Fifth Circuit reinstates government's, states' case against Caremark

by Ben Vernia | March 13th, 2011

On February 24, the Fifth Circuit Court of Appeals partially reversed a district court’s dismissal of claims brought by the federal and several state governments against Caremark, Inc., a large pharmacy benefit manager (PBM). The case was originally brought by a former Caremark employee, who alleged that the company unlawfully denied or rejected third-party insurance reimbursement claims for persons also eligible for Medicaid, resulting in Medicaid having to pay the claims. On the basis of decisions in the Middle District of Tennessee and the Sixth Circuit that procedural restrictions (such as card-presentation and timely-filing requirements) that discriminated against Medicaid are unenforceable against that federal/state program, the district court in the qui tam suit dismissed the False Claims Act suit.

The Fifth Circuit partly reversed, holding:

  • Caremark could be held liable for indirect reverse false claims (i.e., false statements to state Medicaid programs which receive federal funding) because the states are legally obligated to return federal funds if they recover money from third parties. The Act requires that the false statement impair “an obligation,” the court reasoned, not the defendant’s obligation.
  • Caremark’s denial of claims on the grounds that they failed to comply with restrictions in a client’s plan were technically true and so did not violate the False Claims Act.
  • The governments’ complaints about the district court’s dismissal of various substantive restrictions – out-of-network limitations, preauthorization requirements, and billed-amount restrictions – were either meritless, insufficiently developed factually, or unnecessary to address in the appeal.
  • The Arkansas False Claims Act could be interpreted to provide liability for a reverse false claim.

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