Thulin, Carl et al v. Shopko Stores Operating Co., LLC
Filing
66
OPINION AND ORDER granting 49 Motion to Dismiss; denying as moot 51 Motion for Hearing. Plaintiff's FCA claim is dismissed with prejudice and plaintiff's state law claims are dismissed without prejudice. Signed by District Judge William M. Conley on 11/5/2013. (arw)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
CARL THULIN, Relator for the UNITED
STATES OF AMERICA, STATE OF
CALIFORNIA, STATE OF ILLINOIS,
STATE OF INDIANA, STATE OF
MICHIGAN, STATE OF MINNESOTA,
STATE OF MONTANA, STATE OF
TENNESSEE, and STATE OF WISCONSIN,
Plaintiffs,
OPINION AND ORDER
v.
10-cv-196-wmc
SHOPKO STORES OPERATING CO., LCC,
Defendant.
As relator for the United States of America, State of California, State of Illinois,
State of Indiana, State of Michigan, State of Minnesota, State of Montana, State of
Tennessee and State of Wisconsin, plaintiff Carl Thulin brings this qui tam action
pursuant to 31 U.S.C. § 3730(b). Specifically, Thulin alleges that defendant Shopko
Stores Operating Co., LLC (“Shopko”) violated the False Claims Act, 31 U.S.C. § 3729,
and analogous state laws in its submission of claims to state Medicaid agencies. Shopko
filed a motion to dismiss Thulin‟s complaint, arguing that it both (1) fails to state a claim
as required by Federal Rule of Civil Procedure 12(b)(6); and (2) fails to plead the alleged
fraud with specificity as required by Fed. R. Civ. P. 9(b).
Because the claims are
premised on an untenable legal theory, the court will grant Shopko‟s motion to dismiss as
to the FCA claim with prejudice.
As for the state law claims, the court declines to
exercise its supplemental jurisdiction pursuant to 28 U.S.C. § 1367 and Seventh Circuit
practice, dismissing those claims without prejudice.
ALLEGATIONS OF FACT
In addition to considering the plaintiff‟s complaint, the court takes judicial notice
and has also considered certain exhibits attached to defendant‟s motion to dismiss and
plaintiff‟s opposition brief:
exhibits 6-9 attached to defendant‟s opening brief (dkt.
##50-6 to 50-9); exhibits 1-2 attached to defendant‟s reply brief (dkt. ##62-1 to 62-2);
and Exhibits A and B attached to plaintiff‟s opposition brief (dkt. ##61-1, 61-2). These
exhibits consist of publically-available guides, payer sheets, and other materials describing
the National Council for Prescription Drug Programs.
Exhibits 10-14 attached to
defendant‟s opening brief (dkt. ##50-10 to 50-14) consist of similar materials specific to
Idaho, and exhibits 15-19 (dkt. ##50-15 to 50-19) consist of Minnesota-specific
materials.
The court may take judicial notice of undisputed matters in the public record
without converting a motion to dismiss into a motion for summary judgment. See, e.g.,
Pugh v. Tribune Co., 521 F.3d 686, 691 n.2 (7th Cir. 2008) (“We may take judicial notice
of documents in the public record . . . without converting a motion to dismiss into a
motion for summary judgment.”). These exhibits help to fill in significant gaps in the
2
complaint and provide the court with important context to fully understand and evaluate
the nature of plaintiff‟s allegations.1
Of course, as with the well-pleaded allegations in the complaint itself, the court
views these facts and reasonable inferences in a light most favorable to plaintiff as the
non-moving party.
A. The Parties
Plaintiff Carl Thulin is a pharmacist and was employed by Shopko in Idaho from
roughly 2006 until 2009. Shopko owns and operates a chain of retail pharmacies in the
eight states listed above.
B. Overview of Medicaid and Dual-Eligible Customers
Medicaid is a state-administered program that is jointly-funded by federal and
state governments. 42 U.S.C. § 1396a(a); 42 C.F.R. § 430.0. As a condition of receiving
federal funding, states must operate their Medicaid program through “an approved state
plan.” 42 C.F.R. § 433.10. Among the obligations imposed by the federal government
on participating states is the “coordination of benefits” between the Medicaid program
1
The same cannot be said of other exhibits Shopko chose to attach to its motion,
particularly exhibits concerning the status of plaintiff‟s pharmacist license. (Dkt. ##50-1
to 50-5.) The issue of Thulin‟s status as a licensed pharmacist is in no way relevant to
the present motion. Defendant‟s submission of these documents was an unsubtle, backhanded and disappointing attempt to color the court‟s impression of plaintiff. Not only
are these documents not material to plaintiff‟s complaint or the present motion, it was
entirely inappropriate for defendant to raise Thulin‟s status as a licensed pharmacist at
this stage in the case. Accordingly, the court has disregarded these materials.
