Kuriyan v. Health Care Services Corporation et al
Filing
140
MEMORANDUM OPINION AND ORDER by Senior District Judge James A. Parker granting 119 Opposed MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Opposed MOTION to Dismiss for Lack of Jurisdiction ; granting 114 MOTION TO DISMISS F OR FAILURE TO STATE A CLAIM Relator's Second Amended Complaint; granting 116 MOTION to Dismiss Second Amended Complaint; granting 115 MOTION to Dismiss Relator's Second Amended Complaint and denying as moot 106 Opposed MOTION PLAINTIFF/RELATOR'S RENEWED OPPOSED MOTION FOR AWARD FROM ALTERNATE REMEDY and dismissing without prejudice 100 Second Amended Complaint; giving Plaintiff/Relator until 10/1/2020 to Amend his Complaint. (bap)
Case 1:16-cv-01148-JAP-KK Document 140 Filed 09/09/20 Page 1 of 21
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
UNITED STATES ex rel. JACOB KURIYAN,
and on behalf of the STATE OF NEW MEXICO,
Plaintiff,
vs.
Civ. No. 16-1148 JAP/KK
HEALTH CARE SERVICES CORP.,
D/B/A BLUE CROSS & BLUE SHIELD OF
NEW MEXICO, MOLINA HEALTHCARE OF
NEW MEXICO, INC., PRESBYTERIAN HEALTH
PLAN, INC., and UNITEDHEALTHCARE OF
NEW MEXICO, INC.,
Defendants.
MEMORANDUM OPINION AND ORDER
On October 28, 2019, Relator Jacob Kuriyan (Relator) filed an Amended Complaint qui tam under
the Federal False Claims Act, 31 U.S.C. §§ 3729 et seq. (FCA), the New Mexico Fraud Against Taxpayers
Act, N.M. Stat. Ann. § 44-9-1 (NMFATA), and the New Mexico Medicaid False Claims Act, N.M. Stat.
Ann. § 27-14-1 (NMFCA) (Complaint) against four Medicaid Managed Healthcare Organizations
(MCOs) in New Mexico: Defendant Health Care Services Corp., d/b/a Blue Cross & Blue Shield of New
Mexico (BCBS), Defendant Molina Healthcare of New Mexico Inc. (Molina), Defendant Presbyterian
Health Plan, Inc. (Presbyterian), and Defendant UnitedHealthcare of New Mexico, Inc. (United)
(collectively Defendants).1 The United States and the State of New Mexico (collectively, Government)
declined intervention.
On December 10, 2019, Relator filed a motion for an alternate remedy,2 arguing that his
1
See PLAINTIFF/RELATOR JACOB KURIYAN’S SECOND AMENDED COMPLAINT (Doc. 100). On June 25,
2019, Relator sought permission from the Court to amend his pleading and on October 25, 2019, the Court granted
his motion. See PLAINTIFF/RELATOR JACOB KURIYAN’S MOTION FOR LEAVE TO FILE AMENDED
PLEADING (Doc. 87) and ORDER (Doc. 99).
2
See PLAINTIFF/RELATOR’S RENEWED OPPOSED MOTION FOR AWARD FROM ALTERNATE
REMEDY (Doc. 106).
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information concerning Defendants and their alleged fraudulent actions led the Government to
recoup significant amounts of money from them, making Relator entitled to a portion of the
proceeds. The Government responded on February 13, 2020,3 and Relator replied on March 12,
2020.4
On March 9, 2020, Defendants filed motions to dismiss Relator’s Complaint under Federal
Rule of Civil Procedure (Rule) 12(b)(1) or Rule 12(b)(6).5 Relator responded on May 26, 2020.6
In his Response, Relator asks the Court for leave to amend his Complaint should the Court grant
Defendants’ Motions. Defendants replied on June 26, 2020.7
After reviewing the pleadings and the briefs, the Court will grant Defendants’ Motions,
will deny Relator’s Motion as moot, but will give Relator until October 1, 2020 to amend his
Complaint.
FACTS AND PROCEDURAL HISTORY
Defendants are insurance companies that own and operate MCOs. The MCOs have
contracts with the State of New Mexico (State) to provide healthcare for State Medicaid enrollees
3
See THE UNITED STATES OF AMERICA’S AND STATE OF NEW MEXICO’S RESPONSE IN OPPOSITION
TO PLAINTIFF/RELATOR’S RENEWED MOTION FOR AWARD FROM ALTERNATE REMEDY (Doc. 111)
(Resp. Alternate Remedy).
4
See PLAINTIFF/RELATOR JACOB KURIYAN’S REPLY TO THE UNITED STATES’ AND NEW MEXICO’S
RESPONSE IN OPPOSITION TO PLAINTIFF/RELATOR’S MOTION FOR AWARD FROM ALTERNATE
REMEDY (Doc. 120).
5
See UNITEDHEALTHCARE OF NEW MEXICO, INC.’S MOTION TO DISMISS RELATOR’S SECOND
AMENDED COMPLAINT (DOC. 114); HCSC INSURANCE SERVICES COMPANY’S MOTION TO DISMISS
RELATOR’S SECOND AMENDED COMPLAINT PURSUANT TO FED. R. CIV. P. 12(B)(1) AND 12(B)(6) AND
MEMORANDUM IN SUPPORT (Doc. 115); MOLINA HEALTHCARE OF NEW MEXICO, INC.’S MOTION TO
DISMISS SECOND AMENDED COMPLAINT (DKT. NO. 100) (Doc. 116); DEFENDANT PRESBYTERIAN
HEALTH PLAN, INC.’S MOTION TO DISMISS (Doc. 119) (collectively Motions).
