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From Health Law Daily, May 14, 2014

Court limits dispute between federal clinics, Medicaid and Medicare

By Michelle L. Oxman, JD, LLM

A federally qualified health center (FQHCs) must continue to defend qui tam actions under both the federal and the California False Claims Acts for allegedly understating the payments it received from a Medicaid managed care organization. The court dismissed the consolidated claims of the qui tam defendant and another clinic against the Medicaid agency, which challenged the reimbursement methodology the agency used for prescription drugs after the Medicare Part D prescription drug benefit became effective on January 1, 2006, because awards of damages against state agencies are barred by the Eleventh Amendment to the United States Constitution. The only remaining issues are: (1) whether the quit tam defendant, Northeast Medical Services, Inc., (NEMS) knowingly submitted false cost reports in violation of 31 USC sec. 3729 and the California False Claims Act; and (2) whether the California Medicaid agency failed to make adequate wraparound payments under the FQHC prospective payment system (PPS) required by Soc. Sec. Act sec. 1902(bb). (United States ex rel. Trinh v Northeast Medical Services, Inc., May 13, 2014, Wilken, C).

The disputes. The statute governing the FQHC PPS requires state Medicaid agencies to make periodic payments, at least once every four months, to compensate FQHCs for the difference between their costs and the amounts they are paid by Medicaid MCOs. Two former employees filed a qui tam action against NEMS in 2010. They alleged that NEMS understated the payments it received from San Francisco Health Plan, a Medicaid managed care organization (MCO), so that the state Medicaid agency paid NEMS more than it was owed in wraparound payments under the FQHC PPS. NEMS claimed that it was not required to disclose all payments received from Medicaid MCOs because some payments would have been for services that were not payable under Medicaid.

NEMS sued the Medicaid agency, claiming that it failed to make the wraparound payments within the time required by the statute and that the payments were not adequate. In addition, another clinic and NEMS sued the Medicaid agency for imposing an unlawful reimbursement methodology when it made changes to account for the Medicare Part D payments for prescription drugs for Medicare beneficiaries, which previously had been covered as a Medicaid service. Eventually, all of the claims were consolidated into one lawsuit.

False Claims Act. The governments requested judgment as a matter of law against NEMS on all claims. NEMS contended that the reconciliation reports that it filed each year with the Medicaid agency did not request all of the payments received from any Medicaid MCO, so that its failure to include certain payments was not a false statement within the meaning of 31 USC sec. 3729; it claimed that the payments were for services required under the MCO contract but not otherwise payable under the state plan. The court ruled that NEMS had raised an issue of material fact with respect to knowledge of the falsity of its claims and denied the government’s motion.

Wraparound payments. The parties’ documents left no dispute that California’s wraparound payments under the FQHC PPS were not determined in relation to the clinics’ costs as required by the statute. Instead, they were based on weighted averages of the MCOs’ payments for services. This evidence was sufficient to support the conclusion that the system violated Soc. Sec. Act sec. 1902(bb), which requires compensation for the clinics’ costs as well as payments of the difference at least every four months.

Medicare Part D. When the Medicare prescription drug benefit became effective, the state agency offered the FQHCs two alternatives: (1) it would subtract all payments for prescription drug services from its payment rates and then pay separately for the prescription drugs provided to Medicaid beneficiaries who were not eligible for Medicare; or (2) the per-visit payment would remain unchanged, but at reconciliation, the FQHC would have to repay any amounts attributable to prescription drugs provided to beneficiaries dually eligible for both Medicaid and Medicare. Both clinics initially chose the second option; NEMS changed to Option 1 in 2009. The other clinic remained with Option 2. During the proceedings, NEMS conceded that it suffered no harm from the use of Option 1. The court found that the clinics did not establish that Option 2 violated any law. Further, to the extent that the clinics sought a monetary judgment or an offset of any amounts they owed to the Medicaid agency, the claims violated the Eleventh Amendment bar to money judgments against the state. By filing the FCA action, the state waived any Eleventh Amendment defense to counterclaims related to the FCA action. But it did not waive the immunity as to counterclaims on other matters, including any alleged underpayments because of the institution of the Part D benefit.

Issues for trial. The remaining issues are: (1) whether NEMS made false statements to obtain or keep money to which it was not entitled; and (2) whether the wraparound payments compensated NEMS for the costs it incurred in furnishing services to Medicaid beneficiaries. The parties were directed to discuss settlement. If they do not resolve the remaining disputes, a jury trial is set for November 2014.

The case numbers are C 10-1904 CW and C 12-2895 CW.

Attorneys: Ila Casy Deiss, United States Attorney's Office, for the United States. James L. Feldesman (Feldesman Tucker Leifer Fidell LLP) for North East Medical Services.

Companies: United States; North East Medical Services

MainStory: TopStory CaseDecisions QuiTamNews FCANews FraudNews MedicaidPaymentNews PartDNews CaliforniaNews

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