3
and private insurance companies. Some Medicaid recipients also have health insurance
coverage from private, third-party insurers. These individuals are sometimes referred to
as “dual-eligibles.” Shopko provides pharmacy prescription medication services to “dualeligible” customers. Thulin‟s complaint primarily focuses on Shopko‟s billing of those
individuals‟ prescriptions.
Because Medicaid is the payer of last resort, states are required to determine the
liability of any third-party insurers first. 42 U.S.C. § 1396a(a)(25)(A); 42 C.F.R. §§
433.136, 433.138-39. When a Medicaid agency is billed for items or services furnished
to a recipient who also has private coverage, the state must pay the claim to the provider
“to the extent that payment allowed under the [state] payment schedule exceeds the
amount of the third party payment.” 42 C.F.R. § 433.139(b)(1).
C. Claims Transmission System
One of the provisions of the Health Insurance Portability and Accountability Act
of 1996, Pub. L. No. 104-191 requires the Secretary of Health and Human Services to
“adopt standards for transactions and data elements for such transactions to enable
health information to be exchanged electronically.”
42 U.S.C. § 1320d-2(a)(1).
In
implementing this provision, the Secretary adopted the so-called “Telecommunication
Standard” of the National Council for Prescription Drug Programs (“NCPDP”) version 5,
release 1, known as NCDPD 5.1.
45 C.F.R. § 162.1102(a)(1).
Under these rules,
pharmacies are required to use NCPDP 5.1 for all claims submissions to all health plans,
including all state Medicaid programs. 45 C.F.R. §§ 162.1101(a), 160.103. The use of
4
NCPDP 5.1 Telecommunication Standard was mandated during the relevant period of
this case. 45 C.F.R. §§ 162.1801-162.1802.
NCPDP 5.1 provides standard specifications for data inputs, known as “fields,”
although states are generally free to choose which fields to require pharmacies to
complete in their claims transmission.
States set forth these requirements using
documents known as “payer sheets,” which as defendant demonstrates may not include
all of the NCPDP 5.1 fields. For every claim submission, there is a “submit” transaction
from the pharmacy to the “payer” and a “response” transaction from the payer to the
pharmacy.
For dual-eligible claims, there are four transactions:
one to the private
insurer; one from the private insurer; one to the state Medicaid agency; and one from the
state Medicaid agency.
A payer or “submit” transaction could contain 168 NCPDP
fields; a “response” transaction could contain 83 fields. (Def.‟s Mot. to Dismiss, Ex. 6
(NCPDP Telecommunication Standard Implementation Guide 5.1) (dkt. #50-6).)
No one data field represents an invoice or a request for a specific amount of
money from a pharmacy to a Medicaid state agency. Rather, the state Medicaid agency
uses the data collected in the form to determine the amount of reimbursement allowed
according to the state‟s “payer sheets.”
D. Shopko’s Alleged Billing Practice
Thulin alleges that Shopko submitted false claims through a computer system
which is programmed by Shopko and used for the filling and billing of prescriptions,
including prescriptions for dual-eligibles. Under this system, the private insurance claim
5
is submitted first and paid by the private insurer or a pharmacy benefit management
company (“PBM”) hired by the insurer to manage and administer the prescription drug
benefit consistent with the insurance policy. Thulin alleges that this “first paid claim is
then readjusted by the Shopko computer to a higher dollar amount and the claim is sent
to Medicaid.” (Compl. (dkt. #1) ¶ 37.) The Medicaid claim is then adjudicated by
Medicaid. (These two claims are both submitted electronically within seconds of each
other at the time the prescription is dispensed.)2 Central to his claims, Thulin alleges
that “[t]his internal program of the two systems bills more for dual eligible patients than
was allowed under the assignment of rights and benefits provision of federal law and
contract provisions of private insurance companies.” (Id.)3
Thulin attaches to his complaint thirty-one records from the Shopko pharmacy
where he worked.
Each document consists of three pages, which plaintiff purports
discloses billing information for specific transactions.4 In his complaint, Thulin describes
2
In his opposition brief, Thulin argues, inconsistent with his allegations in his complaint,
that “Shopko prevents the State Agency from performing this function [of ensuring that
Medicaid is the payer of last resort] because they submit the beneficiary‟s private
insurance claim simultaneously.” (Pl.‟s Opp‟n (dkt. #61) 21.) The court relies on the
pleadings in the complaint in reviewing a motion to dismiss. See Car Carriers, Inc. v. Ford
Motor Co., 745 F.2d 1101, 1107 (7th Cir. 1984) (“[I]t is axiomatic that the complaint
may not be amended by the briefs in opposition to a motion to dismiss.”).
