Frey et al v. Health Management Systems Inc

Filing 64

MEMORANDUM OPINION & ORDER: The Court GRANTS IN PART and DENIES IN PART HMS's 49 Motion to Dismiss. Specifically, the Court DENIES Defendant's motion for claims 14, 11, 23, 25, and 27. The Court GRANTS Defendant's motion and DISMISSES WITHOUT PREJUDICE claims 510, 1222, 24, 26, and 28. The Court also DENIES Relator's 43 motion to pursue claims beyond termination of his employment with HMS. (Ordered by Judge Jane J Boyle on 3/31/2022) (svc)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
UNITED STATES OF AMERICA ex rel.
CHRISTOPHER FREY,
Plaintiff/Relator,
v.
HEALTH MANAGEMENT SYSTEMS,
INC.,
Defendant.

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CIVIL ACTION NO. 3:19-CV-0920-B

MEMORANDUM OPINION & ORDER
Before the Court is Defendant Health Management Systems, Inc. (“HMS”)’s Motion to
Dismiss (Doc. 49) Relator Christopher Frey (“Relator”)’s Second Amended Complaint (“SAC”) and
Relator’s Motion for Leave to Pursue Relator’s Claims Beyond Employment Termination (Doc. 43).
At issue here is whether Relator satisfied the pleading requirements for his indirect reverse false
claims brought pursuant to state and federal false claim statutes. For the following reasons, the Court
GRANTS IN PART and DENIES IN PART Defendant’s Motion and DENIES Relator’s Motion.

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I.
BACKGROUND
A.

Factual Background1
This is a qui tam2 case about whether a service provider impaired the Plaintiff States’

obligation to remit money to the federal government. See Doc. 42, SAC. HMS provides third-party
liability (“TPL”) services to many state Medicaid agencies and Medicaid Managed Care
Organizations (“MCOs”) of the Plaintiff States. Doc. 42, SAC, ¶¶ 1–2. These services include
identifying and recovering expenditures from responsible third-party insurers. Id. ¶ 2. Relator worked
for “HMS from approximately September 2006 to May 2013” and before that for a TPL company
that HMS later acquired. Id. ¶ 4. Relator was a Vice President or Regional Vice President during
most of his employment with HMS and was responsible for managing client relations with several
state agencies. Id. ¶ 5. Relator alleges that HMS has TPL contracts with at least forty state Medicaid
agencies and MCOs. Id. ¶¶ 3, 40.
During his time with HMS, Relator became aware of “HMS’s failure to bill TPL claims timely
or at all” and its failure to upload “third[-]party[-]coverage information for Medicaid enrollees [into]
the Medicaid information systems.” Id. ¶ 7. Crucially, Medicaid is a “payer of last resort,” meaning
third-party insurers must pay their claims before Medicaid pays the claims. Id. ¶ 37. Furthermore,
Medicaid regulations require an agency to seek “reimbursement within 60 days after the end of the
month it learns of the [third-party liability].” 42 C.F.R. § 433.139(d)(2); Doc. 42, SAC, ¶ 39. Relator
1

The facts are as alleged by Relator in the SAC.

2

“‘Qui tam’ is an abbreviation for qui tam pro domino rege quam pro se ipso in hac parte sequitur, which
means ‘who as well for the king as for himself sues in this matter.’” United States ex rel. Grubbs v. Kanneganti,
565 F.3d 180, 184 n.5 (5th Cir. 2009) (quoting Black’s Law Dictionary 1262 (7th ed. 1999)).

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alleges that HMS’s failure to timely bill decreased the amount collected by Plaintiff States. Id. ¶¶ 7,
42. This in turn decreased the refund owed by the States to the federal government, totaling millions
or billions of dollars. Id.
According to Relator, HMS’s failure to timely bill resulted from “an overwhelming volume
of claims[,]” inadequate computer systems, “a lack of competition[,]” “a desire to curry favor with
insurance carriers[,]” and “‘big business’ arrogance.” Id. ¶ 43. HMS’s obsolete computer systems
resulted in claims being put “on hold,” leading to “buckets” of claims—worth possibly millions of
dollars—never being billed. Id. ¶¶ 45, 47. Plaintiff States rarely received notice of these holds because
these holds typically occurred after the billing cycle, resulting in “inaccurate and fraudulent reports”
that represented claims—subsequently made subject to carrier holds—had gone out. Id. ¶¶ 48, 51.
Nor did HMS later update the States with the true status of the claims. Id. ¶ 54. HMS also allegedly
failed to follow up with carriers to obtain payment, appeal denials, and provide the additional
information requested by carriers to complete reimbursements. Id. ¶¶ 52–53.
Relator makes specific allegations as to HMS’s failures relating to the Plaintiff States discussed
below. Regarding the State of Florida, Relator alleges one specific example of HMS failing to timely
bill claims or to bill at all. Id. ¶¶ 49. Relator states that when HMS learned a new contract for the
State of Florida went to a competitor, HMS suddenly billed a large number of claims totaling around
$100 million. Id. This example demonstrates HMS’s lack of diligence, according to Relator. Id.
Regarding the State of New York, Relator alleges thousands of claims were placed “on hold”
until the claims were unrecoverable, costing the State nearly $179 million. Id. ¶ 47. HMS also failed
to refund several “add” fees in violation of state and federal law. Id. ¶ 8. Under a typical contract,
HMS will receive a contingency fee in relation to the amount recovered for the state, but in New

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York HMS received an additional $40 “add” fee for “identif[ying] a Medicaid patient with newly
discovered other coverage.” Id. ¶¶ 41, 64. Until early 2009, HMS’s contract with New York required
HMS to refund the “add” fee if HMS obtained a recovery because HMS kept a percentage of the
recovery. Id. ¶ 64. “This avoided double payments.” Id. But, Relator believes “HMS routinely and
knowingly failed to refund the add fee” under this contract. Id. This caused many of the reports
provided to New York to contain false or inaccurate information. Id. ¶ 65. After early 2009, the new
contract did not contain the refund requirement, but this did not extinguish the existing obligation
of HMS to refund the collected add fees. Id. ¶ 66.
Regarding Tennessee, Relator describes a “Tennessee Model” of double billing Medicaid
agencies for providing them the same TPL information. Id. ¶ 69. The State of Tennessee relies
“100%” on MCOs to run its Medicaid program. Id. ¶ 71. Relator claims HMS sells the TPL
information to both the state Medicaid agency and the individual MCOs despite the state agency
providing the same TPL information to the MCOs. Id. ¶ 69. Plaintiff alleges the “Tennessee Model”
impairs the State’s obligation to the federal government. Id. ¶ 73.
Finally, Relator contends HMS failed to upload insurance coverage information into the
Medicaid Management Information System (“MMIS”) within 45 days as required by federal
regulation. Id. ¶¶ 57–60. HMS’s failure to upload this information “concealed, avoided and decreased
its obligations . . . to obtain recoveries for the Plaintiff States,” which in turn impaired the States’
obligation to the federal government. Id. ¶ 62.
Relator states that he raised his concerns throughout his employment to senior management
including the Executive Vice President, Executive Vice President/Chief Business Officer, Vice
President of Operations, Senior Vice President, Vice President, and Chief Operating Officer. Id.

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¶¶ 55, 74–87. Relator soon realized that senior management never acted to fix the problems he
identified. Id. ¶ 78. In the 2010 Strategic Plan made by Relator, he once again tried to bring the
issues to the attention of senior management. Id. ¶ 79. Relator recommended timely transmitting all
billings, rebilling open claims older than three months, not holding claims in the “open” status,
resolving issues with TRICARE recovery, and reviewing the “cycle edit” process to reduce the
number of claims “cleaned” from the system. Id. ¶¶ 80–83.
B.

Procedural Background
Relator filed his first complaint on April 16, 2019. Doc. 2, Compl. The Government declined

to intervene in this case. Doc. 14, Declination Not. On October 1, 2021, this Court granted in part
and denied in part HMS’s first motion to dismiss. Doc. 37, Order. Relator filed the operative
complaint and a motion to pursue his claims beyond his termination from HMS on November 1,
2021. Doc. 42, SAC; Doc. 43, Relator’s Mot. On November 22, 2021, HMS filed the instant motion
to dismiss. Doc. 49, Def.’s Mot. The motions are now ripe, and the Court considers them below.
II.
LEGAL STANDARDS
A.

Rule 12(b)(6) Standard
Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain “a short and plain

statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Rule
12(b)(6) authorizes a court to dismiss a plaintiff’s complaint for “failure to state a claim upon which
relief can be granted.” Fed. R. Civ. P. 12(b)(6). In considering a Rule 12(b)(6) motion to dismiss,
“[t]he court accepts all well-pleaded facts as true, viewing them in the light most favorable to the
plaintiff.” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007). But the court will

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“not look beyond the face of the pleadings to determine whether relief should be granted based on
the alleged facts.” Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999).
In order to survive a motion to dismiss, a plaintiff must plead “enough facts to state a claim
to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements,
do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a
‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted
unlawfully.” Id. (quoting Twombly, 550 U.S. at 556).
B.

Rule 9(b)
A dismissal for failure to plead with particularity in accordance with Rule 9(b) is treated as

a Rule 12(b)(6) dismissal for failure to state a claim. Lovelace v. Software Spectrum, Inc., 78 F.3d 1015,
1017 (5th Cir. 1996). Rule 9(b) provides, in pertinent part, that, “[i]n alleging fraud or mistake, a
party must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P.
9(b). When claims for fraud and negligent misrepresentation are based on the same set of alleged
facts, Rule 9(b)’s heightened pleading standard applies. Lone Star Fund V (U.S.), L.P. v. Barclays
Bank PLC, 594 F.3d 383, 387 n.3 (5th Cir. 2010) (citing Benchmark Elecs., Inc. v. J.M. Huber Corp.,
343 F.3d 719, 724 (5th Cir. 2003), modified on other grounds, 355 F.3d 356 (5th Cir. 2003)); see Paul
v. Aviva Life & Annuity Co., 2010 WL 5105925, at *8 (N.D. Tex. Dec. 14, 2010) (applying Rule 9(b)
to fraud and negligent misrepresentation claims that arose out of the same set of facts but were
contained in separate counts in the complaint).

