United States of America, et al. v. Paksn, Inc., et al Case No. CV 15-09064-SB (AGRx) United States District Court, C.D. California Filed October 18, 2022 Counsel Karen Yumi Paik, Kent A. Kawakami, AUSA-Office of US Attorney, Los Angeles, CA, Lindsey A. Roberts, Rohith Vikram Srinivas, Jessica M. Sarkis, Matthew J. Oster, US Department of Justice, Washington, DC, David Michael Medby, Stephen Michael Garcia, William M. Artigliere, Garcia and Artigliere, Long Beach, CA, Matthew M. Coman, Pro Hac Vice, Garcia and Artigliere, New Orleans, LA, for Plaintiffs. Benjamin N. Gluck, Alexis A. Wiseley, Ashley D. Bowman, Naomi S. Solomon, Nicole R. Van Dyk, Shoshana E. Bannett, Bird Marella Boxer Wolpert Nessim Drooks Lincenberg Rhow PC, Los Angeles, CA, for Defendants CCRC, LLC, HCRC, Inc., Prema Thekkek, Antony Thekkek, Kayal, Inc., Marinoak, Inc., Nadhan, Inc., Diyavilla, Inc., Nadhi, Inc., Oakrheem, Inc., Bayview Care, Inc., Sagar, Inc., Gracevilla, Inc., Karma, Inc., Thekkek Health Services, Inc., Aakash, Inc., Westvilla, Inc., Nasaky, Inc., Premier Rehab Services, Inc., Kazak Enterprises, Inc. Rosenberg, Alicia G., United States Magistrate Judge Proceedings: VIDEO DISCOVERY CONFERENCE RE: UNITED STATES' MOTION TO COMPEL DISCOVERY (Dkt. No. 279.) *1 Case is called. Counsel state their appearances. The United States filed a motion to compel production of documents responsive to its fifth set of document requests. (Dkt. No. 279.) Defendants filed an opposition. (Dkt. No. 287.) The Government filed a reply. (Dkt. No. 288.) The matter came on for hearing. Factual Background In this False Claims Act case, the Government contends that Defendants paid physicians kickbacks to induce patient referrals for over a decade. (See Intervenor Complaint filed June 14, 2021, Dkt. No. 72.) Defendants own or operate the following skilled nursing facilities (“SNFs”) named as defendants: Bay Point Health Care Center, Gateway Care and Rehabilitation Center, Hayward Convalescent Hospital, Hilltop Care and Rehabilitation Center, Martinez Convalescent Hospital, Park Central Care and Rehabilitation Center, and Yuba Skilled Nursing Center. The Government seeks close to $80 million in damages. (Motion at 8.) The Government served its first set of document requests on October 18, 2021. Document Request No. 1 called for production, among other things, of contracts between a SNF Defendant and physicians, including remuneration and services performed, in effect during the period after November 20, 2009. Document Request No. 2 called for production of “[a]ll documents concerning the source(s) of referrals to any SNF Defendant, including without limitations documents purporting or attempting to track referral sources.” (Dkt. No. 287-2 at 11.) According to the Order dated December 17, 2021, Defendants agreed to produce the requested physician contracts. (Dkt. No. 122.) The record does not reflect when the Defendants produced such documents. (Order dated December 22, 2021, Dkt. No. 123; Order dated January 19, 2022, Dkt. No. 133; Order dated February 15, 2022, Dkt. No. 152.) On June 24, 2022, the Government served its fifth set of document requests that, among other things, called for production of patient medical records for approximately 1300 specified patients. (Dkt. No. 287-6.) Meanwhile, in December 2021, Defendants served a set of interrogatories, including Interrogatory Nos. 1 and 11 on the subject of damages. The Government explained that the false claims in this case “include all claims paid to the SNF Defendants for services referred by physicians to whom they paid illegal kickbacks.” (Dkt. No. 235 at 18.)[1] The Government has identified more than 1,300 patients allegedly referred to the SNF Defendants in violation of the Anti-Kickback Statute, and the associated Medicare claims for those patients. In response to Interrogatory No. 12, the Government identified the physician referral source for each Medicare claim at issue. Interrogatory No. 13 asks the Government to “identify all evidence (including but not limited to all documents) that supports the alleged referral source identified in Interrogatory No. 12.” (Id. at 41 (capital lettering omitted). In the Order dated July 20, 2022, the court granted a motion to compel supplemental responses to this interrogatory based on Defendants' persuasive argument that the factual basis for the Government's contention that a patient was referred by a physician who was paid a kickback is directly relevant to the Government's claims and request for damages in this case. (Order, Dkt. No. 238.) *2 As described in the July 20, 2022 Order, the court discerned from oral argument that the referral sources may be gleaned from four main categories of documents: (a) patient medical records produced by Defendants or third party providers; (b) Defendants' referral tracking logs or spreadsheets; (c) physician certifications that will be produced by Defendants; and (d) claims data that identifies the attending physician for the patient and that will be produced by the Government. As it turned out, the patient medical records contain the physician certifications. Two of the categories Defendants' referral logs and the Government's claims data have been produced. Defense counsel advised the court that the other two categories patient medical records and physician certifications are time consuming to produce. The court urged counsel to confer regarding a sampling of patient medical records or any other method that would avoid production of documents on a patient-by-patient