly as a complex

27

simulation.”); id. at 9 (“There was no documentation to support this charge[.]”); id. at 11

28

(“There is no documentation for the verification simulation prior to treatment. Normally

- 21 -

See, e.g., id. at 4 (“there is no

1

this would be a simple simulation.”). And Defendants’ own expert testified that he

2

personally does not bill under CPT code 77290 when administering fractions of SBRT and

3

does not know of any other radiation oncologists who does. Doc. 236-10 at 13, 83. The

4

jury must resolve the factual issue presented by this evidence.

5

ii.

Alleged Lack of Authority.

6

Scott also argues that CPT code 77290 cannot be billed to federal healthcare payers

7

in combination with CPT code 77373 (delivery of SBRT treatment). Doc. 47 at 14. Scott

8

asserts that a reasonable jury could find that while Defendants had a uniform policy of

9

billing CPT code 77290 with every fraction of SBRT, they did not perform the services

10

encompassed by that code. Doc. 237 at 10.

11

Defendants argue that Scott identifies no governing authority to support his claim

12

that Defendants improperly billed CPT code 77290, and that Dr. Noyes’s conclusion that

13

Defendants engaged in routine image guidance is nothing more than a difference of opinion

14

based upon an ex post review of the medical records. Docs. 222 at 10, 247 at 9. Defendants

15

specifically argued during oral argument that no law prohibits them from billing CPT

16

code 77290 for every SBRT fraction. But this argument assumes that a complex simulation

17

was actually performed with every fraction. Surely a doctor commits fraud by knowingly

18

billing the government for a complex simulation he did not perform, even if there is no

19

clear billing guidance for that procedure. Even without specific guidance, Defendants may

20

submit false claims under the FCA.

21

As noted above, Scott has also presents evidence beyond Dr. Noyes’s conclusion

22

that billing CPT code 77290 with every fraction was improper. AZC selected American

23

Medical Accounting & Consulting (“AMAC”) to conduct a billing audit of its radiation

24

oncology practice in 2013. Doc. 223-17 at 5. AMAC’s audit was based on AZC’s charts

25

and documents, and relied on guidance from a number of resources, including the CPT

26

Codebook, the World Health Organization’s International Classification of Diseases, the

27

Healthcare Common Procedural Coding system, the ASTRO/ACR Guide to Radiation

28

Oncology Coding, various Medicare LCD policies, and CCI Edits. Doc. 223-18 at 5.

- 22 -

1

The audit revealed that Defendants were improperly billing under CPT code 77290

2

with each fraction of SBRT. Doc. 223-23 at 9. The individual billing review produced by

3

AMAC as part of the audit cited numerous examples of improper billing similar to Dr.

4

Noyes’s cited examples. See Doc. 236-16 at 2, 4-9, 10, 11, 12. And as also noted above,

5

Dr. Steinberg testified that he personally does not bill under CPT code 77290 when

6

administering fractions of SBRT and does not know of any other radiation oncologists who

7

do. Doc. 236-10 at 13, 83.11

8

When construed in Scott’s favor, as required at the summary judgment stage, this

9

evidence could support a reasonable jury’s finding that Defendants’ billings under CPT

10

code 77290 were improper. Summary judgment will be denied with regard Scott’s claims

11

arising out of this code.

12

b.

CPT Code 77470.12

13

Scott alleges that Defendants improperly billed CPT code 77470 on patients

14

since 2009. Doc. 47 at 22. Defendants argue that summary judgment is warranted because

15

Dr. Noyes failed to conduct a full review of AZC’s patient charts, and the only evidence

16

Scott can present is controverted by their expert, Dr. Steinberg. Doc. 222 at 11. Defendants

17

again rely on the Eleventh Circuit’s AseraCare decision, which the Ninth Circuit declined

18

to follow. Winter, 953 F.3d at 1117-19. And as explained above, the Court disagrees with

19

Defendants’ assertion that an issue of fact cannot be created by a contrary expert opinion.

20

Defendants argue that Dr. Noyes’s factual review was inadequate, but he asserts that

21

he reviewed the necessary records for his opinion. Doc. 236 ¶¶ 133-38. Scott also notes

22

that Drs. Noyes and Steinberg disagree on only a relatively small percentage of the CPT

23

code 77470 cases. Id. The conflicting evidence presented by these doctors creates a

24

question of fact that must be resolved by the jury. See Wyler, 235 F.3d at 1192 (“Weighing

25
11

26
27

Defendants assert that Scott agreed with their decision to continue billing CPT
code 77290 for every SBRT fraction after the audit (Doc. 247 at 13), but this assertion is
disputed (Docs. 236 ¶ 85, 236-7 at 61-62), presenting a factual question for the jury.
CPT 77470 is a “special treatment procedure” code billed only when the physician
performs extra work during the course of treatment due to underlying comorbidities or
special circumstances. Docs. 47 at 22, 223-8 at 8.
12

28

- 23 -

1

the credibility of conflicting expert witness testimony is the province of the jury.”); see

2

also Care Alternatives, 952 F.3d at 100 (“a difference of medical opinion is enough

3

evidence to create a triable dispute of fact regarding FCA falsity.”).

