False Claims Act (Sometimes) Reaches Indirect Reverse False Claims

Recently, a federal court of appeals wrestled with the thorny issue of whether a defendant can be liable under the False Claims Act when it causes a third party to submit a false statement to the federal government, which, in turn, permits the defendant to retain government funds. Working through this legal jujitsu of “indirect reverse false claims,” the Court held that the Reverse False Claims Act provision, 31 U.S.C. § 3729(a)(7), applies . . . sometimes.

This issue reared its ugly head in a 12-year-old intervened qui tam action against Caremark, a pharmacy benefits management (PBM) company that administers pharmacy benefits for insurance companies, managed care organizations, and public and private health plans and organizations. United States ex rel. Ramadoss v. Caremark Inc., No. 09-50727 (5th Cir. February 24, 2011).

Medicaid is supposed to be the payor of last resort. However, Caremark allegedly shifted the costs to Medicaid by refusing to pay for the pharmacy benefits of individuals who were eligible for both Medicaid and a plan administered by a Caremark. Specifically, when these so-called “dual eligibles” identified themselves at a pharmacy as Medicaid recipients, instead of privately-insured individuals, Caremark would subsequently refuse to reimburse Medicaid, leaving the Medicaid program with the tab.

Significantly, if the state Medicaid agency discovers that a Medicaid recipient is a dual-eligible individual, the federal law requires the agency to seek reimbursement from the private insurer, such as Caremark.

The lower court held that the Reverse FCA did not apply, for Caremark submitted false statements to state Medicaid agencies, not the federal government, and it had no “obligation” to the federal government.

On appeal, federal and State governments argued that Caremark’s actions violated the Reverse FCA, for its false statements caused the state Medicaid agencies to make false statements to the federal government, which, in turn, impaired the agencies’ obligations to the federal government.

Claims under the Reverse FCA provision require proof that the defendant “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(7).

In endorsing the governments’ reading of the Act, the Court of Appeals highlighted that FCA provides that a person who causes a false statement to be made “to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government” is liable under the FCA. 31 U.S.C. § 3729(a)(7). Notably, the statute does not require that the statement impair the defendant’s obligation; instead, it merely requires that the statement impair “an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(7) (emphasis added).

Here, FCA liability hinged on the fact that Caremark’s actions impaired the State Medicaid Agencies’ obligations to recover and return Medicaid funds.

Notably, the court was able to sidestep the trickier question of whether the Reverse FCA applies when the defendant has no direct obligations to the federal government and the innocent party has no obligation to recover the funds for the federal government. This dormant issue continues to percolate below the surface.

For more information about qui tam law and health care fraud, contact Nolan & Auerbach, P.A.

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