3
The specifics of this alleged theory of liability are discussed below in the opinion.
4
In his brief in opposition to defendant‟s motion to dismiss, plaintiff provides additional
detail about the records. “The first page of each Exhibit contains information with
respect to the beneficiary, the drug in question, prescribing physician and other related
information. Page two details information regarding the amount billed to the private
medical insurer. Page three shows the billing transactions with Medicaid including the
amount submitted and the amount paid.” (Pl.‟s Opp‟n (dkt. #61) 19 n.6 (citing Compl.
(dkt. #1) ¶¶ 37-39).)
6
the data using two specific examples. In both examples, Medicaid reimbursed Shopko for
more than the co-pay amount. (Compl. (dkt. #1) ¶¶ 37-38.)
Thulin contends that
“many thousands of these false claims have been submitted by Shopko stores for
Medicaid payment from the past to the present and continuing.” (Id. at ¶ 40.)
Plaintiff further alleges that Shopko is a “large provider of prescription services
and a sophisticated national company with vast resources to research and understand the
law as it pertains to pharmacy and the reimbursement of prescription medications” and
that it “knows the prices and reimbursement rates that [it] receives from these private
insurance companies and PBMs.” (Compl. (dkt. #1) ¶¶ 32-33.) As such, Shopko, has
“the knowledge and ability to comply with the lower assigned-right price.” (Id. at ¶ 31.)
Thulin further alleges that state Medicaid agencies lack this knowledge because they are
not a party to the contracts between Shopko and the private insurance companies or
PBMs and, therefore, “do not know the price benefit that the dual eligible patient assigns
to the government.” (Id. at ¶ 35.) As a result, Thulin alleges: “The state Medicaid
agency is at the mercy of the provider, Shopko, to accurately calculate the assigned
benefit of the drug pricing.” (Id.) Similarly, Thulin explains, the dual-eligible customer
does not know the prices he has legally assigned to the state Medicaid agency, relying on
Shopko “to accurately calculate and assign the benefit to the government.” (Id.)
E. Thulin’s Discovery of the Fraud
Thulin was a pharmacist at Shopko from September 2006 until October 2009 in
Idaho. In this position, he observed that Shopko‟s computer system did not present the
7
billing and payment amount information on the patients‟ receipts or otherwise make it
available to the pharmacist or technician processing prescriptions. Still, Thulin somehow
gained access to documents showing billing transactions, like those attached as Exhibit A
to his complaint. Thulin alleges that hard copy and electronic documents of this alleged
fraud are in the exclusive possession and control of Shopko. Thulin further alleges that
the state Medicaid agencies were unaware of this fraud.
F. Causes of Action
Thulin alleges causes of action under the federal False Claims Act, 31 U.S.C. §
3729 et seq., and similar laws of the eight defendant states, Count II (Cal. Gov‟t Code §
12650 et seq.); Count III (740 Ill. Comp. Stats. 175/4, 175/3, 175/1); Count IV (Ind.
Code § 5-11-5.5); Count V (Mich. Comp. Laws §§ 400.601, 752.1001); Count VI
(Minn. Stat. 15C.01); Count VII (Mont. Code Ann. Ch. 465, §17-8-401); Count VIII
(Tenn. Code Ann. §§ 75-1-181, 4-18,101); and Count IX (Wis. Stat. § 20.931).
Thulin filed this complaint on April 9, 2010, as a qui tam plaintiff on behalf of the
United States government and the states of California, Illinois, Indiana, Michigan,
Minnesota, Montana, Tennessee and Wisconsin. The complaint was originally filed in
camera and remained under seal until February 18, 2011, to provide an opportunity for
the government to investigate the complaint. Neither the federal government nor any of
the named states opted to intervene.
8
OPINION5
Shopko moves for dismissal of Thulin‟s complaint with prejudice pursuant to
Federal Rules of Civil Procedure12(b)(6) and 9(b). To survive a motion to dismiss under
Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to
„state a claim to relief that is plausible on its face.‟” Ashcroft v. Iqbal, 556 U.S. 662, 129
S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
When reviewing a Rule 12(b)(6) motion to dismiss, the court “accept[s] as true all wellpled facts alleged, taking judicial notice of matters within the public record, and drawing
all reasonable inferences in the plaintiff‟s favor.” Adkins v. VIM Recycling, Inc., 644 F.3d
483, 493 (7th Cir. 2011).