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As a fraud statute, claims under the False Claims Act (“FCA”) must comply with Rule 9(b).
The amount of particularity required for pleading fraud differs from case to case. See Benchmark
Elecs., 343 F.3d at 724; see also Williams v. WMX Techs., Inc., 112 F.3d 175, 178 (5th Cir. 1997)
(noting that “courts have emphasized that Rule 9(b)’s ultimate meaning is context specific”). A
traditional fraud claim requires pleading with particularity the “‘who, what, when, where, and how’
of the alleged fraud.” United States ex rel. Nunnally v. W. Calcasieu Cameron Hosp., 519 F. App’x. 890,
892 (5th Cir. 2013) (quoting United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125
F.3d 899, 903 (5th Cir. 1997)). But “the [common law fraud] standard is not a straitjacket for Rule
9(b)” as “Rule 9(b) is ‘context specific and flexible.’” United States ex rel. Grubbs v. Kanneganti, 565
F.3d 180, 190 (5th Cir. 2009). “[T]o plead with particularity the circumstances constituting fraud
for a False Claims Act . . . claim, a relator’s complaint, if it cannot allege the details of an actually
submitted false claim, may nevertheless survive by alleging particular details of a scheme to submit
false claims paired with reliable indicia that lead to a strong inference that claims were actually
submitted.” Id.
III.
ANALYSIS
The purpose of the FCA is “to discourage fraud against the government.” Robertson v. Bell
Helicopter Textron, Inc., 32 F.3d 948, 951 (5th Cir. 1994). Relator raises indirect reverse false claims
pursuant to 31 U.S.C. § 3729(a)(1)(G). This provision imposes liability on:
any person 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 . . .
Id. Courts refer to claims brought under this paragraph of the statute as a reverse false claim because
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the defendant’s actions “result[] not in improper payment to the defendant from the Government,
but rather no payment [(or reduced payment)] to the Government when payment is otherwise
obligated.” United States ex rel. Doe v. Dow Chem. Co., 343 F.3d 325, 329 (5th Cir. 2003). When a
defendant makes a false statement to a third party—here, HMS to a state Medicaid agency—this is
known as an indirect reverse false claim. United States v. Caremark, Inc., 634 F.3d 808, 815 (5th Cir.
2011).
Section 3729(a)(1)(G) imposes liability for either (1) making, using, or causing to be made
or used, a false record or (2) concealing, avoiding, or decreasing an obligation to pay money to the
Government. See 31 U.S.C. § 3729(a)(1)(G) (providing two methods of violating the statute). To
establish an indirect reverse false claim, a relator must prove either: “(1) a false record or statement;
(2) the defendant’s knowledge of the falsity; (3) that the defendant made, used, or cause[d] to be
made or used a false statement or record; (4) for the purpose to conceal, avoid, or decrease an
obligation to pay money to the government; and (5) the materiality of the misrepresentation,” United
States ex rel. Matheny v. Medco Health Sols., Inc., 671 F.3d 1217, 1222 (11th Cir. 2012) (addressing
a reverse false claim); United States ex rel. Hendrickson v. Bank of America, N.A., 343 F. Supp. 3d 610,
632 (N.D. Tex. 2018) (citing United States ex rel. Ramsey-Ledesma v. Censeo Health, L.L.C., 2016 WL
5661644, at *11 (N.D. Tex. Sept. 30, 2016)), or (1) an obligation to pay or transmit money or
property to the Government; (2) the defendant concealed, improperly avoided, or decreased this
obligation; and (3) defendant acted with knowledge. See 31 U.S.C. § 3729(a)(1)(G).
The Court first addresses the motion to dismiss and then addresses Relator’s motion to pursue
claims beyond the termination of his employment with HMS. The Court begins with whether the
statute of limitations bars Relator’s claims before turning to whether Relator pleaded his claims with

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the particularity required by Rule 9(b). Then, the Court addresses HMS’s arguments regarding the
substantive provisions of the false claims. Finally, the Court addresses Relator’s motion.
A.

The Statute of Limitations Does Not Bar Relator’s Claims
The FCA’s statute of limitations provision reads:
A civil action under section 3730 may not be brought—
(1) more than 6 years after the date on which the violation of section 3729
is committed, or
(2) more than 3 years after the date when facts material to the right of action
are known or reasonably should have been known by the official of the
United States charged with responsibility to act in the circumstances, but in
no event more than 10 years after the date on which the violation is
committed, whichever occurs last.

31 U.S.C. § 3731(b). The statute triggers an additional three years—up to ten years total—when
“the official” charged to act under the statute gains actual knowledge or reasonably should have
known of the material facts supporting the cause of action. See id. As previously determined by this
Court, “the official” most accurately describes a Department of Justice (“DOJ”) official in the context
of this case. United States ex rel. Frey v. Health Mgmt. Sys., Inc., 2021 WL 4502275, at *15 (N.D. Tex.
Oct. 1, 2021).
The application of this statute to Relator’s claims turns on whether the DOJ should have
known about Relator’s claims because of the HHS-OIG Report. The Inspector General Act of 1978
(“IGA”) provides “[i]n carrying out the duties and responsibilities established under this Act, each
Inspector General shall report expeditiously to the Attorney General whenever the Inspector General
has reasonable grounds to believe there has been a violation of Federal criminal law.” 5 U.S.C. app. 3
§ 4(d). Based on any suspected violations of federal criminal law, the “DOJ may then bring criminal
charges or a civil action under the False Claims Act.” Ass’n of Am. Med. Colls. v. United States, 217
F.3d 770, 779 n.6 (9th Cir. 2000).
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Defendant raises similar statute-of-limitations arguments to those made in its prior motion
to dismiss, except this time HMS argues that “the official” described in 31 U.S.C. § 3731(b)
“‘reasonably should have known’ of the facts material to the right of action” because of Health and
Human Services (“HHS”) Office of Inspector General (“OIG”)’s 2013 report, which presented the
same allegations. Doc. 50, Def.’s Br., 21–22. HHS-OIG was required to report any suspected
violation of Federal criminal law to the DOJ so, according to Defendant, the DOJ should have
known of the facts supporting Relator’s allegations. Id. at 22. HMS relies on United States ex rel.
Frascella v. Oracle Corp. as an analogous case to demonstrate this point. Id. at 22–23 (citing Frascella,
751 F. Supp. 2d 842 (E.D. Va. 2010)); Doc. 58, Def.’s Reply, 4. Thus, HMS contends that the
statute of limitations bars Relator’s claims occurring prior to April 16, 2013. Doc. 50, Def.’s Br.,
23–24. Lastly, HMS argues that the extensive HHS-OIG investigation leaves no material facts in
dispute and this Court can resolve these arguments at the motion to dismiss stage. Doc. 58, Def.’s
Reply, 5.
Relator responds by arguing Frascella is distinguishable because that court found that “the
official,” as described in the FCA, included an employee of the General Services Administration
(“GSA”) OIG, which is at odds with what this Court found in its prior Order. Doc. 53, Relator’s
Resp., 16–18. Relator also points out that the Frascella court construed the FCA provision in
conjunction with the broader provision providing for tort and common law fraud claims against the
United States. Id. at 18 (noting that the former uses the phrase “the official” and the latter uses the
phrase “an official”). Relator points the Court to United States v. Wells Fargo Bank N.A. as a more
analogous case; in that case, the court denied a motion to dismiss because the determination of

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whether “the official” should have known, as a fact-based inquiry, is better resolved at the summaryjudgment stage. Id. at 19–20 (citing Wells Fargo Bank, 972 F. Supp. 2d 593 (S.D.N.Y. 2013)).
HMS’s argument hinges on the relationship between the FCA and the IGA3, specifically what
constitutes “reasonable grounds” under the IGA to trigger HHS-OIG’s requirement to notify the
DOJ of violations of criminal law—and whether that then implies that the DOJ reasonably should
have known of the material facts supporting Relator’s cause of action as required by the FCA. But
the knowledge element for the FCA statute of limitations turns not on the similarities between a
government report and a complaint, but on whether the DOJ became aware of a relator’s allegations.
See 31 U.S.C. § 3731(b); United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 474 F.
Supp. 2d 75, 85 (D.D.C. 2007) (holding that subsection (b)(2) is measured from the Government’s
knowledge). Thus, the Court’s inquiry is focused first on whether the DOJ had some form of
knowledge of Relator’s claims and second on the similarities between a report alleged to establish the
DOJ’s knowledge and Relator’s complaint.
The Court finds the Frascella case highlighted by HMS instructive, so far as it shows how a
court may consider the breadth of dissemination of a report when determining whether the DOJ should
have known of Relator’s claims based on that report. In Frascella, the defendant contracted with the
GSA “to provide software products to various federal agencies.” 751 F. Supp. 2d at 844. Prior to the
effective date of the contract, GSA-OIG conducted “a routine pre-award audit of [the defendant’s]
commercial pricing” and discovered that the defendant’s commercial customers received discounts
3

Subsequent amendments to the Act did not modify the “reasonable grounds” language at issue
today. See Inspector General Act “5 U.S.C. app.” Amendments of 1988, Pub. L. No. 100-504, § 109, 102
Stat. 2529 (1988); National and Community Service Trust Act of 1993, Pub. L. No. 103-82, § 202(g)(5)(A),
107 Stat. 890 (1993); Inspector General Reform Act of 2008, Pub. L. No. 110-409, § 7(d)(1)(A), 122 Stat.
4313 (2008); Inspector General Empowerment Act of 2016, Pub. L. No. 114-317, §§ 4(d), 7(d)(2)(A), 130
Stat. 1602, 1606 (2016).

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and lower pricing not offered to GSA. Id. at 845–46. Relator then brought claims under the FCA
regarding the contract and the Government intervened. Id. at 846. The defendant sought dismissal
of the claims as time-barred because either (1) the GSA-OIG qualified as “the official” under
31 U.S.C. § 3731(b) and knew of the claims, or (2) the DOJ reasonably should have known of the
claims due to the wide dissemination of the report. Id. at 849, 852. The court avoided the question
of whether a GSA-OIG employee qualifies as the responsible official referenced in 31 U.S.C.
§ 3731(b)(2) because it reached the same conclusion under either analysis. Id. at 851.
The HHS-OIG Report, like the GSA-OIG report in Frascella, covers much of what Relator
alleges in the SAC. Compare Doc. 51, Def.’s App’x, Ex. A, with Doc. 42, 2d Am. Compl. However,
HMS does not present evidence about the dissemination of the HHS-OIG Report or specifically,
whether the Report was ever sent to the DOJ. Cf. Frascella, 751 F. Supp. 2d at 852 (discussing the
wide distribution of the report). Without such evidence, the Court is unable to find that the DOJ
“kn[ew] or reasonably should have . . . known” of the facts underlying Relator’s FCA claims. See 31
U.S.C. § 3731(b)(2). Furthermore, the HHS-OIG Report investigated the allegation of whistleblower
retaliation stemming from Relator’s termination at HMS, not the veracity of the myriad TPL
allegations. Doc. 51, Def.’s App’x, Ex. A. Even though the TPL allegations created the context for
the retaliation claim, see id. at 3, HHS-OIG did not investigate whether these reports were true
except for the “Tennessee Model” claim. See id., 1–2. The Court is unwilling to assume that this
limited inquiry by HHS-OIG triggered the requirement for HHS-OIG to notify the DOJ of possible
violations of criminal law or that HHS-OIG in fact acted upon this statutory duty. See 5 U.S.C.
app. 3 § 4(d). Thus, HMS has not established that the DOJ should have known about Relator’s
claims because of the HHS-OIG Report and that Relator’s claims are time-barred.

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B.