4
5

c.

CPT Codes 77295 and 77301.13

Scott alleges that it was not medically necessary for Defendants to perform a second

6

CT scan while treating patients for breast or prostate cancer.

7

Defendants argue that Scott relies solely on Dr. Noyes’s opinions, which are based on an

8

ex post review of medical records. Doc. 222 at 12. Again citing AseraCare, Defendants

9

contend that without more, summary judgment is warranted. Id.

Doc. 47 ¶¶ 139-61.

10

The disagreement between the experts precludes summary judgment. Dr. Steinberg

11

opined that in cases of breast cancer, conducting a second CT scan is the standard of care

12

and medically necessary. Doc. 223-10 at 13. He opined that in the case of prostate cancer,

13

second CT scans were justified by documented and significant changes in prostate volume.

14

Id. at 14. Dr. Noyes reached a different conclusion, finding that only one set of records for

15

both breast and prostate cancer properly established medical necessity, and that the

16

remainder were improperly billed. Doc. 223-16 at 7-8. As already explained, a jury must

17

resolve this dispute. See Wyler, 235 F.3d at 1192; Care Alternatives, 952 F.3d at 100.

18

3.

Scienter.

19

To act with scienter in an FCA case, a defendant must act with knowledge that the

20

claim for payment is false, or with deliberate ignorance or reckless disregard of whether it

21

is false. § 3729(b). Congress adopted this definition to make “‘firm . . . its intention that

22

the act not punish honest mistakes or incorrect claims submitted through mere

23

negligence.’” United States ex rel. Hochman v. Nackman, 145 F.3d 1069, 1073 (9th Cir.

24

1998) (quoting S. Rep. No. 99–345 at 7 (1986)).

25
26
27
28

CPT code 77295 is defined as a “3-dimensional radiotherapy plan, including dosevolume histogram,” and is based on the patient anatomy defined by three-dimensional
reconstructions obtained from trans-sectional imaging devices such as CT or MRI scans.
Doc. 223-10 at 12, 65. CPT code 77301 is defined as an “intensity modulated radiotherapy
plan, including dose-volume histograms for target and critical structure partial tolerance
specifications.” Id. at 65.
13

- 24 -

1

Defendants turn again to the “objective falsity” argument rejected by the Ninth

2

Circuit in Winter, 953 F.3d at 1119. The Court need not say more on this incorrect

3

argument.

4

The AMAC audit put Defendants on notice, as of November 27, 2013, that their

5

billing practices under CPT code 77290 were improper. This evidence could support a jury

6

finding that Defendants acted with scienter when they failed to change their billing

7

practices for CPT code 77290. Reckless disregard suffices for scienter and applies to “the

8

ostrich type situation where an individual has buried his head in the sand and failed to make

9

simple inquiries which would alert him that false claims are being submitted.” United

10

States v. United Healthcare Ins., 848 F.3d 1161, 1176 (9th Cir. 2016) (citations omitted).

11

Construed in Scott’s favor, the evidence creates a question of fact on whether Defendants

12

acted with scienter.

13

Defendants argue that Scott cannot present evidence that they did not provide the

14

services billed for under CPT codes 77470, 77295, and 77301. Doc. 222 at 14. But the

15

experts clearly disagree on this issue, creating a question of fact that precludes summary

16

judgment. See Wyler, 235 F.3d at 1192; Care Alternatives, 952 F.3d at 100.

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4.

Overbreadth of CPT Code 77290.