6
See PLAINTIFF/RELATOR JACOB KURIYAN’S CONSOLIDATED RESPONSE TO DEFENDANTS’
MOTION TO DISMISS (Doc. 130).
7
See UNITEDHEALTHCARE OF NEW MEXICO, INC.’S REPLY IN SUPPORT OF ITS MOTION TO DISMISS
(Doc. 132); MOLINA HEALTHCARE OF NEW MEXICO, INC.’S REPLY IN SUPPORT OF MOTION TO
DISMISS SECOND AMENDED COMPLAINT (Doc. 134); HCSC INSURANCE SERVICES COMPANY’S
REPLY IN SUPPORT OF MOTION TO DISMSS RELATOR’S SECOND AMENDED COMPLAINT PURSUANT
TO FED. R. CIV. P. 12(b)(1) AND 12(B)(6) (Doc. 135); REPLY BRIEF IN SUPPORT OF DEFENDANT
PRESBYTERIAN HEALTH PLAN, INC.’S MOTION TO DISMISS (Doc. 137).
2
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in exchange for fixed capitated payments.8 Complaint (Doc. 100) ¶ 21. Each year, the amount of
the capitated payment is based on payments made the previous year. Id. ¶ 30.
Relator attaches as an appendix to his amended complaint a BCBS contract (Contract).
Complaint, Ex. 2 (Doc. 100.2). The parties agree that this Contract is like all MCO contracts at the
time these events took place.
Relator works in healthcare analytics and economics. He developed a patented dynamic
model that forecasts the development of chronic disease and attendant costs within a population.
Id. ¶ 8. Relator hoped that this model would help the New Mexico Medicaid Program to predict
costs accurately and to save money. Id. The New Mexico Human Services Department (HSD) is
an agency of the State that runs the State’s Medicaid program and receives federal funding for this
purpose. Id.
After an unsuccessful attempt to introduce his program to the HSD in early 2015, Relator
met with new management in November 2015. Id. ¶¶ 9, 10. HSD gave Relator 2014 Medicaid data
to analyze (2014 data). Id. ¶ 10. The data HSD gave to Relator had been given to HSD by
Defendants9 and then audited by HSD’s retained actuary.10 Id. ¶ 56. The audit evaluates payments
8
Capitated payments are a fixed monthly flat fee per patient paid by the State to the MCO in return for providing all
defined medical services to that patient for a specified year. Patients are put into defined risk groups, or cohorts. The
payments vary according to the characteristics of each set group.
9
Under section 4.21.12 of the Contract:
By June 1 of each Agreement year, the CONTRACTOR shall submit annual Independently Audited
Financial Statements, including, but not limited to, its income statement, statement of changes in
financial condition or cash flow, and balance sheet that allow HSD to determine solvency and CMS
compliance.
Complaint, Ex. 2 (Doc. 100-2). Section 7.5 states that CONTRACTOR agrees to comply with all applicable
laws. Section 7.27.10 imposes a duty to submit correct reports “under penalty of perjury.” Id.
10
Section 7.2.10 of the Contract delineates in pertinent part the procedure for the final audit of the MCOs’
costs/expenses of a calendar year:
HSD shall issue its final calculation in writing within one hundred eighty (180) Calendar Days after
the close of the calendar year or termination of this Agreement. To the extent that CONTRACTOR
fails to meet the requirements set forth herein, HSD shall, at the time it issues its final calculation,
advise CONTRACTOR of this deficiency and require CONTRACTOR to remit the overpayment to
HSD, or its designee, or otherwise advise CONTRACTOR as to how the overpayment shall be
treated for purposes of compliance with this Section.
Complaint, Ex. 2 (Doc. 100-2).
3
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made to the MCOs compared to services provided by the MCOs to determine if the MCOs have
been appropriately compensated or overpaid. The audit did not reveal any 2014 overpayments to
the MCOs. Id.
The 2014 data suggested to Relator that Defendants had been overpaid because they had
not spent 85 percent of capitated payments on healthcare costs as the Contract required.11 Id. ¶ 11.
Relator then examined a version of Defendants’ contracts with HSD and public finance reports.
Relator applied the MLR formula in Defendants’ contracts to data he obtained from HSD and
discovered that the MLR for every Defendant was below the Contract’s 85 percent MLR. Id. ¶ 52.
Relator concluded that the State had overpaid Defendants and that HSD had not discovered that
Defendants had retained monies, which under the Contract, were overpayments.12 Id. ¶ 11. Relator
determined that Defendants knew or recklessly disregarded that they had been overpaid because
their internal bookkeeping demonstrated an unusual jump of over five percent in profits. Id. ¶ 56.
On May 25, 2016, Relator met with and informed HSD that Defendants had retained
monies to which they were not entitled because they were overpayments. Id. ¶ 12.
On June 24, 2015, the State published a report to New Mexico’s Legislative Finance
Committee disclosing the results of its initial audit of Defendants’ 2014 data. Resp. Alternate
11
The Contract requires the MCOs to spend a defined amount of capitated payments on direct medical services:
The CONTRACTOR shall spend no less than eighty-five percent (85%) of the net Medicaid line of
business Net Capitation Revenue, defined in Section 7.2.2. of this Agreement on an annual basis.