Relator’s Claims Analyzed Under Rule 9(b)
HMS argues that the Relator’s SAC is devoid of the “particular details or reliable indicia” of

HMS’s alleged failure “to bill claims ‘timely’ or ‘at all.’” Doc. 50, Def.’s Br., 12. The SAC, per
Defendant, omits any information about “actual claims, how much they were for, what states they
emanated from, or specifics of when this occurred.” Id. Next, HMS contends that Relator “selectively
relies on certain regulations” while neglecting the full statutory framework. Id. Specifically, the 60day collection period may be waived and “[S]tates have three years to pursue TPL claims.” Id. at
12–13. (first citing 42 C.F.R. § 433.139(e)(1); and then citing 42 U.S.C. § 1396a(a)(25)(I)(iii));
Doc. 58, Def.’s Reply, 6. As such, Relator failed to sufficiently plead “‘why’ or ‘how’ the late or nonsubmission of TPL claims or the late uploads of MMIS information cause[d] a single reverse false
claim.” Id. (citing Plotkin v. IP Axess, Inc., 407 F.3d 690, 696 (5th Cir. 2005)). All these failings
warrant dismissal under Rule 9(b), according to HMS. See Doc. 50, Def.’s Br., 12–14.
Relator rebuts that HMS “recycles its previous arguments” that this Court rejected from the
prior motion to dismiss. Doc. 53, Relator’s Resp., 11. Relator contends that the claims sufficiently
comply with the pleading standard outlined in Grubbs, which the Court applied in the prior Order
and found the TPL and MMIS claims sufficiently pleaded. Id. at 12.
Before turning to evaluate the individual claims under Rule 9(b), the Court must address
HMS’s preliminary argument about what standard to apply. HMS cites to Plotkin to argue that
Relator must plead “the statements (or omissions) considered to be fraudulent, the speaker, when
and why the statements were made, and an explanation why they are fraudulent.” 407 F.3d at 696;
Doc. 58, Def.’s Reply, 6. Interestingly, this Plotkin pleading requirement matches up to the “who,
what, when, where, and how” formulation that the Court used in the prior motion to dismiss. Dorsey

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v. Portfolio Equities, Inc., 540 F.3d 333, 339 (5th Cir. 2008) (stating that “Rule 9(b) requires the
complaint to set forth ‘the who, what, when, where, and how’ of the events at issue” after stating
HMS’s formulation of the Rule 9(b) pleading requirements); Frey, 2021 WL 4502275, at *3. The
full quote from Plotkin reads: “In this court, the Rule 9(b) standards require specificity as to the
statements (or omissions) considered to be fraudulent, the speaker, when and why the statements
were made, and an explanation why they are fraudulent.” Plotkin, 407 F.3d at 696. Simply put, “the
statements (or omissions) considered to be fraudulent” is the “what” from the “who, what, when,
where, and how” formulation. See id. “[T]he speaker” is the “who.” See id. “[W]hen and why the
statements were made” matches the “when” and “where.” See id. And “an explanation why they are
fraudulent” is the “how.” See id. Thus, Plotkin reinforces the “who, what, when, where, and how”
formulation as the standard for pleading under Rule 9(b). See id.; Carroll v. Fort James Corp., 470
F.3d 1171, 1174 (5th Cir. 2006); United States ex rel. Integra Med Analytics, L.L.C. v. Baylor Scott &
White Health, 816 F. App’x 892, 896–97 (5th Cir. 2020) (“[I]t does generally require that a
complaint detail ‘the who, what, when, and where.’”) (quoting Hart v. Bayer Corp., 199 F.3d 239,
247 n.6 (5th Cir. 2000)).
Further, under Rule 9(b) for an FCA claim, Relator does not have to plead the “actual
claims, how much they were for, what states they emanated from, or specifics of when this occurred,”
as HMS contends. See Doc. 50, Def.’s Br., 12; Grubbs, 565 F.3d at 190 (“[A] plaintiff does not
necessarily need the exact dollar amounts, billing numbers, or dates to prove to a preponderance that
fraudulent bills were actually submitted.”). Requiring such proof “is one small step shy of requiring
production of actual documentation with the complaint, a level of proof not demanded to win at trial
and significantly more than any federal pleading rule contemplates.” Id. Relator only needs to

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“alleg[e] particular details of a scheme to submit false claims paired with reliable indicia that lead to
a strong inference that claims were actually submitted.” Id. And as discussed below, Relator has
pleaded such a scheme for many of the claims under the traditional “who, what, when, where, and
how” analysis.
The Court now turns to analyze the claims under the Grubbs standard. The Court begins with
the individual State claims because these claims form the basis of the federal claims. The Court then
addresses the federal claims.
1.

Counts 6–15 and 17–28 Under State False Claim Provisions4
i.

Count 6: Cal. Gov’t Code §§ 12650–565

For allegations specifically pertaining to Count Six (violation of the California false claims
statute), Relator alleges that in 2010 there were $67.8 million worth of open claims in California.
Doc. 42, SAC, ¶ 47. Additionally, HMS “pursue[d] recovery of associated TPL claims before loading
the coverage information to the MMIS, if at all” in violation of “federal regulations [and] HMS’s
contract with the Department of Health Services.” Id. ¶ 50. An employee of the California
Department of Health Care Services confronted HMS about this after being warned by Relator “to

4

Relator acquiesces to dismissal without prejudice for the Arkansas (Count 5) and Maryland (Count
16) claims because the state statutes “do[] not provide an opportunity for a qui tam relator to bring claims on
behalf of the state.” Doc. 42, SAC, ¶¶ 115, 224. Because Relator cannot assert a claim under these statutes,
the Court DISMISSES these claims WITHOUT PREJUDICE.
5

The relevant provision of the California False Claims Act reads:

any person who. . . [k]nowingly 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 state or to
any political subdivision, or knowingly conceals or knowingly and improperly avoids, or
decreases an obligation to pay or transmit money or property to the state or to any political
subdivision.
Cal. Gov’t Code § 12651(a)(7).

- 15 -

watch out for” this particular behavior. Id. This behavior allowed HMS “to collect contingency fees
for filing (or in many cases, merely claiming to have filed) TPL claims for these expenditures” while
California spent “millions of dollars of additional Medicaid funds . . . on patients who were covered
by insurance.” Id.
Because Relator does not present any evidence of actual false claims, Relator must provide
“particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong
inference that claims were actually submitted.” See Grubbs, 565 F.3d at 190. Relator’s California
claim relies on many of the allegations describing a scheme by HMS to not bill third-party insurers
or upload data into MMIS timely or at all. Doc. 42, SAC, ¶ 116 (incorporating the allegations from
the preceding paragraphs). These allegations fail to provide the particularity required under Rule
9(b) for a scheme to defraud the State of California. To start, Relator admits that the $67.8 million
worth of open claims might have been recovered. Id. ¶ 47 (“[I]t is possible that many claims classified
as open . . . were eventually billed and paid.”). Also, this number is only an amount for one moment
in time—a snapshot—without further context to show the Court whether HMS perpetuated a
scheme—over time—to deny the State of California the ability to collect on these TPL claims. Next,
Relator does not allege any particularities of the MMIS upload scheme beyond general allegations
of billing before uploading the TPL data into MMIS and the collection efforts after identifying TPL.
Id. ¶ 123. Such vague assertions more closely resemble a lack “of any actual knowledge of any FCAviolating fraud” than a scheme with reliable indicia. Nunnally, 519 F. App’x at 893. Particularly
lacking are details about the “when” and “how.” Relator does not detail when exactly the alleged
activity occurred, see Doc. 42, SAC, ¶ 122 (alleging a contract with California during Relator’s
employment with HMS), or how the $67.8 million of open claims (or what proportion) are

- 16 -

fraudulent. Therefore, the Court finds Relator fails to plead facts supporting “a strong inference” of
fraud by HMS for the California claim and DISMISSES this claim.
ii.

Counts 7–10, 12–14, 17–19, 24, 26, 28

Relator makes the same general allegations for the Colorado, Connecticut, Delaware, District
of Columbia, Georgia, Indiana, Iowa, Massachusetts, Michigan6, Minnesota, North Carolina, Rhode
Island, and Virginia claims. See Doc. 42, Am. Compl., ¶¶ 126–169, 178–210, 225–257, 299–309,
321–331, 340–350. Using the “who,” “what,” “where,” “when,” and “how” formulation, he identifies:
(1) Defendant is the “who”; (2) the “what” is Defendant’s failure to bill TPL claims
timely or at all and to timely upload coverage information to the MMIS, and
providing false reports and certifications as to both; (3) the “where” is through
Defendant’s periodic reports to the state, in Defendant’s offices, and at periodic inperson status update meetings in the offices of Defendant or the state; (4) the “when”
is from April 16, 2009 and possibly to the present; and (5) the “how” is failing to
properly maintain systems to handle the legal and regulatory obligations of
Defendant, through the performance of regular “holds,” “cleans,” and “cycle edits”
that prevented reimbursement of claims, and through the submission of false and
inaccurate reports of its TPL billing activity as well as false MMIS compliance
certifications.
Id. ¶¶ 134, 145, 156, 167, 186, 197, 208, 233, 244, 255, 307, 318, 329, 348. Relator also alleges that
these states were considered “small” states because of their smaller Medicaid population compared
to New York, Florida, Texas, California, and New Jersey and received “‘back burner’ treatment” for
TPL collections. Id. ¶ 50. The only separate State-specific allegations are that Georgia had $35.9
million and North Carolina had $45.3 million of open TPL claims as of 2010, according to Relator.
Id. ¶ 47.
Despite reciting the “who,” “what,” “where,” “when,” and “how” Rule 9(b) formulation for
each of the individual State claims, Relator’s claims fail to plead with the particularity required under
6

The Michigan Medicaid False Claim Act does not define materiality. Mich. Comp. Laws Ann.
§ 400.602.

- 17 -

Rule 9(b) for the same reason identified in the Court’s prior Order. Frey, 2021 WL 4502275, at *6
(“Relator fails to allege what specifically took place in the remaining 21 state FCA claims.”). He
provides no reliable indicia that would lead the Court to find a strong inference of fraud.
Further, the Court finds this case distinguishable from the case presented by Relator to argue
the Court should find identically pleaded claims, where a court found one claim provides enough
particularity, sufficiently pleaded to survive a motion to dismiss, S.E.C. v. Reynolds, 2009 WL
1065403 (N.D. Tex. April 17, 2009). In Reynolds, the plaintiff brought a securities fraud case against
the defendant for the fraudulent sale of a penny stock. Id. at *1–2. The plaintiff amended its
complaint to add additional defendants and a second “virtually identical” claim for another penny
stock offering. Id. at *3. The Court denied the defendant’s motion to dismiss. Id. at *6.
The analogy fails because here, unlike in Reynolds, Relator provides no specific allegations for
each “virtually identical” claim. See id. at *1, *3 (providing the name of another penny stock entity
and the language from separate disclaimers).The lack of specific allegations leaves the Court without
any indication that the alleged scheme took place in these Plaintiff States. And for the State-specific
allegations regarding the open TPL claims, these allegations fail for the reasons identified earlier by
the Court that these allegations provide a mere snapshot in time of open claims in these States
devoid of context to paint a scheme of fraud. Therefore, the Court DISMISSES the Colorado,
Connecticut, Delaware, District of Columbia, Georgia, Indiana, Iowa, Massachusetts, Michigan,
Minnesota, North Carolina, Rhode Island, and Virginia claims.

