Federal and California State FCA Claims Against NEMS Survive Summary Judgment


On May 13, 2014, a California federal court substantially denied summary judgment motions in United States ex rel. Trinh (No. 4:10-cv-01904 [consolidating Nos. C 10-1904 CW, C 12-2895 CW, C 10-2433 CW, C 10-4605 CW] [N.D. Cal. May 13, 2014]), a qui tam action commenced by two former employees of defendant Northeast Medical Services, Inc. (“NEMS”). NEMS is a nonprofit healthcare organization serving low-income patients in the San Francisco bay area. The United States and State of California both intervened and alleged that NEMS (along with another similar organization, La Clinica de la Raza, Inc.) underreported to the state the amount of reimbursements NEMS received from a local managed care organization (“MCO”) that contracted with the state to assume part of the state’s reimbursement obligations to NEMS in connection with Medicaid patients NEMS served. Such alleged underreporting gave rise to the issuance of supplemental reimbursements made by the state in order to make up for a shortfall between the MCO reimbursements and NEMS’ ordinary per-visit reimbursement rate pursuant to the Medicaid Act (42 U.S.C. § 1396a [bb] [5]). The complaint alleged that between 2001 and 2010 NEMS received approximately $20 million in supplemental payments to which it wasn’t entitled. NEMS, in turn, sought declaratory judgments against the United States and the State of California that it complied with all reporting requirements. All parties moved for summary judgment, and the court denied the motions on the FCA claims.

First, the court considered whether the government plaintiffs submitted sufficient evidence to support an inference that NEMS deliberately withheld the true amount of its reimbursement receipts from the MCO. One of the relators had executed a declaration stating that NEMS’ CEO had instructed him to underreport. That relator also declared that after he discussed the matter further with the CEO, he was forced to resign. The court found that this evidence sufficed to preclude summary judgment in favor of NEMS. Notably, NEMS admitted that it didn’t report all MCO reimbursements for the nine-year period but argued that it was exempt from the reporting requirements. NEMS cited a 2005 version of the state’s reimbursement reconciliation instructions which it argued exempted precise reporting of reimbursements for “specialty” services that do not qualify as ordinary Medicaid services. The court, however, found that NEMS produced insufficient evidence that it, in fact, received any MCO reimbursements for specialty services, or that the MCO even agreed to provide such reimbursements. Nonetheless, it based its decision to deny the government summary judgment, in part, on NEMS’ assertion that it thought it was justified in not reporting all the payments from the MCO based on the 2005 instructional language. A factual finding that NEMS was justified would preclude an FCA violation.

Second, the court rejected NEMS’ argument that the relators waived their rights to assert qui tam claims, because they had signed pre-litigation settlement agreements releasing certain claims. The court found that when the government intervened in the case, it became the actual plaintiff in interest. However, the court acknowledged that the relators’ settlement may have operated to preclude the relators from ever earning a qui tam incentive payment if the government successfully prosecutes the FCA claims.

Finally, the court denied summary judgment on NEMS’ claim that the state failed to make timely payment of supplemental reimbursements, as required under the Medicaid Act. The court found that sufficient evidence existed to support such an inference, but that NEMS’ alleged underreporting, discussed above, precluded summary judgment.

Although the court denied summary judgment to all parties, it dismissed on Eleventh Amendment grounds NEMS’ claim that it was entitled to compensation for prescription drug services it provided in 2008.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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