HSD reserves the right, in accordance with and subject to the terms of this Agreement to reduce or
increase the minimum allowable for direct medical services over the term of this Agreement,
provided that any such change (i) shall only apply prospectively, and (ii) exclude any retroactive
increase to allowable direct medical services and (iii) shall comply with federal and State law.
Complaint, Ex. 2 (Doc. 100-2) § 7.2.7. The parties refer to this as the MLR.
12
Overpayment is defined in the Introduction as:
[A]ny funds that a person or entity receives in excess of the Medicaid allowable amount of the
CONTRACTOR’s allowed amount as negotiated with the provider. Overpayments shall not include
funds that have been subject to a payment suspension or that have been identified as a third-party
liability as set forth in in 4.18.13.
Complaint, Ex. 2 (Doc. 100-2) § 2.
4
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Remedy, Ex. 4 (Doc. 106-4) (LFC Report). Relying on this report, HSD denied that there were
overpayments to Defendants.13 Complaint (Doc. 100) § 12. Following the meeting, Relator sent
an e-mail to HSD reiterating his conclusions. Id. ¶ 13. After not receiving a response from the
State, Relator retained counsel and on October 13, 2016, sent his qui tam disclosure statement to
the State and the United States. Id. ¶ 14. On October 18, 2016, he filed his initial Complaint. Id.
On November 17, 2016, Relator filed an amended complaint in camera and under seal.14
In June 2017, the State on behalf of itself and the United States recovered and collected
overpayments from the Defendants.15
On December 4, 2018, the United States and the State of New Mexico declined
intervention.16
On December 7, 2018, United States Magistrate Judge Kirtan Khalsa, entered an Order
Regarding the Notice of Election to Decline Intervention (Doc. 17), and on December 12, 2018,
Judge Khalsa entered an order unsealing the case.17
On March 5, 2019, Relator served Defendants BCBS and Molina. On March 4, 2019,
Presbyterian waived service. United was served on March 13, 2019.18
On June 25, 2019, Relator filed a motion seeking to file a second amended pleading, which
the Court granted on October 28, 2019.19 Relator filed his Second Amended Complaint on that
same day.
13
The LFC Report advised that the data indicated that “at least one MCO did not meet the contractual MLR
requirement spending fewer than 85 percent on direct medical costs,” but that the figures “were still subject to
reconciliation.” Id. at 38. The report stated that data from FY10 through FY14 showed “under spending [by
Defendants of] the MLR requirement.” Id. at 39.
14
See FIRST AMENDED COMPLAINT (Doc. 3) (FAC).
15
See PLAINTIFF/RELATOR’S OPPOSED MOTION FOR ALTERNATE REMEDY (Doc. 26) at 2.
16
See THE UNITED STATES OF AMERICA’S AND THE STATE OF NEW MEXICO’S JOINT NOTICE OF
ELECTION TO DECLINE INTERVENTION (Doc. 16).
17
See ORDER TO UNSEAL CASE (Doc. 18). Documents 4-15 remained sealed.
18
See Motion to Dismiss (Doc. 77) at p. 20 (observing Relator served United one day after the deadline).
19
See Order (Doc. 99).
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In Count I, Relator alleges that from 2014 to 2015 Defendants “knowingly concealed or
knowingly and improperly avoided an obligation to pay monies to the United States” in violation
of 31 U.S.C. § 3729(a)(1)(G), the Reverse False Claims (RFC) provision of the FCA. Complaint
(Doc. 100) ¶ 84. In Count II, Relator alleges that from 2014 to 2015 Defendants “knowingly
presented or caused to be presented, false and/or fraudulent claims” and “made false certifications
of legal compliance” in violation of § 3729(a)(1)(A) of the FCA. Id. ¶¶ 90–91. Counts III and IV
make parallel allegations against Defendants under the NMFCA and the NMFTA. See Id. ¶¶ 99–
103, 107–113.
APPLICABLE LAW
A. Motion to Dismiss
A Rule 12(b)(6) motion “tests the sufficiency of the allegations within the four corners of
the complaint.” Romero v. United States, 159 F. Supp. 3d 1275, 1279 (D.N.M. 2015) aff’d, 658 F.
App’x 376 (10th Cir. 2016) (citation omitted). When considering a Rule 12(b)(6) motion, the court
must accept as true all well-pleaded factual allegations in the complaint, view those allegations in
the light most favorable to the non-moving party, and draw all reasonable inferences in the
plaintiff’s favor. Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009). The allegations
must “state a claim to relief that is plausible on its face.” Id. (citation omitted). “The claim is
plausible only if it contains sufficient factual allegations to allow the court to reasonably infer
liability.” Moya v. Garcia, 895 F.3d 1229, 1232 (10th Cir. 2018) (citing Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009)).
The term “plausible” does not mean “likely to be true.” Robbins v. Oklahoma, 519 F.3d
1242, 1247 (10th Cir. 2008). A claim is facially plausible “when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). The
6
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factual allegations must “raise a right to relief above the speculative level”. Twombly, 550 U.S. at
555. A mere “formulaic recitation of the elements of a cause of action will not do.” Id. (citation
omitted). When analyzing the sufficiency of the allegation under 121(b)(6), a court may consider
documents incorporated into the complaint by reference and that are undisputed as to authenticity.
Smith, 561 F.3d at 1098.
B. False Claims Act
The FCA is a Government tool for recouping monies that it has paid for fraudulent claims.