- 18 -

iii.

Count 11: Fla. Stat. Ann. §§ 68.081–68.0927

For the claim pursuant to the Florida False Claims Act, Relator realleges the previously
described scheme. Doc. 42, SAC, ¶ 170. He also alleges that HMS ignored “tens of millions, if not
over $100 million” in TPL claims until HMS lost the contract to perform TPL services for Florida
in 2009, after which HMS “kicked into high gear” to bill TPL claims and collect the corresponding
contingency fees before the new service provider’s contract went into effect. Id. ¶¶ 49–50. Further,
Florida was considered one of the “big” states by HMS for TPL collections because of the large
Medicaid population. Id. ¶ 50.
These additional details provide enough reliable indicia for the Court to draw a strong
inference of fraud. Taking the allegations as true, HMS ignored their obligation to collect the TPL
claims until HMS learned of the contract with the new service provider. Id. ¶¶ 49–50. Such behavior
is indicative of a scheme to not collect on TPL claims. Further, the Court previously found Relator
identified the “who, what, where, when, and how” for this claim. Frey, 2021 WL 4502275, at *6.
HMS contends that 42 U.S.C. § 1396a(a)(25)(I)(iv) grants HMS three years to satisfy any
TPL claim. Doc. 50, Def.’s Br., 12–13. Thus, any “delay” in collecting Florida’s claims within sixty
days did not impact “the Federal fisc” because HMS collected the claims within the extended threeyear collection period. Id. at 13.
States participating in Medicaid are required by federal law “to implement a ‘third party
7

The relevant provision of the Florida False Claims Act reads:

Any person who. . . [k]nowingly 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 state, or
knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or
transmit money or property to the state.
Fla. Stat. Ann. § 68.082(2)(g).

- 19 -

liability’ provision that requires the state to seek reimbursement for Medicaid expenditures from third
parties who are liable for medical treatment provided to a Medicaid recipient.” Caremark, Inc. v.
Goetz, 480 F.3d 779, 783 (6th Cir. 2007) (citing 42 U.S.C. § 1396a(a)(25)(A)). 42 U.S.C.
§ 1396a(a)(25)(I) provides:
[T]hat the State shall provide assurances satisfactory to the Secretary that the State
has in effect laws requiring health insurers . . . as a condition of doing business in the
State, to . . . (iii) respond to any inquiry by the State regarding a claim for payment
for any health care item or service that is submitted not later than 3 years after the
date of the provision of such health care item or service; and (iv) agree not to deny
a claim submitted by the State solely on the basis of the date of submission of the
claim . . . .
42 U.S.C. § 1396a(a)(25)(I). This provision imposes a duty on the States to have laws in place
requiring health insurers to pay claims submitted by the State within three years after the time of
providing the healthcare item or service. See id.
On the other hand, regulations impose a sixty-day period—beginning at the end of the month
when a State learns of third-party coverage—for the State to seek reimbursement from a third party.
See 42 C.F.R. § 433.139(d). Specifically, the regulation reads:
[I]f the [State] agency learns of the existence of a liable third party after a claim is
paid, or benefits become available from a third party after a claim is paid, the agency
must seek recovery of reimbursement within 60 days after the end of the month it
learns of the existence of the liable third party or benefits become available.
42 C.F.R. § 433.139(d)(2). Thus, reading the statute and regulation in conjunction, a State must
seek reimbursement from liable third parties within sixty days of the end of the month that the State
learns of third-party coverage and an insurer may not reject the claim if the claim is filed within three
years of the provided healthcare item or service. See id.; 42 U.S.C. § 1396a(a)(25)(I). Critically, the
triggering event is the state Medicaid agency learning of third-party coverage; this gives the agency
sixty days—not three years—from the end of that month to seek reimbursement. However, this
- 20 -

sixty-day window can occur at any point within the three-year time frame when an insurer must
respond to a claim and the State would not lose money through possible reimbursement. As long as
the State becomes aware of the third-party coverage sixty days before the three-year time frame
closes, presumably, the State could take the full sixty days allowed by the regulation to seek
reimbursement, collect from the insurer, and not fail to remit any money owed to the federal
government, thus not deny any money owed to the Government.
Applying this statutory and regulatory framework to Relator’s SAC, the Court finds Relator’s
allegations sufficiently plead a plausible indirect reverse false claim. According to Relator’s
allegations, HMS knew of TPL claims in Florida to the tune of at least tens of millions of dollars.
Doc. 42, SAC, ¶ 49. HMS’s alleged collection efforts after losing the TPL collections contract further
demonstrate that HMS knew it was required to seek reimbursement for the TPL claims. See id.
Further, HMS assumed the responsibility of complying with the sixty-day collection requirement
through its contract with the Florida Agency for Healthcare Administration. Id. ¶¶ 42, 174. The
contract obligated HMS to collect on the TPL claims within sixty days of learning of them. Thus,
Relator’s SAC sufficiently pleads that HMS had an obligation to collect TPL claims and its failure
to fulfill this obligation potentially impeded Florida’s obligation to reimburse the federal government.

- 21 -

iv.

Count 15: La. Stat. Ann. §§ 46:437.1–440.168

Specific to Louisiana, Relator alleges that the State later contracted with a competitor of
HMS because of “HMS’s low success rate in billing and collecting TPL claims.” Doc. 42, SAC, ¶ 50.
HMS regarded Louisiana as a “small” state and Louisiana compensated HMS on a fixed fee—as
opposed to a contingency fee—which “led HMS to neglect Louisiana . . . [,] violat[ing] HMS’s
contract and applicable law.” Id. Relator further alleges that HMS employed the “Tennessee Model”
in Louisiana to “knowingly bill[] twice for providing the same coverage information in the state.” Id.
¶ 220.
These allegations fail to provide the Court with reliable indicia to leave the Court with a
strong inference of fraud. While Relator incorporates the “Tennessee Model” allegations into this
claim by alleging the same activity took place in Louisiana, Relator fails to support these allegations
with reliable indicia. For the “Tennessee Model” claim, Relator alleges that he told Vice President
David Dawson and his colleague James Finley about his concerns regarding the State of Tennessee.
See id. ¶¶ 69–73. None of the allegations provide indicia, much less reliable indicia, that the
“Tennessee Model” also occurred in Louisiana as alleged by Relator. Id. ¶ 71 (“Relator believes that
HMS also implemented the “Tennessee Model” in Louisiana.”); see id. ¶¶ 69–73 (describing the
“Tennessee Model” with allegations that pertain only to Tennessee). Even though the Tennessee

8

The relevant provision of the Louisiana Medical Assistance Programs Integrity Law reads:

No person shall knowingly make, use, or cause to be made or used, a false record or
statement material to an obligation to pay or transmit money or property to the medical
assistance programs, or to knowingly conceal, avoid, or decrease an obligation to pay or
transmit money or property to the medical assistance programs.
La. Stat. Ann. § 46:438.3(C).

- 22 -

claim survives under the “who, what, where, when, how” standard, the failure to provide allegations
specific to Louisiana proves fatal to the claim. The Court DISMISSES the Louisiana claim.
v.

Count 20: Nev. Rev. Stat. Ann. §§ 357.010–357.2509

Relator worked to grow the Nevada market “essentially from scratch.” Doc. 42, SAC, ¶ 6.
Relator alleges that at some point in 2010, Nevada had $4.1 million in open claims and HMS gave
“back burner” treatment to Nevada because it was not considered a “big” state. Id. ¶¶ 47, 50. The
Nevada Department of Human Resources was routinely “dissatisfied with HMS’s performance under
its contract, especially after HMS transferred Relator . . . resulting in Nevada no longer being one
of Relator’s territories” and “periodically contact[ed] Relator to express their dissatisfaction with
HMS.” Id. ¶ 50.
Once again, Relator fails to provide reliable indicia of a fraudulent scheme to warrant a strong
inference of fraud. As stated for other claims, the snapshot of open claims does not indicate that
HMS never collected these claims or did so in an untimely manner. The Nevada Department of
Human Resources’s alleged dissatisfaction with HMS indicates general dissatisfaction, not that HMS
failed to timely collect TPL claims or upload the MMIS data. None of these allegations provide
reliable indicia that HMS allowed claims to surpass the sixty-day collection period or failed to upload
the third-party coverage within forty-five days. The Court DISMISSES the Nevada claim.

9

The relevant provision of the Nevada False Claims Act reads:

[A] person who . . . [k]nowingly makes or uses, or causes to be made or used, a false record
or statement that is material to an obligation to pay or transmit money or property to the
State or a political subdivision [or] [k]nowingly conceals or knowingly and improperly avoids
or decreases an obligation to pay or transmit money or property to the State or a political
subdivision.
Nev. Rev. Stat. Ann. § 357.040(1)(f–g).

- 23 -

vi.

Count 21: N.J. STAT. ANN. §§ 2A:32C-1–1810

Relator specifically alleges that New Jersey “represented one of HMS’s largest contracts” with
$168.2 million of open claims at some point in 2010. Doc. 42, SAC, ¶¶ 47, 50. The HMS
executive/employee in charge of the New Jersey contract, Kevin Lee, maintained “a cozy relationship
with the New Jersey Department of Human Services,” creating a climate that allowed HMS to let
“TPL claims . . . fall through the cracks without ever disclosing problems to the state.” Id. ¶ 50. HMS
processed the claims so poorly that HMS executives joked that Mr. Lee “process[ed] the data for the
state from his garage.” Id. Further, in 2013 the New Jersey Office of the State Auditor found that
HMS billed the State for $7.5 million for previously identified and billed third-party coverage. Id.
Like the other State claims, Relator does not provide evidence of submitted claims, so Relator
must plead “particular details of a scheme to submit false claims paired with reliable indicia that lead
to a strong inference that claims were actually submitted.” See Grubbs, 565 F.3d at 190. Relator
provides more detail to the New Jersey claim than most of the other State claims. However, the
allegation regarding the State Auditor findings implies that HMS submitted claims too diligently to
the point of overbilling the State of New Jersey for TPL claims. See Doc. 42, SAC, ¶ 50. Further, the
allegation of $168.2 million of open claims provides a snapshot in time of open claims, which does
not provide reliable indicia that HMS never billed any of these claims. See id. ¶ 47. As Relator
admits, a claim stays “open” for a number of reasons and may not mean that HMS never billed or
10

The New Jersey False Claims Act does not define obligation. See N.J. Stat. Ann. § 2A:32C-2. The
statute also does not include a materiality requirement, so the statute does not define material. Id. § 2A:32C2–3. The relevant provision of the New Jersey False Claims Act reads:
A person shall be jointly and severally liable to the State for . . . [k]nowingly makes, uses, or
causes to be made or used a false record or statement to conceal, avoid, or decrease an
obligation to pay or transmit money or property to the State.
Id. § 2A:32C-3.