“The FCA is an anti-fraud statute and claims under it are subject to the
heightened pleading requirements of Rule 9(b).”
United States ex rel. Gross v. AIDS
Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir. 2005).
Federal Rule of Civil
Procedure 9(b) requires that “[i]n all averments of fraud . . . , the circumstances
constituting fraud . . . shall be stated with particularity.”
In the FCA context, the
Seventh Circuit requires that a complaint allege a false claim “at an individualized
transaction level.” United States ex rel. Fowler v. Caremark RX, LLC, 496 F.3d 730, 740-41
(7th Cir. 2007), overruled on other grounds by, Glaser v. Wound Care Consultants, Inc., 477
F.3d 502, 507 (7th Cir. 2007) (internal citation omitted).
5
This court has subject matter jurisdiction over plaintiff‟s FCA claim pursuant to 28
U.S.C. § 1331. Plaintiff requests that the court exercise its supplemental jurisdiction
pursuant to 28 U.S.C. § 1367 over the state law claims.
9
I. FCA Claim
Shopko is liable under the FCA if it “knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or approval.”
31 U.S.C. §
3729(a)(1)(A); see also United States ex rel. Durcholz v. FKW, Inc., 189 F.3d 542, 544 (7th
Cir. 1999) (explaining that a violation of the FCA requires “knowing presentation of a
claim that is either fraudulent or simply false”).6 To state a cause of action, Thulin must
adequately allege three elements: “(1) a false or fraudulent claim; (2) which was
presented, or caused to be presented, by the defendant to the United States for payment
or approval; (3) with the knowledge that the claim was false.” Fowler, 496 F.3d at 740-41
(internal citation omitted). The FCA “is not an appropriate vehicle for policing technical
compliance with administrative regulations.” Durcholz, 189 F.3d at 545 n.2.
Plaintiff has properly pled, and there is no dispute, that Shopko submitted claims
to state Medicaid agencies for payment. The dispute is over whether the allegations of
Thulin‟s complaint supports a finding as a matter of law that (1) the claims were false;
and (2) Shopko had knowledge that the claims were false. As the Seventh Circuit has
observed, these elements are closely related since “it is impossible to meaningfully discuss
6
In his complaint, plaintiff cites to 31 U.S.C. § 3729, without any citation to specific
subsections. In his brief in opposition to defendant‟s motion to dismiss, plaintiff cites to
both subsections (a)(1) and to (a)(2). (Pl.‟s Opp‟n Br. (dkt. #61) 15.) Subsection
(a)(1), which has been recodified (a)(1)(A), is described above. Subsection (a)(2), which
has been recodified (a)(1)(B), imposes liability on any person who “knowingly makes,
uses, or causes to be made or used, a false record or statement material to a false or
fraudulent claim.” 31 U.S.C. § 3729(a)(1)(B). Plaintiff does not explain, and the court
cannot discern, any meaningful distinction between the presentment of a false claims and
use of a false record in support of that claim set forth in these two subsections, at least as
they relate to plaintiff‟s allegations and so they are treated as one.
10
falsity without implicating the knowledge requirement.” United States ex rel. Lamers v. City
of Green Bay, 168 F.3d 1012, 1018 (7th Cir. 1999).
Consistent with the Seventh
Circuit‟s treatment of similar FCA claims, this court will also analyze Thulin‟s allegations
with regard to these two requirements together. Id.
In order for a claim to be false or fraudulent, it must be prohibited by a federal
regulation or statute. See United States ex rel. Crews v. NCS Healthcare of Ill., Inc., 460 F.3d
853, 858 (7th Cir. 2006) (“[I]f there is no requirement to adjust the claim, there is no
liability for a failure to do so.”) (internal citation omitted). Thulin alleges that Shopko
failed to disclose the actual amount of the co-pays, as opposed to falsely stated the
amount. Absent an obligation to disclose this information, however, the omission of this
information cannot be false or fraudulent. See United States ex rel. Berge v. Bd. of Trustees of
the Univ. of Al., 104 F.3d 1453, 1461 (4th Cir. 1997) (“There can only be liability under
the False Claims Act where the defendant has an obligation to disclose omitted
information.”); United States ex rel. Haight v. Catholic Healthcare West, No. CV-01-2253PHX-FJM, 2007 WL 2330790, at *5 (D. Ariz. Aug. 14, 2007) (“The False Claims Act
does not impose liability for omissions unless the defendant has an obligation to disclose
the omitted information.”); United States ex rel. Milam v. Regents of Univ. of Cal., 912 F.