Violations permit recovery of civil penalties and treble damages. 31 U.S.C. § 3729–3733. The
Supreme Court has given the statute an expansive reading, observing that it “covers all fraudulent
attempts to cause the Government to pay out sums of money.” United States ex rel. Bahrani v.
Conagra, Inc., 465 F.3d 1189, 1194 (10th Cir. 2006) (internal quotation marks omitted) (quoting
United States v. Neifert-White Co., 390 U.S. 228, 232-33 (1968)); United States ex rel. Boothe v.
Sun Healthcare Grp., Inc., 496 F.3d 1169, 1172 (10th Cir. 2007) (quotation omitted).
Relator asserts counts under two provisions of the FCA: 1) false certification under §
3729(a)(1)(A) and 2) false claims under § 3729(a)(1)(G). The latter is commonly known as the
Reverse False Claims Provision (RCA). The New Mexico statutes, NMFTA and the NMFCA,
track the FCA,20 so the Court will focus on federal law.
The FCA imposes liability on a defendant who “(A) knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or approval; (B) knowingly makes, uses, or
causes to be made or used, a false record or statement material to a false or fraudulent claim; or
(C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G).” 31 U.S.C. §
3729(a)(1). A “claim” includes both “direct requests to the Government for payment as well as
20
See Order (Doc. 99); see also United States v. Dental Dreams, LLC, 307 F. Supp. 3d 1224, 1240 (D.N.M. 2018).
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reimbursement requests made to the recipients of federal funds under federal benefits programs.”
Universal Health Servs., Inc. v. United States ex rel Escobar, 136 S. Ct. 1989, 1996 (2016). The
Supreme Court has held that provision also establishes liability for “false certification.” Id. at
1995–96.
The RFC provision in § 3729(a)(1)(G) of the FCA targets a defendant’s attempts to reduce
an obligation owed to the government. Liability attaches under the RFC to one who “knowingly
makes, uses, or causes to be made or used, a false record or statement material to an obligation to
pay or transmit money or property to the Government, or knowingly conceals or knowingly and
improperly avoids or decreases an obligation to pay or transmit money or property to the
Government . . ..” § 3729(a)(1)(G).
A private individual, also known as a relator, may bring an FCA qui tam civil action “in
the name of the Government” against any individual. 31 U.S.C. § 3730(b); see also See Vermont
Agency of Nat. Res. v. United States ex. rel. Stevens, 529 U.S. 765, 778 (2000) (holding that “a
qui tam relator under the FCA has Article III standing”). The relator may keep a portion of any
recovery obtained for the Government “[a]s a bounty for identifying and prosecuting fraud.”
United States ex rel. Boothe, 496 F.3d at 1172 (citing 31 U.S.C. § 3730(d)).
But a relator’s right to bring a qui tam suit has limitations, such as the “public disclosure
bar.” United States ex rel. Reed v. Keypoint Gov’t. Sol., 923 F.3d 729, 737 (10th Cir. 2019) citing
State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, 580 U.S. ----, 137 S. Ct. 436, 440
(2016). A relator will have standing to bring a qui tam suit only if the relator “‘is an original source
of the information.’” Id. at 737 (quoting 31 U.S.C. § 3730(e)(4)(A)). “The court shall dismiss an
action or claim under this section . . . if substantially the same allegations or transactions as alleged
in the action or claim were publicly disclosed . . ..” 31 U.S.C. § 3730(e)(4)(A). The language
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“incorporates the ‘substantially similar’ standard.” Id. at 743 (citation omitted). This standard
requires the Court to evaluate whether “public disclosures were sufficient to set the government
‘on the trail of the alleged fraud without [the relator’s] assistance.’” Id. at 744 (quoting United
States ex rel. Fine v. Sandia Corp., 70 F.3d 568, 571 (10th Cir. 1995)).
ANALYSIS
Defendants seek dismissal of the Complaint on three bases. First, they argue that Relator
does not have standing because there is no actual case or controversy. Next, Defendants argue that
the Relator cannot proceed qui tam because he violated the “sealed requirement” by not filing his
second amended complaint under seal. Defendants’ final argument is that the public disclosure
rule bars Relator’s claims.
A. Case or Controversy
In an FCA case, a relator bringing a qui tam suit functions as a partial assignee of the
Government. Vermont Agency, 529 U.S. at 773 (observing that the FCA can reasonably be
regarded as effecting a partial assignment of the Government's damages claim [to the relator]). A
relator’s interest in the case is limited to the Government’s legal interests. Id. Defendants argue
that the Government does not have an FCA claim because in 2017, after the State’s reconciliation,
Defendants promptly repaid the Government all owed sums based on the 2014 data. According to
Defendants, because they no longer owe money to the Government, there can be no injury in fact
and correspondingly, Relator has no claim.
For this argument, Defendants rely, in part, on the Government’s declaration that its June
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2017 recoupment of funds did not arise out of a violation of the Government’s rights.21 This
argument makes two presumptions about FCA claims: (1) that once a MCO has financially
compensated the Government for any sums to which it is not entitled, the Government can no
longer claim injury; and (2) that the Government’s assertion that it uncovered no evidence of fraud
means that there was no fraud. But Defendants misread the statute.