- 24 -

received reimbursement from the claim. Id. The allegation that Mr. Lee allowed claims to fall
through the cracks portrays an unsavory environment for properly billing TPL claims, but taking the
allegation in conjunction with the other allegations, Relator fails to create a strong inference of fraud
to support the New Jersey false claim. Therefore, the Court DISMISSES this claim.
vii.

Count 22: N.M. Stat. Ann. §§ 44-9-1–1411

For New Mexico-specific allegations, “HMS was a subcontractor to the primary contractor”
and New Mexico was considered a “small” state, which resulted in relegating the New Mexico
contract to “back burner” status. Doc. 42, SAC, ¶ 50.
Relator’s allegations fail to create a strong inference of fraud. Relator recites the “who, what,
where, when, how” formula for pleading fraud and incorporates the other allegations regarding failure
to bill TPL claims and upload to MMIS, but these allegations do not pertain specifically to New
Mexico. Adding in the New Mexico-specific allegations provides scant indicia of a reverse false claim
for HMS’s actions under the New Mexico contract. The Court also DISMISSES the New Mexico
claim.

11

The New Mexico Fraud Against Taxpayers Act does not include a materiality requirement so the
statute does not define material. N.M. Stat. Ann. § 44-9-2–3. The statute also does not have a statute of
limitations. Id. § 44-9-12. The relevant provision of the New Mexico Fraud Against Taxpayers Act reads:
A person shall not . . . [k]nowingly make or use, or cause to be made or used, a false,
misleading or fraudulent record or statement to conceal, avoid or decrease an obligation to
pay or transmit money or property to the state or a political subdivision.
Id. § 44-9-3(8).

- 25 -

viii.

Count 23: N.Y. State Fin. Law §§ 187–9412

Relator’s New York claim largely mirrors the allegations from the prior complaint that the
Court found sufficiently pleaded according to the “who, what, where, when, how” standard. Frey,
2021 WL 4502275, at *2, *6.
HMS contends the New York claim “consists of bare bones accusation[s]” because Relator
“never quantifies the alleged add fees.” Doc. 50, Def.’s Br., 16. Additionally, the New York contract
“changed in early 2009, and . . . Relator never alleges a single fact to show HMS kept any add fees
after [the statute of limitations] cutoff.” Id. at 16–17. Lastly, HMS contends “the pleading fails to
connect how New York’s receipt of the ‘add fees’ from HMS would have resulted in payment to the
Federal Government.” Id. at 17.
Relator rebuts that these arguments repeat the previously rejected arguments. Doc. 53,
Relator’s Resp., 13–14.
HMS is correct that Relator does not compute the total “add fees” for the New York claim,
but this does not prove fatal. First, Relator cannot be expected to have information exclusively in
the control of HMS. United States ex rel. Gage v. Davis S.R. Aviation, L.L.C., 623 F. App’x 622, 627
(5th Cir. 2015) (“We may relax the pleading requirements of 9(b) if ‘facts relating to the fraud are
peculiarly within the perpetrator’s knowledge.’” (quoting United States ex rel. Doe v. Dow Chem. Co.,
343 F.3d 325, 330 (5th Cir. 2003)); Hill v. Morehouse Med. Assocs., 2003 WL 22019936, at *4 (11th
12

The relevant provision of the New York false claims act reads:

[A]ny person 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 state or
a local government; or knowingly conceals or knowingly and improperly avoids or decreases
an obligation to pay or transmit money or property to the state or a local government.
N.Y. State Fin. Law § 189(1)(g–h).

- 26 -

Cir. Aug. 15, 2003); see also Grubbs, 565 F.3d at 191 (noting defendants will be in possession of the
most relevant documents to defend against a false claim). Second, the Court does not see how this
total would help HMS defend against the claim. HMS has notice of the particularities of the scheme
and when it allegedly occurred, so it can sufficiently defend against Relator’s allegations. See Doc.
Doc. 42, SAC, ¶¶ 64–68. Lastly, Rule 9(b) does not require Relator to plead the exact amount at
this stage of the case. See Grubbs, 565 F.3d at 190 (stating that “the exact dollar amounts
fraudulently billed will often surface through discovery”).
HMS’s second contention either misunderstands or misstates Relator’s allegations. Relator
alleges HMS continued to hold onto “add fees” from the pre-2009 contract after the new contract
took effect. Doc. 42, SAC, ¶ 66. The new contract, per Relator, did not extinguish the obligation
of HMS to refund the “add fees” collected under the old contract, but HMS continued to retain
many of these “add fees.” Id. And HMS continued to retain these “add fees” beyond the statute of
limitations cutoff. Id. Thus, Relator does plead that some of the “add fees” from the pre-2009
contract fall within the statute of limitations period. See id. (“In other words, the new contract did
not extinguish the repayment obligations that had already arisen and were outstanding under the
previous contract.”).
HMS’s last argument that Relator fails to connect the retained “add fees” to an obligation
to remit money to the federal government raises a fact question that should be decided at the
summary-judgment stage, not the motion-to-dismiss stage. See Morales v. Motion Indus., Inc., 2010
WL 11618060, at *4 (N.D. Tex. July 8, 2010) (denying motion to dismiss because the fact issue was
“better suited for a motion for summary judgment”); e.g. Delhomme v. Caremark Rx Inc., 232 F.R.D.
573, 580 (N.D. Tex. 2005) (“[F]actual issue[s] . . . may be more appropriately decided on summary

- 27 -

judgment or at trial.”); Randall v. L-3 Commc’n Corp., 2017 WL 2189432, at *9 n.8 (finding summary
judgment or trial more appropriate for considering evidence). The failure to remit the “add fees,”
according to Relator, decreased payments to NY OMIG to the tune of millions of dollars, in turn
decreasing the amount remitted to the federal government. Doc. 42, SAC, ¶ 68. Whether the “add
fees” came from Medicaid funds that New York had an obligation to reimburse to the federal
government if HMS obtained a recovery from a third-party insurer can be easily answered in the
initial discovery phase by examining the contract between HMS and the State of New York and any
possible agreements between the State of New York and the federal government.
The Court DENIES HMS’s motion to dismiss the New York claim.
ix.

Count 25: Okla. Stat. tit. 63, §§ 5053–5413

Relator alleges that Oklahoma had $16.7 million in open claims at one time in 2010. Id. ¶ 47.
Oklahoma was also considered “a ‘small’ state with a low Medicaid population.” Id. ¶ 50. At one
point, Relator compared Oklahoma’s recovery figures with Idaho’s—a smaller Medicaid population
state—and noticed HMS recovered more from Idaho than Oklahoma. Id. After bringing this to the
attention of HMS, the company determined that it “had been pursuing TPL recoveries only [for]
persons who were newly Medicaid-eligible, and not the state’s entire Medicaid population.” Id.
Relator’s Oklahoma allegations provide reliable indicia that leaves the Court with a strong
inference of a failure to timely collect on claims. Particularly telling is the allegation that HMS
13

The relevant provision of the Oklahoma Medicaid False Claims Act reads:

[A]ny person who . . . [k]nowingly 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 state, or
knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or
transmit money or property to the state.
Okla. Stat. tit. 63, § 5053.1(B)(7).

- 28 -

determined it had billed for a small subset of the Medicaid population and not the entire Medicaid
population in Oklahoma. Id. The allegation also indicates that HMS knew of third-party coverage
for these newly-covered individuals, and that this required HMS to collect within sixty days. See
42 C.F.R. § 433.139(d). This leads to a strong inference that HMS did not timely bill many claims
before learning of this issue, depriving Oklahoma of reimbursement for TPL claims. Based on this
reliable indicium, the Court is left with a strong inference that HMS impaired the obligation of
Oklahoma to remit payments to the federal government. Accordingly, the Court DENIES HMS’s
motion to dismiss for the Oklahoma claim.
x.

Count 26: R.I. Gen. Laws Ann. §§ 9-1.1-1–914

Specific to Rhode Island, Relator alleges that HMS considered the State a “small” state and
gave claim recovery “back burner” status. Doc. 42, SAC, ¶ 50. Relator provides no other Statespecific allegations and incorporates the general failure-to-bill and MMIS-upload allegations. Id.
¶ 321.
The failure to provide more substance for this claim deprives the Court of reliable indicia to
support the allegation as it pertains to Rhode Island. Without reliable indicia, the Court cannot
develop a strong inference that HMS impaired Rhode Island’s obligation owed to the federal
government. Therefore, the Court DISMISSES this claim.

14

The relevant provision of the Rhode Island State False Claims Act reads:

[A]ny person who . . . [k]nowingly 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 state, or
knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or
transmit money or property to the state.
R.I. Gen. Laws Ann. § 9-1.1-3(a)(7).

- 29 -

xi.

Count 27: Tenn. Code Ann. §§ 71-5-181–18515

With respect to Tennessee, Relator recounts the same allegations from the prior complaint.
Compare Doc. 19, Am. Compl., ¶¶ 69–73, with Doc. 42, SAC, ¶¶ 69–73. Generally, Relator alleges
a scheme called the “Tennessee Model” where HMS sold the same TPL information for upload into
MMIS to individual MCOs and the state Medicaid agency, thus “double billing” for the same
information. Doc. 42, SAC, ¶¶ 69–73. Relator provides additional allegations in the SAC that HMS
considered Tennessee a “small” state, garnering “back burner” status and HMS exported the
“Tennessee Model” to other states. Id. ¶¶ 50, 91.
HMS contends the claim rests on “allegations of the law” creating “an attenuated line
[between] overpayments to MCOs . . . to . . . Medicaid premium rates” devoid of “concrete factbased allegations.” Doc. 50, Def.’s Br., 17. Further, TennCare’s Director of Program Integrity
disagreed that the “double billing” scheme “wasted[d] or abuse[d] Medicaid funds” during an HHSOIG investigation in 2013, “foreclose[ing] a plausible pleading of materiality.” Id. at 18 (quoting Doc.
51, Def.’s App’x, 75); Doc. 58, Def.’s Reply, 8. Thus, Relator cannot state a plausible “fraud claim
based on the ‘Tennessee Model’ where the director of the State’s own oversight agency found no
problem under these facts.” Id. (citing Twombly, 550 U.S. at 559–60).
Relator responds that HMS recycles its argument from the prior motion to dismiss. Doc. 53,
Relator’s Resp., 13. Relator also contends that the email by the Tennessee official is “more
15

The relevant provision of the Tennessee Medicaid False Claims Act reads:

[A]ny person who . . . [k]nowingly 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 state, or
knowingly conceals, or knowingly and improperly, avoids, or decreases an obligation to pay
or transmit money or property to the state, relative to the medicaid program.
Tenn. Code Ann. § 71-5-182(a)(1)(D).