Supp. 868, 883 (D. Md. 1995) (same).
Thulin must also allege with specificity that Shopko had knowledge that the
claims were false as submitted.
31 U.S.C. § 3729(a)(1).
“The mens rea element,
„knowingly,‟ requires that the defendant have actual knowledge of (or deliberately ignore
or act in reckless disregard of) the truth or falsity of the information . . . . Thus,
11
„innocent‟ mistakes or negligence are not actionable.” Fowler, 496 F.3d at 742 (quoting
Durcholz, 189 F.3d at 544).
Thulin‟s claims rest on his contention that Shopko may only seek reimbursement
for the amount of the co-pay allowed under the contracts between private health insurers
and Shopko. As far as this court can discern, Thulin has two bases for this assertion.
First, Thulin alleges that Shopko violates the federal assignment requirement by seeking
reimbursement for more than the co-pay. Second, Thulin argues that certain federal and
state regulations limit reimbursement of dual-eligible prescriptions to the co-pay amount.
The court addresses each in turn.
A. Federal Assignment Requirement
When dual-eligibles apply for benefits to the state agency that administers
Medicaid, they are required to assign to the State any rights they have under their private
insurance plan. Title 42 U.S.C. § 1396k(a)(1)(A) provides:
(a) For the purpose of assisting in the collection of medical
support payments and other payments for medical care owed
to recipients of medical assistance under the State plan
approved under this subchapter, a State plan for medical
assistance shall-(1) provide that, as a condition of eligibility for medical
assistance under the State plan to an individual who has the
legal capacity to execute an assignment for himself, the
individual is required-(A) to assign the State any rights, of the individual or of any
other person who is eligible for medical assistance under this
subchapter and on whose behalf the individual has the legal
authority to execute an assignment of such rights, to support
(specified as support for the purpose of medical care by a
12
court or administrative order) and to payment for medical
care from any third party[.]
Moreover, states are required to condition eligibility for Medicaid on this assignment:
(a) A State plan must provide that, as a condition of
eligibility, each legally able applicant or recipient is required
to:
(1) Assign to the Medicaid agency his or her rights, or the
rights of any other individual eligible under the plan for
whom he or she can legally make an assignment, to medical
support and to payment for medical care from any third
party[.]
42 C.F.R. § 433.145.
A private insurance company generally negotiates for prescription medications at a
discounted, lower price than otherwise available to the general public. Thulin alleges that
“[i]n most cases, those medications are paid for by the private insurance company less a
small co-pay or deductible amount per prescription that is paid by [the] patient.”
(Compl. (dkt. #1) ¶ 25.) Thulin further alleges that “[i]n all provider contracts Shopko
enters into with private insurance companies and pharmacy benefit management
companies („PBMs‟), Shopko agrees to accept as payment in full these lesser amounts
agreed upon with the private insurance company.” (Id.) Therefore, Thulin contends that
since “the government obtains the rights and benefits of the private health insurance for
these dual-eligible patients,” ShopKo‟s “[b]illing for more than [the co-pay] is contrary to
the private insurance contract and the assignment of that contracted rate to Medicaid.”
(Compl. (dkt. #1) ¶¶ 25, 28.)7
7
Thulin further alleges that private insurance companies, through the aid of PBMs,
“usually purchase prescriptions at lower prices than state Medicaid agencies.” (Compl.
13
1. Falsity
Thulin‟s argument that ShopKo acted fraudulently requires at least two inferences
that appear without support in the plain language of the assignment requirement,
corresponding regulations, case law, or logic. First, the plain language of 42 U.S.C. §
1396k(a)(1)(A) requires Medicaid recipients who also have access to private health care
insurance to assign any rights “to payment for medical care from any third party” to the
State.
On its face, at least, this provision does not apply to medical care providers.
Plaintiff offers no basis for reading this provision to require medical providers to assign
their right to medical reimbursement payments from private health care insurers to the
State.
Second, as defendant explains, there are two contracts at play here. The first is the
contract between the dual eligible customer and his or her private health insurer; the
second is the contract between Shopko and the private health insurer. Any limits on
what Shopko may charge its dual eligible customers are covered by the contract between
Shopko and the private health insurer.
Accordingly, under plaintiff‟s theory, the
assignment regulation which applies to Medicaid recipients requires Shopko to assign its
(dkt. #1) ¶ 27.) Shopko disputes this directing the court to a New York Times article,
which states that Medicaid rates are “typically lower than what Medicare and commercial
insurance pay.” Robert Pear, Rule Would Discourage States’ Cutting Medicaid Payments to
Providers,
N.Y.