The Government’s interest in an FCA claim “consist[s] of obtaining compensation for, or
preventing, the violation of a legally protected right.” Vermont Agency, 529 U.S. at 772. A MCO
that violates a governmental right as delineated in the FCA may be liable not only for repaying the
sums wrongfully obtained, but for significant fines. § 3729(1) (establishing “a civil penalty of not
less than $5,000 and not more than $10,000 . . ., plus 3 times the amount of damages which the
Government sustains because of the act of that person.). Relator does not allege that the
Government’s injury arose from the fact that there had been overpayments but rather from
Defendants’ knowing or fraudulent concealment of those overpayments. If Relator’s allegations
are correct as pleaded, Defendants’ actions have injured the Government and Defendants may be
liable for fines and penalties. Relator’s Complaint alleges injuries that have not been redressed and
so may be pursued in a qui tam suit.
Defendants next argue that there was no injury to the Government because Defendants did
not have a duty to find or return overpayments. Defendants reason that although the Contract may
have stated that Defendants were to spend 85 percent of payments on direct medical services, the
obligation was not a legal one as the obligation did not arise until the Government determined that
21
This statement appears in the Declaration of Jason Sanchez attached as Exhibit 2 to the Government’s Response to
Relator’s Motion for an Alternate Remedy (Doc. 111-2). Defendants ask the Court to take judicial notice of the
Declaration. Relator opposes, arguing that the Declaration is self-serving and will resolve a disputed factual issue.
Although the Court will take judicial notice of the Declaration as a statement made by the Government, this is not a
finding that the statement is true.
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overpayments had occurred. Alternatively, Defendants argue that any failure to reveal known
overpayments was simply a contractual breach that does not constitute an FCA violation.
At issue is the legal meaning of the word “obligation” as used in in the Contract. Two
federal statutes provide clarity: the FCA and the Accountable Care Act (ACA). As defined by the
FCA, the term “obligation” is “an established duty, whether or not fixed, arising from an express
or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or
similar relationship, from statute or regulation, or from the retention of any overpayment.”
§ 3729(b)(3). The Tenth Circuit has stated that “established” is a key word in the definition. United
States ex rel. Barrick v. Parker-Miliorini Int’l, LLC, 878 F.3d 1224, 1230-31 (10th Cir. 2017). The
word established means that a defendant must have “an existing legal obligation to pay or transmit
money or property to the government” that “arise[s] from some independent legal duty.” Id. at
1231 (emphasis in original). Potential obligations do not meet these requirements. When a
government official has the discretion whether to charge the fees, an obligation is contingent, and
therefore “outside the scope of the provision.” Id.
Defendants focus on the word “established” and argue that there was no contractual
obligation, and so, there could be no existing legal obligation. They base this argument on the
premise that the 85 percent MLR threshold was not a fixed threshold, but a contingent one. As an
initial matter, the Court observes that the Tenth Circuit has held that under the FCA an obligation
must be an existing one, but it need not be a fixed one. See U.S. ex rel. Bahrani, 465 F.3d at 1201
(stating “We agree that there are instances in which a party is required to pay money to the
government, but, at the time the obligation arises, the sum has not been precisely determined.”).
The Tenth Circuit observed further “to require a fixed monetary obligation as a prerequisite for a
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reverse false claims action would be inconsistent with the broad remedial purpose of the False
Claims Act.” Id. at 1202 (citing Neifert-White Co., 390 U.S. at 233).
Even if Defendants were correct that the FCA requires a fixed obligation, their argument
that they did not have such an obligation glosses over the language of the Contract, which states:
“The CONTRACTOR shall spend no less than eighty-five percent (85%) of the net Medicaid line
of business Net Capitation Revenue, defined in Section 7.2.2. of this Agreement on an annual
basis.” Complaint, Ex. 2 (Doc. 100-2) (emphasis added). The use of “shall spend” creates a duty.
Relator argues that the term indicates a mandatory duty while Defendants argue that the duty was
permissive.
Interpretation of a contract is guided by state law. Digital Ally, Inc. v. Z3 Tech., LLC, 754
F.3d 802, 815 (10th Cir. 2014). The Contract was created and agreed to in New Mexico, so New
Mexico state law applies. Courts examine contracts to “‘ascertain the intentions of the contracting
parties.’” Mendoza v. Isleta Resort & Casino, 460 P.3d 467, 473 (N.M. 2020) (quoting Gallegos
v. Pueblo of Tesuque, 46 P.3d 668, 679 (N.M. 2002)). When a word has two or more meanings, a
court must examine the usage and context of the word in the document. Allsup’s Convenience
Stores, Inc. v. N. River Ins. Co., 976 P.2d 1, 12 (N.M. 1998) (holding that the “language of the
entire agreement should be construed together”).
Whether “shall” triggers a mandatory duty is not straightforward. Courts have found that
in some contexts it is permissive, in others mandatory. See, e.g., Town of Castle Rock, Colo v.
Gonzales, 545 U.S. 748, 760 (2005) (use of the word “shall” in Colorado statute did not create a
mandatory duty); see also Bryan A. Garner, Shall We Abandon Shall, A.B.A. J. 26 (2012)
(observing that in Black’s Law Dictionary, “shall is a chameleon-hued word” that has over five
12
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definitions).22 In New Mexico, the use of “shall” in a statute usually triggers a mandatory duty.
Yedidag v. Roswell Clinic Corp., 346 P.3d 1136, 1151 (N.M. 2015) (holding that when “shall” is
used in a statute the “normal inference” is that is it mandatory) (quoting Anderson v. Yungkau, 329
U.S. 482, 485 (1947)). Generally, New Mexico courts have also found that the use of “shall” in a
contract is mandatory. See Rivera v. Am. Gen. Fin. Servs., Inc., 259 P.3d 803, 814 (N.M. 2011)
(finding that the use of the words “shall” and “must” in an arbitration provision made that provision
mandatory).