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Defendants contend that Scott can present no evidence that they had reason to doubt

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the propriety of billing CPT code 77290 before receiving the AMAC report on

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November 27, 2013. Doc. 222 at 15. The Court agrees. Scott has failed to present any

21

evidence that Defendants knew or had reason to know of alleged impropriety in their

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billings under CPT code 77290 before receiving the final AMAC report.14

23
24
During oral argument, Scott asserted that Dr. Biggs’s April 15, 2013 email is
evidence of a “guilty mind.” Scott notes in his statement of facts that Dr. Biggs’s email
said the AMAC audit would be a “major pain” that “cannot turn into a witch hunt and/or
bashing session,” and that he favored “cancellation.” See Docs. 236 ¶ 156. But the email
also notes that “there are better things to do with [$]11K.” Doc. 236-14 at 3. This
imprecise evidence would not support a jury finding that Defendants knew they were
billing improperly under CPT code 77290 before November 27, 2013. Nor could such a
finding be based on Defendants’ general duty to be familiar with billing codes or the draft
audit report that was subject to review and revision.
14

25
26
27
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1

Scott’s reliance on the FCA’s reverse false claims provision is not convincing. Scott

2

alleges that Defendants knowingly avoided an obligation to refund overpayments in

3

violation of § 3729(a)(1)(G). But the Court previously dismissed claims arising out of this

4

argument, finding that Scott made no allegation that Defendants committed fraud with

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respect to any credits. Doc. 76.

6

Because Scott has presented no evidence that Defendants acted with scienter in

7

billings under CPT code 77290 before November 27, 2013, the Court will grant summary

8

judgment with respect to those billings. Celotex, 477 U.S. at 322 (Summary judgment is

9

appropriate against a party who “fails to make a showing sufficient to establish the

10

existence of an element essential to that party’s case, and on which that party will bear the

11

burden of proof at trial.”).

12

5.

Mitigation of Damages.

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Scott alleges that Defendants fired him in retaliation for bringing this action.

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Doc. 47 ¶¶ 317-23. AZC terminated Scott on March 29, 2018, asserting that he failed to

15

perform his responsibilities as billing manager. Doc. 223-27 at 2. Scott obtained another

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billing position in July 2018, but quit two weeks later and took a lower paying job.

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Doc. 223-4 at 28-30. Claiming that Scott failed to mitigate his damages, Defendants seek

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summary judgment on damages for his retaliation claim. Doc. 222 at 15.

19

A discharged employee has “a duty to mitigate damages by seeking alternative

20

employment with ‘reasonable diligence.’” Caudle v. Bristow Optical Co., 224 F.3d 1014,

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1020 (9th Cir. 2000). Defendants argue Scott has not, since July 2018, actively searched

22

for a job that would pay a market rate for his experience. Docs. 222 at 16-17, 247 at 19.

23

In response, Scott presents evidence that he applied for nearly 100 jobs and engaged in 20

24

interviews before receiving a single job offer at a lower salary than he received in the past.

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Doc. 236-22 at 5-6. Defendants imply that Scott took a lower paying job to inflate his

26

mitigation damages, but Scott presents evidence that he took the lower paying job to obtain

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health insurance. Doc. 223-4 at 30, 32. Scott’s expert opines that he engaged in reasonable

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mitigation efforts. Id. at 8-9. Scott has raised a genuine is of fact that precludes summary

2

judgment on his mitigation efforts.
Scott’s Cross-Motion for Summary Judgment.

3

D.

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AZC alleges that Scott breached his fiduciary duties by committing serious

5

misconduct in bad faith and contrary to the best interests of AZC. Doc. 122 at 63. AZC

6

asserts three theories of liability against Scott: (1) he improperly billed for SRT with CPT

7

code 77373 instead of Healthcare Common Procedure Coding System (“HCPCS”) code

8

G0340, (2) he improperly wrote off patient account balances without obtaining approval

9

from physicians, and (3) he failed to reimburse overpayments to insurance company

10

payors. Id. 51-61. Scott seeks summary judgment on all three theories.

11

1.

First Theory – Statute of Limitations.15

12

Scott argues that AZC’s first theory relating to the alleged failure to bill SRT using

13

HCPCS code G0340 is barred by the statute of limitations. Doc. 237 at 21. He contends

14

that Defendants were on notice as of November 27, 2013 – the date of the AMAC audit

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report – that they could bill for SRT under a G code, and that they knew as early as October

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2010 that he instead was billing under CPT code 77373. Doc. 237 at 22.

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Arizona law governs AZC’s claim against Scott. See United Mine Workers of Am.

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v. Gibbs, 383 U.S. 715, 726 (1966). Actions for breach of fiduciary duty must commence

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within two years of the action’s accrual. A.R.S. § 12-542; CDT, Inc. v. Addison, Roberts

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& Ludwig, C.P.A., 7 P.3d 979, 981 (Ariz. Ct. App. 2000). “The limitations period begins

21

to run when the plaintiff discovers the cause of action – that is, when the plaintiff knows,

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or reasonably should know, that he has been harmed, that the harm was caused by the

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defendant, and that the act or omission which caused the harm was wrongful.” Wichansky

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v. Zowine, 150 F. Supp. 3d 1055, 1062 (D. Ariz. 2015).