- 30 -

appropriate for the discovery phase and trial” and the statement was not made under oath, nor was
the official cross-examined. Id. Further, Relator notes that this Court previously applied the Escobar
factors to find HMS’s statements material. Id. at 14.
The Tennessee Medicaid False Claims Act (“TMFCA”) defines material as “having a natural
tendency to influence, or be capable of influencing, the payment or receipt of money or property.”
Tenn. Code Ann. § 71-5-182(e). And Tennessee courts look to the “words of the statute,” not
federal caselaw to construe state statutes. Knox Cnty. ex rel. Env’t Termite & Pest Control, Inc. v.
Arrow Exterminators, Inc., 350 S.W.3d 511, 524 (Tenn. 2011) (interpreting the Tennessee False
Claims Act). In the Fifth Circuit, “[w]hen reviewing a motion to dismiss, a district court must
consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling
on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by
reference, and matters of which a court may take judicial notice.” Basic Cap. Mgmt., Inc. v. Dynex
Cap., Inc., 976 F.3d 585, 589 (5th Cir. 2020) (alteration in original) (internal quotations omitted).
HMS contends the Court may take judicial notice of the email from the Tennessee official
as a publicly available record that falls within the ambit of Federal Rule of Evidence 201. Doc. 50,
Def.’s Br., 18. A court may take judicial notice of a “fact that is not subject to reasonable dispute
because it (1) is generally known within the trial court’s territorial jurisdiction; or (2) can be
accurately and readily determined from sources whose accuracy cannot reasonably be questioned . . .
if a party requests it and the court is supplied with the necessary information.” Fed. R. Evid.
201(b–c). Presumably, HMS contends the HHS-OIG Report and the appended email from the
Tennessee official fall within the latter category for accurate materials that cannot be reasonably
questioned, because the report covered activities in Tennessee—outside this Court’s territorial

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jurisdiction—and does not concern “generally known” facts but the internal administration of the
Tennessee Medicaid program. See id.; cf. Petrobras Am., Inc. v. Samsung Heavy Indus. Co., 9 F.4th
247, 255 (5th Cir. 2021) (finding the district court improperly took judicial notice of newspaper
articles that did not include “generally known” facts). Ultimately, HMS requests the Court to take
judicial notice of the email by the Tennessee official but not the existence of the HHS-OIG Report
or the ensuing investigation. See Doc. 50, Def.’s Br., 18 (“TennCare’s statement on the subject . . .
forecloses a plausible pleading of materiality.”).
From the documents provided, the Court cannot accurately and readily determine whether
what the email purports is a fact worthy of judicial notice. See Fed. R. Evid. 201(b); Dasenbrock v.
Enenmoh, 2018 WL 10322174, at *2 (E.D. Cal. Jan. 8, 2018) (“[T]he court may take judicial notice
of the fact that such a report was published by the OIG, but not of the facts included within the
report.”); Bryan v. Avado Brands, Inc., 187 F.3d 1271, 1277–78 (11th Cir. 1999) (limiting judicial
notice to the statements in a document but “not to prove the truth of the documents’ contents”);
Fed. Deposit Ins. Corp. v. Boggus, 2014 WL 12479645, at *2 (N.D. Ga. Aug. 25, 2014) (“While the
court is free to notice that the OIG Report contains this statement and similar ones, the fact that
the FDIC said it does not make it true.”); United States v. Savannah River Nuclear Sols., LLC, 2016
WL 7104823, at *8 n.7 (D. S.C. Dec. 6, 2016) (limiting judicial notice of an OIG report to “the fact
that Defendants advanced those substantive arguments at the time”); King v. Akima Glob. Servs.,
LLC, 775 F. App’x 617, 621 (11th Cir. 2019) (stating that “judicial notice of certain facts in the
DHS report, OIG report, and Miami-Herald article was appropriate” but rejecting use of the facts
to establish a conclusion of law); Fuller v. Houston, 2021 WL 6496742, at *5 n.4 (C.D. Cal. Nov. 19,
2021) (“While it might be appropriate to take judicial notice of the OIG’s COVID-19 Report

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existence, the Court cannot properly take judicial notice of the facts included in the report, which
is what Plaintiff seeks.”); Kappouta v. Valiant Integrated Servs., LLC, 2021 WL 4806437, at *5 (S.D.
Cal. Oct. 14, 2021) (rejecting judicial notice because “the disclosures amount to conclusions of
law”); United States ex rel. Brooks v. Stevens-Henager Coll., Inc., 359 F. Supp. 3d 1088, 1102–03
(D. Utah. 2019) (taking judicial notice of the fact that the Government took certain actions, but not
to draw an inference from these facts contained in a GAO report); United States v. Ojai Valley Cmty.
Hosp., Inc., 2018 WL 6177257, at *1 n.1, *4–5 (C.D. Cal. July 30, 2018) (taking judicial notice of
an OIG report for the existence of an investigation); Outley v. City of Chicago, 2021 WL 4745393,
at *7 (N.D. Ill. Oct. 12, 2021) (denying judicial notice of OIG report as inadmissible hearsay); Meade
v. Bonin, 2020 WL 5311351, at *3, n.5 (E.D. La. Sept. 4, 2020) (taking judicial notice of OIG report
for the existence of a contract); Bloedow v. Planned Parenthood of the Great Nw. Inc., 2013 WL
6631771, *4–5 (W.D. Wash. Dec. 16, 2013) (taking judicial notice of factual findings in an OIG
report); Cnty. of Santa Clara v. Astra USA, Inc., 257 F.R.D. 207, 208 n.3 (N.D. Cal. 2009) (taking
judicial notice of factual finding in OIG reports); Bank of Am., N.A. v. Veluchamy, 535 B.R. 783, 787
& n.2 (N.D. Ill. 2015) (taking judicial notice of factual findings in OIG report); see also United States
ex rel. Woodard v. DaVita, Inc., 2011 WL 13196556, at *6 n.6 (E.D. Tex. May 9, 2011) (rejecting
parties’ conclusion from facts contained in the OIG reports). Thus, the Court may take judicial
notice that the Tennessee official sent this email and it said what it said but not make any inferences
or conclusions of law flowing from these noticed facts. Accordingly, the Court finds judicial notice
of the email improper insofar as HMS requests the Court to conclude as a matter of law that HMS’s
“double billing” does not violate the Tennessee Medicaid False Claims Act. Having previously found

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the Relator sufficiently pleaded the Tennessee claim, Frey, 2021 WL 4502275, at *6, the Court
DENIES HMS’s motion to dismiss the Tennessee claim.
2.

Count 1: Failure to Bill Timely or at All Under the FCA

For the indirect reverse false claim for the failure to bill timely or at all, Relator claims that
HMS “knowingly concealed or knowingly and improperly . . . reduc[ed] the recovery of Medicaid
funds” for Plaintiff States “causing the Plaintiff States to decrease their obligation to pay or transmit
funds to the federal government.” Doc. 42, SAC, ¶¶ 95–96.
This count mirrors the same count from the Relator’s prior complaint. Compare Doc. 16, Am.
Compl., ¶¶ 91–95, with Doc. 42, SAC, ¶¶ 93–97. The Court previously found this count sufficiently
alleged the “who, what, when, where, and how” and the Court finds the same today. See Frey, 2021
WL 5502275, at *6. Alternatively, the Court finds Relator sufficiently pleaded details of a scheme
with particularity and reliable indicia to leave the Court with a strong inference of fraud for the same
reasons as the Florida claim. See Grubbs, 565 F.3d at 190. Thus, the Court DENIES the motion to
dismiss Count 1.
3.

Count 2: Failure to Upload Coverage Information to MMIS

The MMIS-failure-to-upload claim alleges that HMS “failed to upload to the MMIS timely
or at all the third[-]party coverage information . . . , and submitted false and fraudulent certifications
to the Plaintiff States,” reducing Medicaid recoveries and impairing Plaintiff States’ obligations to
remit funds to the federal government. Doc. 42, SAC, ¶ 100. Further, HMS provided “inaccurate
systems compliance certifications” to the Plaintiff States, “caus[ing] the federal government to
provide the states millions of dollars in [improper] federal systems enhancement funds.” Id. ¶ 101.

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HMS first argues that the failure-to-upload allegation converts “a breach of contract between
HMS and its state Medicaid clients into a reverse false claims claim.” Doc. 50, Def.’s Br., 14. Next,
HMS contends that the SAC fails to identify “actual reverse false claims,” how the failure to upload
impacted recovery efforts, and “reliable indicia that strongly infer any MMIS information (timely or
at all) would lead to actual collections of third-party claims.” Id. at 14–15. Relying on the same
argument from above, HMS further avers that the cost avoidance is speculative or contingent, which
fails to establish the obligation element. Id. at 15–16. Finally, HMS argues the “general and nondescript allegations” fail to plead a “legally cognizable” claim of how the failure to upload the
information within forty-five days prevents recovery of the claims within the “three-year lookback
period.” Id. at 16.
Relator makes the same arguments from above regarding the failure to bill timely. See
Doc. 53, Relator’s Resp., 11–12.
For HMS’s first argument—whether a breach of contract equates to a false claim—the Court
finds HMS’s alleged breaches constitute a reverse false claim. “Not every breach of a federal contract
is an FCA problem.” United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 268 (5th Cir.
2010). However, a false claim of compliance with the provisions of a contract may create an
actionable false claim. United States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 824 (7th
Cir. 2011). Courts look to the demanding materiality element to distinguish between “garden-variety
breaches of contract or regulatory violations” and false claims. Universal Health Servs., Inc. v. United
States ex rel. Escobar, 579 U.S. 176, 194 (2016). The Court previously addressed the materiality
element for MMIS uploads in its prior opinion, see Frey, 2021 WL 4502275, at *11–13, so the Court

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does not readdress the same issue and finds Relator does not plead a “garden-variety breach[] of
contract” claim. See Escobar, 579 U.S. at 194.
HMS’s second argument attacking the particularity of the allegations fares no better than the
first. The Court also already addressed Relator’s MMIS failure to upload claim in the prior Order and
found Relator sufficiently pleaded the claim with the particularity required of Rule 9(b). Frey, 2021
WL 4502275, at *6. HMS offers no new arguments that would change the Court’s prior
determination. The Court finds the claim well pleaded.
The Court also finds that HMS’s contention that the obligation is “contingent” or
“speculative” fails for similar reasons as above. See supra Section III(B)(1)(iii). Uploading the data
to MMIS is not a discretionary act as HMS contends. Doc. 50, Def.’s Br., 15 (citing Barrick, 878 F.3d
at 1226). It is a requirement of federal regulations. 42 C.F.R. § 433.138(g)(1)(i); Doc. 50, Def.’s Br.,
14; Doc. 42, SAC, ¶ 57. Timely uploading of data to MMIS illuminates third-party coverage for
Medicaid beneficiaries and possible dual payors (a third-party insurer and Medicaid) of the same
claim and triggers the requirements to reject claims or recover reimbursements. 42 C.F.R.
§ 433.138(g)(1)(i) (“[T]he agency must follow up . . . on such information . . . so the agency may
process claims under the third party liability payment procedures specified in § 433.139 (b) through
(f).”). HMS fails to identify for the Court what aspect of these regulations creates a contingent or
speculative obligation because, as the regulation reads, HMS has an established duty to upload thirdparty insurance coverage data to MMIS so the claims can be rejected or recovered. See id.
HMS’s final argument relies on the same three-year recovery period as the TPL claims and
fails for the same reasons. See Doc. 50, Def.’s Br., 16. As explained in further detail above, the threeyear recovery period establishes a statute of limitations for recovery of claims by the States, but

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federal regulations still require recovery of a claim within sixty days of learning of the claim.
42 U.S.C. § 1396a(a)(25)(I)(iii); 42 C.F.R. § 433.139(d). More applicably to the MMIS upload
claims, the identification of dual coverage after uploading data to MMIS triggers the sixty-day
recovery period. 42 C.F.R. § 433.138(g)(1)(i). Thus, while a State can recover up to three-year-old
claims, HMS still had a regulatory requirement—an obligation—to seek recovery of claims within
sixty days of learning of dual coverage from the MMIS uploads.
The Court therefore rejects HMS’s arguments and DENIES the motion to dismiss for the
MMIS claim.
4.