Defendants attempt to further support their argument that the 85 percent MLR was a
contingent threshold by observing that the Contract gave the State the discretion to change the
percentage. The Contract does permit changes to the MLR, but the language of the Contract also
restricts the State’s ability to make changes. The relevant provision states: “HSD reserves the right,
in accordance with and subject to the terms of this Agreement to reduce or increase the minimum
allowable for direct medical services over the term of this Agreement provided that any such
change (i) shall only apply prospectively, and (ii) exclude any retroactive increase to allowable
direct medical services and (iii) shall comply with federal and State law.” Complaint, Ex. 2 (Doc.
100-2) ¶ 7.2.7 (emphasis added). Notably, the Contract permits the State to make only prospective
changes, not retroactive ones.
The contractual language also does not support Defendants’ argument that the State’s
option to recoup overpayments or apply them toward future payments indicates a contingent
obligation. While the Contract does give the State discretion to either demand the return of
overpayments or apply them to future payments, that discretion does not eliminate the obligation.
As delineated in the Contract, the State’s discretion is not whether to collect any monies exceeding
22
See also, Joseph Kimble, The Many Misuses of Shall, 3 Scribes J. Leg. Writing 61 (1992).
13
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the 85 percent MLR, but how to collect it. Accepting as it must, all well-pleaded allegations in the
Complaint, the Court concludes that Relator has plausibly claimed that the 85 percent MLR was a
mandatory contractual obligation.
Second, Defendants assert that as a matter of law the absence of a mandatory contractual
duty to return overpayments precludes a legal duty. This argument is rebutted by language of the
ACA.23 The Medicare and Medicaid Program Integrity Provisions of the ACA explain that “[t]he
term ‘overpayment’ means any funds that a person receives or retains under subchapter XVIII or
XIX to which the person, after applicable reconciliation, is not entitled under such subchapter.” 42
U.S.C. § 1320a-7k(d)(4)(B). Any “person”24 receiving an overpayment must “report and return
the overpayment to the Secretary, the State, an intermediary, a carrier, or a contractor, as
appropriate” and notify them “in writing of the reason for the overpayment.” § 1320a-7k(d)(1)(A)(B). The overpayment must be returned by the later of “(A) the date which is 60 days after the date
on which the overpayment was identified; or (B) the date any corresponding cost report is due if
applicable.” Id. Thus, under the ACA, a MCO has a legal obligation to return known
overpayments.
Defendants counter that they could not have known of any overpayments, nor could an
obligation to return an overpayment exist, until the State finished its “applicable reconciliation.”
This argument presumes that this term refers to the State’s final report. But “applicable
reconciliation” is not statutorily defined. When the meaning of a statutory term is unclear, the
Court may give “considerable weight” “‘to an executive department’s construction of a statutory
scheme it is entrusted to administer. . ..’” United States v. Mead Corp., 533 U.S. 218, 227-28
23
The Contract obligates MCOs to “comply with all federal and State requirements regarding Fraud, waste [sic] and
Abuse . . ..” Complaint, Ex. 2 (100-2) ¶ 4.17.1.3.
24
As defined by the statute, “person” includes a “medicaid managed care organization.” § 1320a-7k(d)(4)(C)(i).
14
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(2001) (quoting Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 844 (1984)).
The definition of “applicable reconciliation” provided by the Centers for Medicare & Medicaid
Services (CMS) in the context of Medicare Advantage Plans (MA) provides some clarity here.
As explained by CMS in a January 2014 notice of proposed rulemaking, “applicable
reconciliation” refers to “an event or events after which an overpayment can exist” and occurs at
“the point when organizations submit their final data for the previous payment year.” Medicare
Program; Contract Year 2015 Policy and Technical Changes to the Medicare Advantage and the
Medicare Prescription Drug Benefit Programs, 79 FR 1918-01. In that same notice, CMS reminded
organizations that the proposed regulation did not create new requirements but clarified terms in
42 U.S.C. § 1320a-7k as “MA organizations . . . are subject to the statutory requirements . . . and
could face potential False Claims Act liability, Civil Monetary Penalties (CMP) Law liability, and
exclusion from Federal health care programs for failure to report and return an overpayment.” Id.
79 FR 29844-01. In the publication of the final rule, CMS again reminded organizations that an
overpayment occurs when an “organization . . . has submitted erroneous data to CMS that caused
CMS to overpay the organization.”25 Id. 79 FR 29,921. While the proposed and final regulation
focused on MA plans and not on MCOs, the regulation was a clarification of a statutory term that
does apply to MCOs.
The Contract obligates Defendants to produce data to the Government. “By June 1 of each
Agreement year, the CONTRACTOR shall submit annual Independently Audited Financial
Statements, including, but not limited to, its income statement, statement of changes in financial
condition or cash flow, and balance sheet that allow HSD to determine solvency and CMS
compliance.” Complaint, Ex. 2 (Doc. 100-2) ¶ 4.21.12.1. Defendants are also required to submit
25
The final rule stated: “Applicable reconciliation occurs on the date of the annual final deadline for risk adjustment
data submission described at § 422.310(g), which is announced by CMS each year. 42 C.F.R. § 422.326(a).
15
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quarterly reports and review reports for evidence of “suspicious activity, Fraud and Abuse cases,
return on investment, cost avoidance, adverse events and other information as directed by HSD.”