25

Summary judgment is precluded by factual issues on when AZC knew or should

26

have known that Scott’s failure to bill SRT procedures under the G code harmed it and was

27
15

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AZC claims that Scott improperly billed for SRT with CPT code 77373 instead
of HCPCS code G0340. Doc. 122 at 58. AZC contends that it consequently lost over $2
million from commercial payors. Doc. 248 ¶ 209.
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wrongful. Id. In Walk v. Ring, 44 P.3d 990 (2002), the Arizona Supreme Court held that,

2

in determining whether the plaintiff was on notice to investigate, the question is whether a

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plaintiff’s “failure to go forward and investigate [his possible cause of action] is not

4

reasonably justified.” Id. at 996. For example, a plaintiff would be reasonably justified in

5

declining to investigate a claim against a possible defendant if the plaintiff “subjectively

6

believed” that the defendant had done nothing wrong. Id. (citation omitted). The question

7

is whether a reasonable person in the plaintiff's position would investigate the claim. Id.

8

Even if AZC knew, prior to the limitations period, that Scott was not billing the

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G code for SRT procedures, the claim for breach of fiduciary duty would not accrue until

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AZC also knew or had reason to know that it could bill under that code and that Scott’s

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failure to do so was wrongful. AZC presents evidence that Scott advised it to disregard the

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conclusion in the AMAC report regarding billings under the G code, said the auditors had

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misunderstood the AZC equipment, advised it that it could not bill SRT procedures under

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the G code, and that it relied on Scott and trusted his advice as its longtime billing manager.

15

See Doc. 248 ¶¶ 215-20. Scott does not address this evidence in his reply, and it clearly

16

creates a question of fact as to when AZC’s cause of action accrued. Doc. 251 at 2-5.

17

Walk also notes that the accrual of a claim must account for any fiduciary duty that

18

existed between the plaintiff and the defendant. AZC asserts that Scott owed it fiduciary

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duties. Walk states that “‘if the fiduciary nature of the relationship charges the fiduciary

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with a duty to disclose his wrong to the plaintiff and he fails to disclose, the statute of

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limitations will be tolled.’” 44 P.3d at 1000 (quoting Bourassa v. LaFortune, 711 F. Supp.

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43, 46 (D. Mass. 1989)). Whether Scott breached his fiduciary duty to AZC in this manner

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is not addressed by the parties and is for the jury to decide.

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2.

Second and Third Theories – Damages.

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Scott argues that AZC cannot prove damages on its second theory that he improperly

26

wrote off account balances and on its third theory that he failed to reimburse overpayments

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to insurance company payors. Doc. 237 at 23; see Doc. 122 at 51-61. AZC responds that

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it does not seek to recover lost revenue, but instead seeks to recover $546,348.80 in

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compensation and benefits paid to Scott. Doc. 247 at 23, 26. AZC relies on the “faithless

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servant doctrine,” under which an employee who violates his fiduciary duties forfeits the

3

right to compensation during the period of faithfulness. Doc. 247 at 24. Under this

4

doctrine, “an agent is entitled to no compensation for conduct which is disobedient or

5

which is a breach of his duty of loyalty.” Restatement (Second) of Agency § 469 (1958);

6

see Johnson v. Pac. Lighting Land Co., 817 F.2d 601, 607 (9th Cir. 1987) (“In the absence

7

of contrary authority, Arizona courts follow the Restatement as the proper statement of

8

law.”) (citation omitted).

9

Scott’s initial cross-motion did not anticipate AZC’s assertion of the faithless

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servant doctrine. Scott argued that AZC cannot prove and did not disclose damages

11

incurred as a result of his alleged improper write-offs or his alleged failure to reimburse

12

insurance overpayments. But this basis for summary judgment is rendered moot by AZC’s

13

disavowal of such damages.

14

The question, then, is whether Scott has provided a basis for summary judgment on

15

the compensation AZC seeks to recoup under the faithless servant doctrine. Scott does not

16

argue that the doctrine is unavailable under Arizona law or under AZC’s claim for breach

17

of fiduciary duty. Nor does Scott assert that AZC will be unable to present evidence that

18

he breached his fiduciary duties. Instead, Scott’s sole argument in his reply brief continues

19

to be that AZC cannot prove that it suffered losses “caused” by his allegedly wrongful

20

action. But this argument misunderstands the faithless servant doctrine. Compensation

21

under that doctrine is not recouped by an employer because it approximates the financial

22

harm “caused” by the employee’s actions. Compensation is recouped because it was paid

23

in vain – it was paid for faithful service that the employer did not receive. The employee’s

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faithless service causes the loss. As one court has explained, “dishonesty and disloyalty

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on the part of an employee which permeates his service to his employer will deprive him

26

of his entire agreed compensation, due to the failure of such an employee to give the

27
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1

stipulated consideration for the agreed compensation.” Foley v. Am. Elec. Power, 425 F.