Count 3: Failure to Refund Policy “Add Fees”

This claim largely mirrors the New York claim discussed in more detail above. See Doc. 42,
SAC, ¶¶ 104–08 (discussing the failure to refund New York “add fees”); supra Section III(B)(1)(viii).
For the same reasons as the New York claim, the Court finds Relator sufficiently pleaded a scheme
along with reliable indicia to leave the Court with a strong inference of fraud. See supra Section
III(B)(1)(viii); Grubbs, 565 F.3d at 190. Further, the Court previously found Relator sufficiently
pleaded the more exacting “who, what, where, when, how” standard. See Frey, 2021 WL 5502275,
at *6. Accordingly, the Court DENIES HMS’s motion to dismiss the federal New York “add fee”
claim.
5.

Count 4: Failure to Refund Fees From “Double Billing”

This claim relies mostly on the allegations from the Tennessee claim. See Doc. 42, SAC,
¶¶ 109–14 (discussing the Tennessee “double billing” scheme). Relator contends the “double billing”
practice also took place in “certain other Plaintiff States,” but only provides allegations of this
practice taking place in Tennessee and Louisiana. Id. ¶¶ 220, 336. Having found the Tennessee claim

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but not the Louisiana claim sufficiently pleaded, the Court also finds this federal claim sufficiently
pleaded according to the Grubbs standard and the traditional “who, what, where, when, how”
standard. See Frey, 2021 WL 5502275, at *6. The Court DENIES the motion to dismiss the federal
“double billing” claim.
C.

Substantive Elements of Relator’s Claims
HMS attacks the obligation, knowledge, and materiality elements of the alleged indirect

reverse false claims. The Court addresses each in turn below.
1.

Relator Sufficiently Pleaded an Obligation Exists

As stated above, the obligation element of an indirect reverse false claim requires Relator to
prove Defendant acted “to conceal, avoid, or decrease an obligation to pay money to the
government.” Matheny, 671 F.3d at 1222. “Obligation” is defined by the False Claims Act as “an
established duty, whether or not fixed, arising from an express or implied contractual, grantorgrantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or
regulation, or from the retention of any overpayment.” 31 U.S.C. § 3729(b)(3). As interpreted by
courts in this circuit, the term “‘established’ refers to whether there is any duty to pay, while ‘fixed’
refers to the amount of the duty.” United States ex rel. Simoneaux v. E.I. duPont de Nemours & Co.,
843 F.3d 1033, 1037 (5th Cir. 2016). Thus, obligations: “(1) . . . must be ‘established dut[ies]’; (2)
. . . need not be ‘fixed’; and (3) . . . can arise from a list of sources, including statutes and
regulations.” Id. (second alteration in original) (quoting 31 U.S.C. § 3729(b)(3)).
State Medicaid agencies must “take all reasonable measures to ascertain the legal liability of
third parties . . . to pay for care and services available under the plan” and “seek reimbursement for
such assistance to the extent of such legal liability.” 42 U.S.C. §1396a(25)(A–B); 42 C.F.R.

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§ 433.139(d) (“[A]n agency must seek recovery of reimbursement from the third party . . . within
60 days.”). “If the State receives [federal financial participation] in Medicaid payments for which it
receives third party reimbursement, the State must pay the Federal government a portion for the
reimbursement . . . .” 42 C.F.R. § 433.140.
HMS argues that the “alleged contractual breaches . . . do not suffice to create an actionable,
‘established duty to pay under a reverse false claims act theory” because the breaches are “speculative
and contingent.” Doc. 50, Def.’s Br., 8. HMS first contends that the nature of the TPL collection
process makes transmittal of money to the Government uncertain. Id. at 9. For example, HMS avers
that States do not have to pursue claims if the recovery costs will exceed the claim and that recovery
is never guaranteed. Id. Ultimately, the SAC, according to HMS, confuses “HMS’s contractual
obligations of HMS to pursue third-party payment of claims where appropriate” under the TPL
contracts with the FCA’s more definitive “established obligation” element. Id. at 9–10. Lastly, HMS
argues that the alleged obligation in this case is “speculative” and distinguishable from the obligations
in Grubea and Caremark—two cases that this Court relied on in its Order addressing HMS’s first
motion to dismiss. Id. at 10–11.
Relator counters that HMS “rehash[es]” the obligation argument from its prior motion to
dismiss. Doc. 53, Relator’s Resp., 9. Relator relies on this Court’s prior Order in arguing that “federal
statute and regulations impose a duty upon [HMS] to seek reimbursement from third parties,” which
reimbursement is owed to the States, which in turn have an obligation to reimburse the federal
government. Id. Naturally, Relator also contends that the Court’s prior Order correctly analogized
the instant case to Grubea and Caremark. Id. at 10.

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In Caremark, the Government alleged that the defendant avoided payment to state Medicaid
agencies by making false statements. United States v. Caremark, Inc., 634 F.3d 808, 815 (5th Cir.
2011). The court held that the defendant’s false statements to the state Medicaid agencies caused
those agencies to lie to the Government, violating the FCA. Id. Because States must seek
reimbursement from third parties or dual-eligible individuals and return these funds to the
Government, 42 U.S.C. § 1396a(25)(A); 42 C.F.R. § 433.139, false statements by the defendant
could impair state Medicaid agencies’ obligation to reimburse the Government. Caremark, 634 F.3d
at 817.
Relator relies on the same code and regulation provisions as did the Government in Caremark
for his contention that the States must reimburse the Government for identified third-party
coverage. See id.; Doc. 42, SAC ¶ 19. The Caremark court found these provisions “impose an
obligation on the States to the Government” and these same provisions impose the same obligation
from the States to the Government for Relator’s claims. Caremark, 634 F.3d at 817. The Court finds
nothing speculative about this obligation stemming from HMS’s identification of third-party
coverage.
Turning to Grubea, the defendant submitted false claims to Fannie Mae and Freddie Mac,
causing the agencies to reimburse inflated foreclosure costs, which in turn reduced the dividend paid
by those agencies to the Treasury. United States ex rel. Grubea v. Rosicki, Rosicki & Assocs., P.C., 318
F. Supp. 3d 680, 703 (S.D.N.Y. 2018). The court emphasized that “the payment obligation to the
Government would not disappear” whether or not Fannie Mae declared a dividend. Id. Thus, the
court found an obligation existed for Fannie Mae to pay funds to the United States and that the
defendant’s actions impaired this obligation. Id. at 704.

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Similarly, here, the States owe a non-discretionary duty to the federal government to
reimburse Medicaid costs when they identify third-party coverage. 42 U.S.C. § 1396a(25)(A);
42 C.F.R. § 433.139. Like in Grubea, this obligation exists “whether or not there are [identified
third-party insurers] available for the payment.” See 318 F. Supp. 3d at 703. The stock certificates
required payment of the dividend in Grubea, and similarly, the United States Code and regulations
require the reimbursement of TPL claims. See id.; 42 U.S.C. § 1396a(25)(A); 42 C.F.R. § 433.139.
If anything, the obligation in Grubea was more speculative than the one here because federal statute
and regulation impose the obligation here, as opposed to a mere stock certificate.
Specifically, HMS inhibited the States’ obligation to collect from third parties and remit this
amount to the federal government. See United States ex rel. Customs Fraud Investigations, LLC v.
Victaulic Co., 839 F.3d 242, 254–55 (3d Cir. 2016) (finding the obligation existed once the
defendant imported their goods). Nothing about the contractual obligation of HMS is “[u]nassessed,”
“contingent,” or “potential,” see Doc. 50, Def.’s Br., 8, because 42 C.F.R. § 433.139(d) required
HMS to seek reimbursement within sixty days of the end of month of learning of TPL coverage for
all claims, unless such recovery “is not cost effective.” 42 C.F.R. § 433.139(e)(1). The cost
effectiveness language within the regulation does not make the contractual obligation of HMS
“[u]nassessed,” “contingent,” or “potential” because HMS’s obligation existed for all cost-effective
claims. This duty is also not “a future discretionary act” because HMS “must seek recovery of
reimbursement . . . [if] it learns of the existence of the liable third party or benefits become
available.” Id. § 433.139(d)(2) (emphasis added); see United States ex rel. Barrick v. Parker-Migliorini
Int’l, LLC, 878 F.3d 1224, 1226 (10th Cir. 2017) (“An established duty is . . . not a duty dependent

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on a future discretionary act.”). Thus, HMS had an established duty to seek reimbursement for cost
effective TPL claims. See Simoneaux, 843 F.3d at 1037.
2.

Relator Sufficiently Pleaded Knowledge

HMS argues that “Relator alleges—at most—negligent business practices, but not a reckless
disregard”—the minimum pleading requirement for the knowledge element. Doc. 50, Def.’s Br., 10.
HMS further argues the allegations that “reports lack[] ‘carrier hold’ information . . . lack[]
cognizable allegations of . . . scienter.” Id. at 14 n.6.
Relator again contends that Defendant repeats “the same arguments . . . it made in its first
Motion to Dismiss.” Doc. 53, Relator’s Resp., 10–11. “[T]he Court previously considered and
rejected Defendant’s arguments” and Relator argues the Court should do so again. Id.
Relator must establish Defendant’s “knowledge of the falsity” of the record or statement
provided to the Government. Matheny, 671 F.3d at 1222. The FCA defines “knowingly” to “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. 31 U.S.C. § 3729(b)(1). The statute “require[s] no proof of
specific intent to defraud.” Id. At a minimum, a relator must plead that the defendant acted in
reckless disregard of the truth or falsity of the information. United States v. Bollinger Shipyards, Inc.,
775 F.3d 255, 260 (5th Cir. 2014). “Knowledge need not be pled with particularity under Rule 9(b);
it need only be pled plausibly pursuant to Rule 8.” Id.
For the remaining claims, Relator sufficiently pleaded the knowledge element. HMS fails to
provide the Court with any reason why the prior analysis of this issue was inadequate. See Frey, WL
4502275, at *9–11. Thus, the Court finds Relator sufficiently pleaded knowledge.

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3.