Id. ¶¶ 4.21.1.9, 4.21.4.1. Defendants did not allege that they failed to timely comply with these
provisions, and the LFC Report indicates that the State received the relevant data by June 24, 2015.
Similarly, Defendants’ argument that they could not have known of any overpayments does
not align with the ACA’s definition of “knowing,” which incorporates the FCA definition. See §
1320a-7k(d)(4)(A) (“The terms ‘knowing’ and ‘knowingly’ have the meaning given those terms
in section 3729(b) of Title 31”). In both the FCA and the ACA:
(1) the terms “knowing” and “knowingly” —
(A) mean that a person, with respect to information —
(i) has actual knowledge of the information;
(ii) acts in deliberate ignorance of the truth or falsity of the information; or
(iii) acts in reckless disregard of the truth or falsity of the information; and
(B) require no proof of specific intent to defraud. . ..
§ 3729(b)(1)(A)-(B). Relator alleges that Defendants wrongfully and knowingly certified invalid
data to the Government and in so doing avoided and/or hid overpayments and improperly created
an incorrect baseline for future payments. Relator also alleges that Defendants either had actual
knowledge of overpayments or recklessly disregarded evidence of overpayments.
Defendants attempt to establish that they did not or could not have known by referring to
a declaration by a State official that the overpayments were obtained through the normal
reconciliation process. But how the State classifies Defendants’ repayments is not dispositive of
this issue. Accepting the State’s declaration as true does not answer the question of whether
Defendants knew that there had been overpayments when they submitted their data. Nor does it
establish that Defendants had no knowledge of any overpayments prior to the State’s final report.
16
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The Court concludes that Defendants had a legal obligation to return overpaid funds.
Relator has alleged facts that support a reasonable inference that when Defendants submitted their
2014 data at or around June 2015, Defendants knew or had reason to know that the State had
overpaid them under the Contract.
B. Sealed Requirement
Section 3730(b)(2) states that a complaint brought qui tam must be served on the
Government, filed in camera, and “shall remain under seal for at least 60 days, and shall not be
served on the defendant until the court so orders.” § 3730(b)(2). Defendants argue that while
Relator’s initial complaint met these requirements, his amended Complaint did not because it was
not filed under seal. They urge the Court to dismiss the Complaint on that basis. Relator argues
that it was not necessary that he comply with the sealing requirements on filing his amended
complaint. The Supreme Court directly addressed this issue and held that a failure to comply with
the seal requirement is not fatal to a case and does not mandate dismissal. State Farm Fire and
Cas. Co., 137 S. Ct. at 444.
C. Public Disclosure Bar
Defendants’ final argument is that Relator cannot proceed qui tam, because his Complaint
is based upon public disclosure of allegations. See 31 U.S.C. § 3730(e)(4)(A)(2006) (public
disclosure bar). The public disclosure bar26 requires a court to dismiss an FCA claim if
“substantially the same allegations or transactions as alleged in the action or claim were publicly
26
Before Congress amended the FCA in 2010, if the public disclosure bar applied, a federal court did not have jurisdiction over an
FCA claim. See KeyPoint Gov’t Sols., 923 F.3d at 737 n.1. But the 2010 amendments removed the jurisdictional language, replacing
it with an instruction that a court “dismiss an action” if the public disclosure bar applies. Id. This textual change has led the federal
courts of appeal that have considered the issue to unanimously conclude that the public disclosure bar no longer deprives a court
of federal jurisdiction but provides defendants with an affirmative defense. Id. (collecting cases). However, when the public
disclosure bar is raised as a defense in a motion to dismiss at the district court level, the distinction is immaterial. Id. (observing
that if the defendant “had failed to raise the bar before the district court and had asserted it for the first time on appeal, we would
have been obliged to consider the issue only if it was jurisdictional . . . not if it was merely an affirmative defense”).
17
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disclosed . . ..” Id. Information that has been publicly disclosed includes information
(i) in a Federal criminal, civil, or administrative hearing in which the Government or its
agent is a party;
(ii) in a congressional, Government Accountability Office, or other Federal report,
hearing, audit or investigation; or
(iii) from the news media
unless the action is brought by the Attorney General or the person bringing the action is an
original source of the information.
§ 3730(e)(4)(A)(i)-(iii). “[T]he operative question is whether the public disclosures were sufficient
to set the government ‘on the trail of the alleged fraud without [the relator’s assistance].’” KeyPoint
Gov’t. Sol., 923 F.3d at 744 (quoting U.S. ex rel. Fine, 70 F.3d at 571) (alterations in the original).
Relator derived his claims from data obtained from the State. He compared this data with
data obtained from public financial reports issued by Defendants. Finally, he examined the LFC
Report and concluded that the State’s audit had not uncovered the overpayments Relator saw
within the data. Because Defendants’ profit and loss statements suggested increased profits that
did not track with the LFC Report, Relator concluded that Defendants had been overpaid and that
they knew it. As defined by the statute, published reports and profit and loss statements fall within
the FCA’s definition of types of transactions that are publicly disclosed. Although these
disclosures did not allege any FCA violations or wrongdoing, Relator obtained “the material
elements of the fraudulent transaction” from these reports. See KeyPoint Gov’t. Sol., 923 F.3d at
745 (quoting Fine, 70 F.3d at 572).