2

Supp. 2d 863, 863 (S.D. Ohio 2006).16

3

AZC claims that it should recover the compensation paid to Scott because it never

4

received the faithful service for which he was paid. If AZC proves what it alleges, Scott’s

5

faithlessness will supply the necessary causation. Thus, Scott has provided no basis for

6

granting summary judgment on AZC’s breach of fiduciary duty claim.

7

III.

Other Matters.
Government’s Statement of Interest.

8

A.

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The government has not intervened, but seeks leave to file a statement of interest in

10

response to Defendants’ motion for partial summary judgment. Doc. 231. The parties do

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not object. Id. at 1. “Pursuant to 28 U.S.C. § 517, the United States may submit a statement

12

in a case expressing its views on relevant issues in which it has an interest.” Wortman v.

13

All Nippon Airways, 854 F.3d 606, 617 (9th Cir. 2017). The Court will grant the motion

14

and consider the government’s statement of interest.17
Scott’s Motion to Seal.

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B.

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Scott moves to seal portions of his cross-motion for summary judgment, statement

17

of facts, and response to Defendants’ summary judgment motion. Doc. 234. Scott has

18

lodged the proposed sealed versions of the documents with the Court and has filed redacted

19

public versions on the docket. See LRCiv 5.6(b)-(c).

20

The filings contain confidential business information related to an audit of

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Defendants’ radiation oncology billing practices. The Court’s protective order defines

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23
24
25
26
27
28

Scott’s reply also asserts that his alleged breaches of fiduciary duty are unlike
those addressed in the faithless servant cases cited by AZC, and that employees who make
mistakes should not be penalized with the loss of their full compensation. Doc. 251 at 6-8.
But he does not explain how these arguments entitle him to summary judgment, nor did he
assert them in his cross-motion.
16

Defendants request an opportunity to respond to the government’s statement,
asserting that it contains “misleading and selective quotations.” Doc. 247 at 3 n.2. Because
the government’s statement makes many of the same arguments as Scott’s briefing, to
which Defendants have fully responded, and the Court is able to evaluate the cases cited
by the parties, an additional response is not necessary. The outcome of this order has not
been affected by the government’s statement.
17

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1

confidential business information as “any trade secret or other confidential, strategic,

2

research, development, financial, or commercial information that, if disclosed, could

3

detrimentally affect the party’s business, commercial or financial interest.” Doc. 38.

4

Revealing information about Defendants’ billing practices and the results of the audit could

5

detrimentally affect AZC’s business or financial interests.

6

statement of facts will have little effect on the public’s ability to understand the issues

7

addressed in this order because lightly redacted copies have been filed in the public docket.

8

The Court finds compelling reasons to seal and will grant the motion. See Kamakana v.

9

City & Cty. of Honolulu, 447 F.3d 1172, 1179 (9th Cir. 2006). This order has cited to

10

publicly filed briefs and exhibits where possible, and has identified citations to sealed

11

documents.

12

IT IS ORDERED:

13

1.

Sealing the motion and

14
15

Defendants’ motions to exclude the opinions of Dr. Abraham Wyner
(Doc. 225) and Dr. William Noyes (Doc. 246) are denied.

2.

Defendants’ motion for partial summary judgment (Doc. 222) is granted

16

with respect to billings under CPT code 77290 before November 27, 2013,

17

and otherwise is denied.

18

3.

Scott’s cross-motion for summary judgment (Docs. 233, 237) is denied.

19

4.

The government’s motion for leave to file a statement of interest (Doc. 231)

20
21

is granted.
5.

Scott’s motion to file documents under seal (Doc. 234) is granted. The Clerk

22

of Court shall accept for filing under seal the documents lodged on the

23

Court’s docket as Docs. 235, 236.

24

6.

The Court will hold a telephonic hearing on May 13, 2020 at 3:30 p.m. to

25

schedule a final pretrial conference and trial in this matter. Counsel who will

26

be trying the case shall participate in the telephonic hearing. Plaintiff shall

27

initiate a conference call to include counsel for all parties and the Court.

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Plaintiff shall provide the dial in information to counsel for all parties and

2

the court no later than May 11, 2020 at 12:00 noon.

3

Dated this 29th day of April, 2020.

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