basis. In its August 8, 2022 Order, the court again “urged counsel to confer (with their respective experts if necessary) regarding a sampling of patient medical records to be located and produced in short order from agreed facilities and years. The goal would be to review those patient records to determine what information, if any, is available regarding referral sources within the meaning of the case law. Depending on the outcome of this initial review, counsel may confer regarding a further production of a statistical sampling or full production of the remaining patient medical records, as appropriate.” (Dkt. No. 247.) Defendants subsequently produced one patient file, consisting of 30 documents, from one of the seven SNF Defendants. In its Order dated September 8, 2022, the court noted that a sample of one patient file is far from ideal. Nevertheless, the Government argued that there were three categories of documents within that patient file on which the Government could rely in response to Interrogatory No. 13: (1) a “transfer packet” faxed from the discharging hospital to the SNF that contained, among other things, a discharge summary and patient transfer form; (2) physician orders for skilled nursing services and other services, such as physical therapy, for the patient; and (3) physician certifications and recertifications for SNF services. The court made a proposal to resolve the dispute and continued the hearing to September 19, 2022 to give the parties time to consider the court's proposal. (Dkt. No. 270.) At the continued hearing, the parties advised the court that they could not reach agreement. The court set a briefing and hearing schedule in consultation with counsel. (Dkt. No. 274.) Discussion “Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1). “District courts have broad discretion in determining relevancy for discovery purposes.” Surfvivor Media, Inc. v. Survivor Prods., 406 F.3d 625, 635 (9th Cir. 2005). The discovery cut-off date is February 27, 2023. A claim under the False Claims Act requires proof of four elements: “(1) a false statement or fraudulent course of conduct; (2) made with scienter; (3) that was material, causing (4) the government to pay out money or forfeit moneys due.” United States v. Univ. of Phoenix, 461 F.3d 1166, 1174 (9th Cir. 2006). The Government is attempting to show a causal link between Defendants' offer of remuneration (or actual remuneration) to physicians and referrals by those physicians to a SNF Defendant. The requested discovery is directly relevant to show the existence of a referral to a SNF Defendant by a physician who received an offer of remuneration or actual remuneration from a Defendant. The direct relevance of the patient medical records is amply supported by the one sample file that Defendants produced. That patient file included, for example, documents indicating that Dr. Win, a physician who allegedly received kickbacks, (1) was the patient's attending physician in the hospital and ordered that the patient be transferred from the hospital to the SNF and, later, from the SNF to the hospital;[2] (2) ordered medical services for the patient while at the SNF Defendant; and (3) signed the certification or recertification for services to the patient at the SNF Defendant. (Exhs. 4, 6-9 to Oster Decl. (Dkt. No. 281-1 at 4, 6, 9; Dkt. No. 281-2 at 2; Dkt. No. 281-3 at 2; Dkt. No. 281-4 at 2; Dkt. No. 281-5 at 2-5).) This evidence would be directly relevant to determine whether there was a referral within the meaning of 42 U.S.C. § 1320a-7b(b)(2). See United States v. Hong, 938 F.3d 1040, 1048-49 (9th Cir. 2019) (noting only one purpose of payment must be to induce referral “ ‘even if the payments were also intended to compensate for professional services’ ”; noting liability could be imposed on doctor who received remuneration for signed referral forms to provider or for arranging for services to patient) (citation omitted). The Government further argues that Defendants seek to require the Government to prove tainted referrals on a patient-by-patient, referral-by-referral basis and, therefore, cannot at the same time refuse to produce the patient medical records that contain evidence to support the existence of each patient referral by a particular physician. *3 Through oral argument and briefing, the court has thoroughly explored whether there are any practicable alternatives to requiring search of the requested patient medical records and production of the requested documents. There is no indication that sampling is a viable alternative. The parties have not cited, and the court did not locate, any authority that the existence of referrals may be the subject of expert opinion and, even if so, what evidence such an expert would need to review. None of the parties submitted an expert declaration indicating that the existence of referrals could be established by sampling or other expert method. The court also requested that the parties explore whether a stipulation of facts would avoid the need for a search of the individual patient medical records. Counsel reported that they could not reach agreement on such a stipulation of facts.[3] To reduce the scope of the search and production, Defendants proposed that the Government review the hospital claims data for the 1300 patients to determine whether a physician at issue appears as the attending or operating physician at the hospital. Defendants proposed to exclude any patients for whom a physician at issue does not appear as either the attending or operating physician at the hospital.