TIMES,
May
3,
2011,
available
at
http://www.nytimes.com/2011/05/03/us/politics/03medicaid.html?scp=1&sq=%22rule%
20would%20discourage%22&st=cse. For purposes of deciding ShopKo‟s motion to
dismiss, the court need not (and should not) resolve this factual dispute, and will instead
assume as plead that a state Medicaid agency usually is unable to negotiate lower prices
than a private insurer, a fact also supported for at least some prescriptions by Exhibit A
to plaintiff‟s complaint, showing private health insurers have negotiated lower prices than
state Medicaid agencies.
14
rights under a contract to which the Medicaid recipient is not even a party. Once again,
plaintiff fails to provide any basis for reading this obligation into the language of 42
U.S.C. § 1396k(a)(1)(A), corresponding regulations, or case law interpreting this law.
While the court is to accept as true all well-pled facts and draw all reasonable inferences
in plaintiff‟s favor, the court is “not bound to accept as true a legal conclusion couched as
a factual allegation.” Iqbal, 129 S. Ct. at 1949.
Tellingly, when faced with this challenge from defendant, plaintiff‟s response falls
short. Instead of providing any support for his position that the assignment regulation
applies to providers like Shopko, plaintiff attempts to muddle defendant‟s actual
argument, claiming that defendant is really arguing that state regulations take supremacy
over federal assignment law or that the NCPDP somehow insulates Shopko from the
assignment law. (Pl.‟s Opp‟n (dkt. #61) 10-13.) Thulin, however, fails to explain how
the assignment law applies to Shopko in the first instance or provide any support for his
legal claim.
2. Knowledge
Even assuming plaintiff‟s complaint adequately pleads a false or fraudulent claim,
the complaint fails to adequately plead the knowledge requirement. At the very least, the
above discussion demonstrates that Thulin‟s theory of liability is premised on an
interpretation of the assignment requirement which is open to debate.
“[I]mprecise
statements or differences in interpretation growing out of a disputed legal question are . .
. not false under the FCA.” Lamers, 168 F.3d at 1018 (citing Hagood v. Sonoma Cnty.
Water Agency, 81 F.3d 1465, 1477 (9th Cir. 1996)); see also United States v. Medica Rents
15
Co. Ltd., Nos. 03-11297, 06-10393, 07-10414, 2008 WL 3876307, at *3 (5th Cir. Aug.
19, 2008) (holding that the “substantial confusion created by contradictory instructions
and guidance . . . does not support a reasonable inference that [the defendant] knowingly
submitted false or fraudulent claims”).
Indeed, numerous district courts have dismissed similar FCA claims at least in part
because a debate surrounding the plaintiff‟s theory of falsity precludes any finding of
knowledge. See, e.g., United States ex rel. Colucci v. Beth Israel Med. Ctr., 785 F. Supp. 2d
303, 316 (S.D.N.Y. 2011) (“Even assuming the claims submitted by [defendants] were
„false,‟ given the lack of clarity in the law, it cannot be said that defendants „knew‟ the
claims were false.”); United States ex rel. Raynor v. Nat’l Rural Utils. Co-op Fin. Corp., No.
8:08CV48, 2011 WL 976482, at *9 (D. Neb. Mar. 15, 2011) (“[N]othing indicates that
[plaintiff‟s] allegations of GAAP violations are anything more than imprecise statements
or differences in interpretation of a disputed or unclear legal question, neither of which
are false claims under the FCA.”); United States v. Sodexho, Inc., No. 03-6003, 2009 WL
579380, at *17 (E.D. Pa. Mar. 6, 2009) (“The lack of clarity regarding the proper
interpretation of the regulations indicates that no basis exists for imposing FCA liability
on Defendants, who merely adopted a reasonable interpretation of regulatory
requirements which favored their interests.”); United States ex rel. Englund v. Los Angeles
Cnty., No. CIV. S-04-282 LKK/JFM, 2006 WL 3097941, at *7 (E.D. Cal. Oct. 31, 2006)
(“Claims are not „false‟ under the FCA when reasonable persons can disagree regarding
whether the service was properly billed to the Government.”).
16
Moreover, except for pleading Shopko‟s knowledge of co-pay amounts (Compl.
(dkt. #1) ¶¶ 33-34), plaintiff‟s allegations of knowledge fail to meet the pleading
requirements under Rule 8, not to mention the heightened requirement under Rule 9(b).
(See Compl. (dkt. #1) ¶¶ 46-47 (alleging that Shopko “knowingly presented” and
“knowingly made” false claims).) Plaintiff states in his opposition brief that “Shopko
knows, via the law and the contracts they sign, the prices that the dual eligible parties
they serve are assigned to the States.”
