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From Health Law Daily, May 1, 2013

Federally funded clinic must defend qui tam action

By Michelle L. Oxman, JD, LLM

Northeast Medical Services, Inc. (NEMS), a federally qualified health center (FQHC), was not an agency of the federal government entitled to sovereign immunity in a qui tam action (U.S. ex rel. Trinh v Northeast Medical Services, Inc., April 26, 2013, Wilken, C). The FQHC did not establish that the alleged false claims were the subject of an earlier civil action because it did not produce the settlement agreement or any other documentation to show that the same claims were addressed in both actions. The disclosure of the contract between NEMS and the Medicaid managed care organization (MCO), in a prior qui tam action would not be sufficient to put the federal government on notice of the alleged underreporting of payments from the MCO.

The applicable payment rules. Because NEMS was an FQHC funded under Public Health Service Act (PHSA) sec. 330, it was obligated to participate in Medicaid and was subject to special payment rules under a prospective payment system (PPS) for FQHCs. Under the PPS, Medicaid MCOs must pay set rates for patient encounters. If the payments from the MCO are less than the reasonable costs of operation of the FQHC under the previous system, the state agency must make supplemental payments to the FQHC to compensate for its costs. The qui tam complaint alleged that NEMS had deliberately understated the payments received from San Francisco Health Plan (SFHP), the MCO, resulting in overpayments of supplemental funds.

Jurisdictional defenses. NEMS claimed that the court had no jurisdiction over the action because as an FQHC, it was a federal entity with sovereign immunity. The court rejected the argument. Receipt of funding and recognition as an FQHC under Public Health Service Act (PHSA) sec. 330 did not make NEMS a federal agency. NEMS was a nonprofit organization created by private parties, which controlled its own funds, and it had no role in the creation or execution of federal policy. The court reasoned that Congress had not waived sovereign immunity, and it would not have intended to allow grantees to defraud the federal government with impunity.

Prior action. NEMS also argued that 31 USC sec. 3730(e)(3), the “government action” rule, barred the action because there had been an earlier qui tam action in state court, which was settled in 2008. The court ruled that the government action rule did not deprive the federal government of its claims; the rule prevents relators from getting awards when the government already had the essential information. The prior False Claims Act (FCA) action would bar the current case only if the same claims were addressed, and NEMS had not provided the settlement agreement or any documentation. It would be necessary to know the amounts that SFHP had paid and the amounts that NEMS reported to the Medicaid agency.

Statute of limitations defense. The complaint alleged that NEMS had underreported its payments every year beginning in 2001. The limitations period provided in 31 USC sec. 3731(b) is three years from the date that the government knew or should have known of the claim, but no longer than ten years from the events. NEMS claimed that both the state and federal governments were put on notice in 2006, when the previous qui tam action was brought in state court. However, the burden is on the defendant to show that the statute of limitations applies, and NEMS would have to demonstrate that the same claims were involved. In addition, the federal government was not bound by notice provided to the state agency.

Interpretation of the Medicaid statute. NEMS argued that Soc. Sec. Act sec. 1902(bb)(5), which governs the reconciliation process, i.e., the determination of the difference between the MCO’s payments and the FQHC’s costs, did not require it to disclose the payments it received from SFHP for services other than FQHC services. The court ruled that NEMS’ reading of the statute did not defeat the FCA claim. The falsity of the statements is determined based on the applicable law, and NEMS was obligated under the state Medicaid plan to report all payments from the MCO. Courts have applied the FCA to false statements in Medicare cost reports, and the same reasoning would govern intentional false statements in a Medicaid cost report.

The case number is C 10-1904 CW.

Attorneys: Ila Casy Deiss (United States Attorney’s Office) for United States of America. James T. Diamond, Jr. (Goldfarb & Lipman) for State of California. James L. Feldesman (Feldesman Tucker Leifer Fidell LLP) for Northeast Medical Services.

Companies: United States of America; State of California; Northeast Medical Services

MainStory: TopStory QuiTamNews FCANews CaliforniaNews

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