[4] The Government objected and cited a portion of its complaint describing a situation in which a physician at a SNF Defendant allegedly persuaded a colleague at a hospital to refer patients to a Defendant SNF for that physician to treat. (Compl. ¶ 97.) The Government appears to argue that such a physician treating the referred patient at a SNF Defendant could get credit for the referral under the kickback scheme. Moreover, it is unknown whether Defendants' approach would materially reduce the number of patient medical records to be located and searched. Given that the discovery cut-off date is February 27, 2023, there is not enough time left in the discovery period for phased discovery. The court rejects Defendants' proposal for these reasons. Defendants argue that searching 1300 patient medical records identified by the Government and producing responsive documents would cost over $559,000. The Government asserts close to $80 million in damages in this case based on referrals of those 1300 patients. According to Defendants, each such patient has a hard copy file and, for the period after 2014, an electronic file as well. The first step for production of hard copy files would be to locate the relevant boxes. Barring unforeseen circumstances, patient medical records are generally stored alphabetically by year, likely at one central facility. (See Opp. at 16.) To prepare its cost estimate, the vendor assumed that each box contains 2000 pages consisting of medical records for 2.5 patients, or roughly 800 pages per patient medical record file. At a cost of $1,095 to scan each box, the total cost would be $559,000 to copy 1300 patient files. (Bannett Decl. ¶ 2.) Electronically stored files would be downloaded. All of the files, both copies and downloads, would be uploaded to a document management system for review and production. As an example, Defendants produced 30 documents from the one sample patient file described above out of a total of approximately 600 pages from the file. *4 Defendants argue that the Government should bear these costs. The Government objects. See Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 358 (1978) (“presumption is that the responding party must bear the expense of complying with discovery requests”); see also Fed. R. Civ. P. 26, Advisory Comm. Note 2015 Amendment (“Courts and parties should continue to assume that a responding party ordinarily bears the costs of responding.”). A party facing undue burden or expense may invoke the court's discretion under Rule 26(c) to allocate expenses. Oppenheimer, 437 U.S. at 358; Penk v. Or. State Bd. of Higher Educ., 816 F.2d 458, 468 (9th Cir. 1987). The court declines to address cost shifting at this stage of the proceedings. The court does not have a record sufficient to address the issue. See OpenTV v. Liberate Techs., 219 F.R.D. 474, 476 (N.D. Cal. 2003) (addressing seven factors). Accordingly, IT IS ORDERED that the Government's motion to compel is GRANTED IN PART as follows: Defendants shall produce the transfer documents, physician orders, certifications and re-certifications from the medical records for the 1300 patients identified by the Government. Defendant shall make such production on a rolling basis with a goal of completing such production on or before the discovery cut-off date. Defendants' request to shift the costs of such production to the Government is DENIED WITHOUT PREJUDICE. Footnotes [1] The Government's interrogatory responses referred to information provided in Defendants' interrogatory responses dated March 25 and 28, 2022. [2] Defendants argue that the transfer documents are not dispositive, and the one sample shows the transfer to a SNF without mentioning a SNF Defendant by name. If anything, Defendants' argument explains the Government's request for not only the transfer document, but also the physician orders, certifications and re-certifications at the SNF Defendant. Together with other evidence, the Government may rely on such documents to show that the referral was made by a particular physician who was offered or paid remuneration by a SNF Defendant. [3] It appears that formulation of a stipulation of facts would itself require review of the patient medical records at issue. The Government agreed to forego production of the patient medical records if Defendants would stipulate that a patient's attending physician at a SNF Defendant (as identified in the Medicare claims data) (1) did in fact serve as that patient's attending physician at the SNF; (2) ordered all skilled nursing services provided in connection with that patient stay; (3) provided all certifications and recertifications that the patient required SNF services; and (4) authored and ordered a plan of care for SNF services rendered. (Motion at 4.) Nothing would prevent Defendants from arguing that such evidence was not legally sufficient to show a referral. In response, Defendants agreed to subparagraph (1) and agreed, for purposes of subparagraph (2), that the attending physician issued at least one order for the patient at the SNF. Defendants could not agree to subparagraph (3) because “the attending physician in the claims data did not always sign the certifications and re-certifications of care.” (Opp. at 15.) [4] Defendants state that the Government served subpoenas on five hospitals for patient medical records. The Government states that the subpoenas were served long ago and therefore exclude 600 patients out of the 1300 patients now identified. (Reply at 12.)