(Pl.‟s Opp‟n (dkt. #61) 28.)
To the extent
plaintiff is alleging that Shopko knows that the assignment law applies to it as a provider
(rather than pleading that it knows the prices it negotiates with private health insurers),
the pleading is not at all clear. Neither does plaintiff allege facts to support how Shopko
knows of such an obligation, nor who in the organization has actual knowledge.
See
Fowler, 396 F.3d at 743 (“This allegation also fails because the Relators do not provide
any information to satisfy the knowledge requirement of the False Claims Act. There is
no evidence in the proposed third amended complaint that Caremark had actual
knowledge of this issue or otherwise ignored or disregard it. At best, the „scheme‟ as
currently alleged by the Relators merely rises to a breach of contract dispute between the
health plans, the government and Caremark.”).
B. Regulatory Reimbursement Limits
As described in exhaustive detail in defendant‟s opening brief in support of its
motion for summary judgment, the NCPDP allows for state Medicaid agencies to collect
co-pay data but does not require it. (Def.‟s Opening Br. (dkt. #50) 21-25.) The NCPDP
17
Guide labels various fields related to co-pay amounts as “”O” for optional, while other
fields are labeled as “M” for mandatory or “RW” for required when other information is
available or in certain specified situations. (Id. at 22 (citing Def.‟s Mot. to Dismiss, Ex. 6
(NCPDP Telecommunication Standard Implementation Guide 5.1 (dkt. #50-6).) Based
on this, defendant persuasively argues that there is no federal obligation for providers
such as Shopko to disclose co-pay data and, therefore, plaintiff‟s contention that Shopko
is limited to seeking a dual-eligible‟s co-pay amount from Medicaid is fundamentally
flawed.
In response, plaintiff cites to a Q&A section in the NCPDP Guide, wherein a
Medicaid provider describes his or her understanding that entering the “co-pay” amount
is an “industry standard.”
(Pl.‟s Opp‟n (dkt. #61) 12.)8
This passage provides
insufficient support -- at least standing alone -- to permit a finding as a matter of law that
federal regulations limit a provider‟s Medicaid claims for dual eligibles to the co-pay owed
under the provider‟s contract with the private health insurer. Indeed, plaintiff‟s citation
to a Q&A section neither delineates any clear limit of claims to co-pay amounts, nor
identifies any source for such an obligation. If anything, the question posed as “looking
for clarification on how new fields” are used (Def.‟s Reply (dkt. #62) 20), provides
8
While plaintiff‟s complaint does not identify any federal regulation requiring providers
to limit reimbursement sought from the state Medicaid agency to any co-pay owed by
dual-eligible customers, Thulin asserts in his opposition brief that a provision of the
NCPDP and a provision in a 1990 manual issued by the Centers for Medicare &
Medicaid Services, support his theory that federal law requires such a limitation.
Normally, the court would not consider allegations outside of the complaint in deciding a
motion to dismiss, but given the court‟s decision to dismiss Thulin‟s claims with
prejudice, the court will consider the additional allegations raised in his opposition brief.
18
further support that no clear federal regulation exists requiring claims to be limited to copay amounts under a customer‟s private insurance policy.
Plaintiff also cites to a 1990 CMS (which stands for Centers for Medicare &
Medicaid Services) Manual.
(Pl.‟s Opp‟n (dkt. #61) 22-23.)
In relevant part, the
Manuel provides:
3904.7
Medicaid Payment to Providers Who Offer
Discounts to Third Party Payers. -- Some providers enter into
agreements with third party payers to accept payment for less
than the amount of charges. These arrangements are often
referred to as “preferred provider agreements” or “preferred
patient care agreements.”
Whenever you are billed for the difference between the
payment received from the third party based on such an
agreement and the charges, do not make Medicaid payment.
The provider‟s agreement to accept payment of less than its
charges constitutes receipt of a full payment for its services,
and the insured has no further responsibility. Medicaid is
intended to make payment only where there is a recipient
legal obligation to pay.
(Id.) Even this passage, however, fails to provide the support for plaintiff‟s position for at
least two reasons.
First, the provision is directed at state Medicaid agencies, not
providers. Assuming the provision governs the alleged claims submitted by Shopko, state
Medicaid agencies would be on the hook to implement a regulation limiting providers‟
claims to co-pay amounts. Second, as defendant explains, the regulation providing the
underlying authority for this manual instruction states that when the amount of thirdparty liability is determined, the state Medicaid agency “must then pay the claim to the
extent that payment allowed under the agency‟s payment schedule exceeds the amount of
the third party‟s payment.”