Relator Sufficiently Pleaded Materiality

According to HMS, the SAC lacks “sufficient allegation as to materiality” because Relator
was required “to plead that HMS knowingly violated a requirement that the ‘defendant knows is
material.’” Doc. 50, Def.’s Br., 20 (quoting Escobar, 579 U.S. at 181).16
Relator points to this Court’s prior Order finding the First Amended Complaint adequately
pleaded the materiality element by individually examining the Escobar factors and urges the Court
to reject HMS’s arguments once again. Doc. 53, Relator’s Resp., 14.
A defendant can “know” a requirement is material if the Government routinely withholds
payment when that requirement is not satisfied. Escobar, 579 U.S. at 195. The Government
withholds payment in the TPL context “if a State is able to recover funds from a third party.”
Caremark, 634 F.3d at 812 (citing 42 C.F.R. § 433.140). Relator adequately pleaded this regulatory
framework for TPL recovery. See Doc. 42, SAC, ¶ 24. And HMS knew the Government withheld
payment from the States because the individual States hired HMS for its TPL services. Doc. 50,
Def.’s Br., 7–8, 10, 14, 16, 20 (acknowledging the existence of contracts between HMS and
individual States).
This is also not an instance where the Court has evidence that “the Government regularly
pays a particular type of claim in full despite actual knowledge that certain requirements were
violated.” Escobar, 579 U.S. at 195. Such a showing is better determined at the summary-judgment
stage. As the case is at the motion-to-dismiss stage, the Court finds Relator adequately pleaded
materiality. Cf. Frey, 2021 WL 4502275, at *11–14.

16

The Court addressed the materiality argument concerning the Tennessee claim above in Section
III(B)(1)(xi).

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D.

Reliance
HMS’s last argument is that Relator pleaded the States’ reliance on HMS’s

misrepresentations based on “belief,” which falls short of the Rule 9(b) pleading standard. Doc. 50,
Def.’s Br., 12–14 (citing Grubbs, 565 F.3d at 189–90; Grubea, 318 F. Supp. 3d at 696 n.10).17
However, reliance is not an element of a false claim. Grubbs, 565 F.3d at 189 (“The False Claims
Act, in contrast, lacks the elements of reliance and damages. . . . It is adequate to allege that a false
claim was knowingly presented regardless of its exact amount; the contents of the bill are less
significant because a complaint need not allege that the Government relied on or was damaged by
the false claim.”). Relator is only required to adequately plead the presentation of a false record,
material statement, or concealment or avoidance or decrease of an obligation owed to the
Government, not that the Government—or the individual States—relied on any of the
aforementioned. See 31 U.S.C. § 3729(a)(1)(G). So Relator was not required to show reliance, much
less plead a higher standard than “belief.” Cf. United States ex rel. Thompson v. Columbia/HCA
Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1997) (“[W]here allegations are based on information
and belief, the complaint must set forth a factual basis for such belief.”). Thus, the Court rejects
HMS’s argument and finds Relator sufficiently pleaded the elements of the remaining claims.

17

HMS further argues the allegations that “reports lack[] ‘carrier hold’ information . . . lack[]
cognizable allegations of materiality and scienter” because “Relator is not pleading a reverse false claims case
under the ‘false reporting’ clause.” Id. at 14 n.6 (citing Doc. 42, SAC, ¶ 22). Relator specifically pleads the
second half of 31 U.S.C. § 3729(a)(1)(G) that holds any person liable who “knowingly conceals or knowingly
and improperly avoids or decreases an obligation to pay or transmit money to the Government.” 31 U.S.C.
§ 3729(a)(1)(G). The Court agrees with HMS that Relator specifically pleaded a reverse false claim for
concealing, avoiding, or decreasing an obligation owed to the Government. Thus, the Court reads the “carrier
hold” allegations not as pleading a “false reporting” claim, but further alleging concealment of an obligation.
See Doc. 42, SAC, ¶ 48 (“Plaintiff States were rarely if ever informed of these holds.”). The “carrier hold”
allegations, as allegations of the larger claim, do not need to independently establish the elements of
materiality and knowledge.

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E.

Motion for Leave to Pursue Relator’s Claims Beyond Employment Termination
In its prior Order, this Court limited Relator’s claims “to those occurring after April 16, 2009,

and up through Relator’s time of employment with HMS.” Frey, 2021 WL 4502275, at *15. Relator
amended his complaint in part by adding the following additional allegations that HMS continued
the alleged scheme after Relator’s termination:
• Relator knew that the centralized nature of HMS’s systems, in which TPL billing
operated the same way nationwide, the limited availability of COBOL programmers,
the limited monetary resources that then-CEO Bill Lucia was willing to spend on
system upgrades, and the growing pains of HMS’s increasing levels of business, all
gravitated against making the system changes and improvements that would be
needed for HMS to keep up with all the claims it needed to bill timely. HMS
colleague Steve Vacarro informed Relator during his employment that there was
“only so much they could do” to keep up. Relator realized from this conversation that
HMS was strongly incentivized to maintain the status quo by continuing merely to
hold the pieces together.
• HMS executive Rob Dickerson continually denied the requests of Relator and
other executives for copies of HMS’s electronic billing “Accept/Reject Reports,”
which would show the degree to which carriers were not accepting improperly
formatted or populated claims that HMS actually did send to carriers. These reports
would also expose the falsity of the reports HMS presented to the Plaintiff States
representing that it was billing claims timely and in a reasonable volume. HMS’s
ongoing efforts to hide the “Accept/Reject Reports” indicated an intent to continue
business as usual in failing to timely pursue many claims with carriers.
• Relator knew that HMS became involved in a major lawsuit against PCG towards
the end of his employment. This lawsuit, in which among other things HMS was
alleging that two of its former executives had violated their non-compete and
confidentiality agreements by joining PCG, consumed a great deal of HMS’s time and
resources, left little time or resources for any enhanced attention to regulatory or
contractual compliance or systems resources.
• Relator learned during his employment that as Medicaid Managed Care began to
become more prevalent across the Plaintiff States, including Louisiana, HMS
management was actively pushing its sales teams to sell the “Tennessee Model” to
additional states. In this way, Relator recognized that HMS saw the Tennessee
Model’s promise as a lucrative income source [for] the foreseeable future.
• Relator recognized that the presence of thousands of unbilled TPL claims
constituted a “cookie jar” from which HMS could extract more revenues at will by
intensifying its billing efforts when needed (as it did in the State of Florida as
described in paragraph 49) in order to meet Wall Street expectations (as HMS was
publicly traded at that time) and to demonstrate slow and steady growth over time.
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In a quarter where prospects for revenues were looking down, HMS could intensify
its TPL claims billing to keep revenue on the desire [sic] path. (During the time of
his employment Mr. Frey raised concerns with senior management, including Kim
Glenn, Ron Singh and David Dawson about the company’s manipulation of revenues
in these and other ways). Such revenue growth promised to enhance HMS’s stock
price and facilitate what Relator knew to be then-CEO Bill Lucia’s desire to groom
HMS for an eventual sale or merger (which in fact was consummated in 2021).
Relator knew that HMS was motivated for the foreseeable future to keep the cookie
jar intact and available when needed.
• Relator knew that HMS senior management was incentivized to keep business as
usual for the long term. Revenues and the company’s stock price were growing slowly
and steadily over time. HMS had a virtual monopoly in the field, and to the extent
state Medicaid agency clients recognized that HMS was serving them poorly and in
violation of law and contract, they had no meaningful alternatives to resort to and
also did not want to risk incurring the political wrath of HMS. Any acknowledgment
by HMS of its systems and business process problems and its failure to comply with
laws and contracts would lay bare the billions in taxpayer savings lost, expose HMS
to sanctions and competition, and derail the company’s progress towards a sale.
Relator knew that HMS senior executives had every reason to continue the scheme
until a suitor came along with a deal that would provide them golden parachutes and
enable them to leave HMS’s problems with others. In fact, this is exactly what
transpired in the years between Relator’s termination and the sale of the company in
2021.
Doc. 42, SAC, ¶ 91. Relator contends that these allegations “provide[] additional details [of]
Relator’s specific knowledge . . . that plans existed to continue Defendant’s scheme after the
termination of Relator’s employment.” Doc. 43, Relator’s Mot., 1.
HMS attacks each bullet point as “fail[ing] to conjure any specific knowledge, anything of
substance, or anything meeting applicable . . . pleading standards” to pursue claims beyond Relator’s
termination on May 14, 2013. Doc. 52, Def.’s Opp’n, 4–8.18
As the Court stated in the prior opinion, “[r]elator would have to have specific knowledge,
acquired during his employment, that the scheme was occurring and that plans existed to continue
18

HMS also argues the motion violates the local rules because Relator’s attorney did not confer with
HMS’s attorneys or file a brief to support his arguments. Doc. 52, Def.’s Opp’n, 3. The Court notes that Local
Rule 7.1(h) requires a certificate of conference for the motion, but addresses the substance of the motion in
full.

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the scheme after the relator’s termination of employment.” Frey, 2021 WL 4502275, at *15
(alteration in original) (quoting United States ex rel. Colquitt v. Abbott Lab’ys, 2015 WL 13670916,
at *6 (N.D. Tex. July 24, 2015)). Relator’s new allegations do not provide the Court with any
“specific knowledge that plans existed to continue the scheme.” Id. Most of the allegations are
conclusory and devoid of any factual support. Doc. 42, SAC, ¶ 91 (stating HMS “was strongly
incentivized to maintain the status quo,” “indicated an intent to continue business as usual,” “left
little time or resources for any enhanced attention to regulatory or contractual compliance or systems
resources,” “HMS saw the Tennessee Model’s promise as a lucrative income source [for] the
foreseeable future,” “was motivated for the foreseeable future to keep the cookie jar intact and
available when needed,” and “HMS senior executives had every reason to continue the scheme until
a suitor came along”). The allegations amount to an “absence of an indication [the scheme] had
stopped,” which combined with Relator’s observations, are insufficient. Colquitt, 2015 WL 13670916,
at *6. Thus, the Court DENIES Relator’s motion to pursue claims beyond his employment
termination. Relator’s claims are limited to those occurring between April 16, 2009, and May 14,
2013.
F.

The Court Denies Leave to Further Amend
The Court previously granted Relator the opportunity to amend his pleadings to comply with

the Court’s order addressing HMS’s first motion to dismiss. Frey, 2021 WL 4502275, at *16.
Normally the Court will allow a plaintiff the opportunity to amend where it appears that more careful
or detailed drafting might overcome the deficiencies on which dismissal is based. See McClellon v.
Lone Star Gas Co., 66 F.3d 98, 103 (5th Cir.1995). But here, the Court finds that allowing further

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amendment would be futile. Accordingly, in its discretion, the Court determines that further
amendment of the pleadings is not warranted.
IV.
CONCLUSION
The Court GRANTS IN PART and DENIES IN PART HMS’s motion to dismiss
(Doc. 49). Specifically, the Court DENIES Defendant’s motion for claims 1–4, 11, 23, 25, and 27.
The Court GRANTS Defendant’s motion and DISMISSES WITHOUT PREJUDICE claims 5–10,
12–22, 24, 26, and 28. The Court also DENIES Relator’s motion to pursue claims beyond
termination of his employment with HMS.

SO ORDERED.
SIGNED: March 31, 2022.

______________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE

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