But the fact that this information was publicly disclosed is not fatal to Relator’s claim if he
can demonstrate that he is an “original source of the information.” An original source is:
an individual who either (1) prior to a public disclosure under subsection (e)(4)(a),
has voluntarily disclosed to the Government the information on which allegations
or transactions in a claim are based, or (2) who has knowledge that is independent
of and materially adds to the publicly disclosed allegations or transactions, and who
has voluntarily provided the information to the Government before filing an action
under this section.
18
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§ 3730(e)(4)(B). “Knowledge is ‘direct and independent’ if it is ‘marked by [the] absence of an
intervening agency’ and ‘unmediated by anything but [the relator’s] own efforts.’” In re Nat. Gas
Royalties, 562 F.3d 1032, 1045 (10th Cir. 2009) (quoting United States ex rel. Fine v. MKFerguson Co., 99 F.3d 1538, 1547 (10th Cir. 1996) (alterations in original (internal quotations
marks omitted)). Relator argues that he is an original source because the Government had not
discovered the fraud before he told the Government about the overpayments. The fact that the
Government had not yet discovered the fraud is irrelevant to the inquiry if the Government had
enough information that could point it toward the fraud. KeyPoint Gov. Sol., 923 F.3d at 744-45;
U.S. ex rel. Fine, 70 F.3d at 572 (observing “the public disclosure of the material elements of the
fraudulent transaction bars qui tam actions even if the disclosure itself does not allege any
wrongdoing”). Relator is barred if his claim was derived solely from second-hand knowledge. See
MK-Ferguson Co., 99 F.3d at 1547.
Relator’s Complaint states that he discovered the alleged overpayments after he “examined
a version of the MCO’s contracts with HSD and public finance reports, and concluded that
Defendants were fraudulently retaining overpayments, and that HSD had neither recognized nor
recouped those overpayments.” Complaint (Doc. 100) ¶ 11. As pled, Relator’s allegations are
derivative of data given to him by HSD, the LFC Report, and Defendants’ profit and loss
statements. While Relator implies that his patented dynamic model gave him knowledge that was
independent of and materially added to the publicly disclosed transactions, he has not supported
that claim with any alleged facts about how his model independently enabled him to discover the
overpayments. Nor has Relator alleged any facts that demonstrate that his personal analysis of the
data contributed or materially assisted the Government in uncovering the fraud.
19
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Because Relator’s named sources are all public, and Relator has not identified why or how
he materially added to the FCA, NMFATA, or NMFCA claims, the Court will dismiss Relator’s
Complaint without prejudice. As the Complaint will be dismissed without prejudice, Relator’s
Motion for an Alternate Remedy will be denied as moot.
Relator has asked the Court for leave to amend his Complaint should the Court grant
Defendants’ Motions. Rule 15 states that district courts “should freely give leave [to amend] when
justice so requires.” “The liberal granting of motions for leave to amend reflects the basic policy
that pleadings should enable a claim to be heard on its merits.” Calderon v. Kansas Dep’t of Soc.
& Rehab. Servs., 181 F.3d 1180, 1186 (10th Cir. 1999). Defendants object to amendment, arguing
that Relator did not plead a valid claim under the Contract.
The Court has found that Relator pled a plausible claim that Defendants violated the FCA,
the NMFATA, and the NMFCA. Because the Court concludes that Relator’s claim is deficient
only for its failure to explain how Relator’s information overcomes the public disclosure bar, the
Court finds that amendment will not be futile.27 The Court will grant Relator leave to amend and
will give Relator until October 1, to file an amended Complaint.
IT IS ORDERED THAT:
1.
UNITEDHEALTHCARE OF NEW MEXICO, INC.’S MOTION TO DISMISS
RELATOR’S SECOND AMENDED COMPLAINT (DOC. 114) is GRANTED;
2.
HCSC INSURANCE SERVICES COMPANY’S MOTION TO DISMISS
RELATOR’S SECOND AMENDED COMPLAINT PURSUANT TO FED. R. CIV. P. 12(B)(1)
AND 12(B)(6) AND MEMORANDUM IN SUPPORT (Doc. 115) is GRANTED;
27
In a footnote, UnitedHealthcare states that if it prevails on this motion, it intends to seek attorney’s fees and costs.
Because the Court will permit Relator to amend his Complaint, this request is premature.
20
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3.
MOLINA HEALTHCARE OF NEW MEXICO, INC.’S MOTION TO DISMISS
SECOND AMENDED COMPLAINT (DKT. NO. 100) (Doc. 116) is GRANTED;
4.
DEFENDANT PRESBYTERIAN HEALTH PLAN, INC.’S MOTION TO
DISMISS (Doc. 119) is GRANTED;
5.
PLAINTIFF/RELATOR’S RENEWED OPPOSED MOTION FOR AWARD
FROM ALTERNATE REMEDY (Doc. 106) is DENIED as moot.
6.
PLAINTIFF/RELATOR
JACOB
KURIYAN’S
SECOND
AMENDED
COMPLAINT (Doc. 100) is DISMISSED without prejudice; and
7.
Plaintiff/Relator Jacob Kuriyan has until October 1, 2020 to amend his complaint
qui tam against Defendant Health Care Services Corporation d/b/a Blue Cross & Blue Shield of
New Mexico, Defendant Molina Healthcare of New Mexico, Defendant Presbyterian Health Plan,
Inc., and Defendant UnitedHealthcare of New Mexico; if Relator fails to timely file a third
amended complaint by October 1, 2020, this case will be dismissed with prejudice.
_______________________________________
SENIOR UNITED STATES DISTRICT JUDGE
21
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