42 C.F.R. § 433.139(b)(1).
19
Accordingly, the actual
regulation does not limit a provider‟s reimbursement to the co-pay amount contracted
with a private health insurance company.
Thulin also points to state law regulations for support,9 contending that Shopko as
a provider is limited to collecting the co-pay or deductible as “required by the pertinent
Medicaid rule or regulation for certain of the named plaintiff states.” (Compl. (dkt. #1)
¶ 29.)
Specifically, Thulin points to a Minnesota provision.
(Id. (citing Minnesota
Health Care Programs Provider Manual, Ch. 2, p.15 (Feb. 2005 ed.))
Plaintiff has not, however, alleged any individual transactions in Minnesota as
required to meet the pleading requirements of Rule 9(b).
Fowler, 496 F.3d at 742
(affirming the dismissal of an FCA claim on Rule 9(b) grounds where the relator failed to
“present any evidence at an individualized transaction level to demonstrate” that the
defendant in that action committed fraud).
transactions in Idaho.
The complaint only alleges individual
While plaintiff pleads generally that “certain of the named
plaintiff states” have a provision limiting claims to the co-pay amount, he neither points
to such an Idaho regulation in his complaint, nor does he identify one in his opposition
brief. Indeed, the 2004 Idaho Medicaid Provider Handbook that would appear to govern
the relevant period, does not require or request information on the amount of the co-pay.
(Def.‟s Opening Br. (dkt. #5) 44 (citing Def.‟s Mot. to Dismiss, Ex. 11 (Idaho Medicaid
Provider Handbook, General Billing Information, 2-25 to 2-26 (June 2004) (dkt. #509
Neither party discusses whether submitting a claim prohibited by a state law regulation
could form the basis for a federal FCA claim. For the purpose of deciding the present
motion, the court will nevertheless assume that as long as the claim submitted seeks
federal money, the submission of the claim need only be prohibited law, whether federal
or state.
20
11).)10 Absent a false statement or an obligation to disclose information, there can be no
liability under the False Claims Act. See Berge, 104 F.3d at 1461.
All of this is not intended to discount the serious, underlying policy problem the
Relator and many others have pointed out: state and federal governments have been
reimbursing private parties for the costs of pharmaceuticals over and above the amount
paid under more favorable formularies negotiated by private insurers and PBMs.
Hopefully, changes in state and federal formularies have corrected much of this problem.
But the fact that providers at times were able to obtain a higher reimbursement for dualeligibles because of their Medicaid coverage than they would if those same individuals
only had private insurance does not by itself constitute fraud.
Accordingly, plaintiff‟s allegations cannot support a finding of falsity or knowledge
required to support a FCA claim. Moreover, because plaintiff‟s theory of liability fails as
a matter of law under the facts affirmatively alleged, the court will dismiss his FCA claim
with prejudice. See Garcia v. City of Chi., Ill., 24 F.3d 966, 970 (7th Cir. 1994) (“A
district court does not abuse its discretion in denying leave to amend if the proposed
repleading would be futile[.]”).
II. State Law Claims
Thulin asks the court to exercise its supplemental jurisdiction pursuant to 28
U.S.C. § 1367 over the state law claims in the complaint.
10
(Compl. (dkt. #1) ¶ 7.)
Idaho did not require co-pay data until 2010, which postdates the period for which
plaintiff has plead any individualized transactions. (Def.‟s Opening Br. (dkt. #50) 44.)
21
Having dismissed Thulin‟s only federal claim, the court will decline to exercise its
supplemental jurisdiction and will dismiss the remaining state law claims without
prejudice. See Al’s Serv. Ctr. v. BP Prods. N. Am., Inc., 599 F.3d 720, 727 (7th Cir. 2010)
(explaining that when a district court dismisses a plaintiffs‟ federal law claims, “the
presumption is that the court will relinquish federal jurisdiction over any state law
claims”).
ORDER
IT IS ORDERED that:
1) Defendant Shopko Stores Operating Company, LLC‟s motion for a hearing on
its motion to dismiss (dkt. #51) is DENIED AS MOOT;
2) Defendant‟s motion to dismiss (dkt. #49) is GRANTED;
3) Plaintiff‟s FCA claim is dismissed with prejudice, and plaintiff‟s state law
claims are dismissed without prejudice; and
4) The clerk of the court is directed to enter judgment in favor of defendant and
close this case.
Entered this 5th day of November, 2013.
BY THE COURT:
/s/
________________________________________
WILLIAM M. CONLEY
District Judge
22
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