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From Health Law Daily, June 16, 2014

Medicaid judgment non-dischargeable in mental health practitioner’s bankruptcy

By Bryant Storm, JD

A federal district bankruptcy court held that money owed to a state resulting from a judgment against a mental health practitioner for false Medicaid claims was not dischargeable in bankruptcy. The value of the false claims that the debtor was ordered to repay was found to be a debt obtained by fraud and was therefore not dischargeable under section 523 of the Bankruptcy Code. According to the bankruptcy court, the debtor did engage in fraud, the debt was compensatory and not punitive, and the state’s claim was not barred by issue preclusion (Zupancic v Nebraska Dept. of Health and Human Services, June 12, 2014, Saladino, T).

Background. Katherine Zupancic operated a counseling business, as a licensed mental health practitioner. During that time, Zupancic contracted with the Nebraska Medical Assistance Program to be a Medicaid provider. After a few years under contract with the state, Nebraska filed a civil lawsuit against Zupancic, alleging that she submitted false or fraudulent claims for payment. Specifically, the state alleged that she submitted claims for reimbursement without supporting documentation. The state alleged that Zupancic knowingly did not maintain records that proved the existence of the services she requested and received payment for. A jury returned a verdict for the state under Nebraska’s False Medical Claims (FMC) Act and awarded damages in the amount of $99,785.05, which represented the value of the false claims submitted.

Bankruptcy. Zupancic filed bankruptcy and Nebraska sought to have the judgment amount excepted from discharge, because it was money obtained by fraud. Zupancic argued that the question of whether the judgment was a debt obtained by fraud was a question that had already been decided in the civil case that gave rise to the judgment. Therefore, she argued, the issue was precluded from being litigated again. The court held that the state proved fraudulent misrepresentation while the issue was litigated at the earlier trail, which represented a higher fraud standard than that required by section 523 of the Bankruptcy Code. Similarly, by establishing at trial that Zupancic knew she lacked the documentation to support the claims she submitted, the state satisfied the intent requirement found in section 523. In other words, the prior case established the fraudulent nature of the debt such that it did not need to be reevaluated in the bankruptcy proceeding.

Punitive. The bankruptcy court also held that, regardless of whether the damages awarded to the state under the FMC act were punitive or compensatory—though the court indicated they were probably compensatory—any fines, penalties, or forfeitures payable to a government unit are not dischargeable in bankruptcy. The court rejected each of Zupancic’s arguments and held that the entirety of the judgment was not dischargeable.

The case number is BK13-42031, A13-4066.

Attorneys: Vicki L. Adams, Nebraska State Attorney General's Office, for Nebraska Department of Health and Human Services. Kirk E. Goettsch (Goettsch Law Firm LLC) for Katherine Lynne Zupancic.

Companies: Nebraska Department of Health and Human Services

MainStory: TopStory FraudNews MedicaidPaymentNews NebraskaNews

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