Third Circuit affirms dismissal of Medicare Advantage marketing claims, reverses on kickbacks in qui tam suit

by Ben Vernia | July 8th, 2011

On June 30, the Third Circuit Court of Appeals affirmed in part, but reversed in part, the District of New Jersey’s dismissal of the declined qui tam suit U.S. ex rel. Wilkins v. United Health Group. The suit was brought by a former manager and a former sales representative for the health insurer, which operated a Medicare Advantage (Medicare Part C) insurance plan (a private insurance plan which beneficiaries can elect to receive in lieu of standard Medicare’s fee-for-service program). In its decision, the Third Circuit endorsed the implied false certification theory of liability.

The relators alleged that United Health marketed the plan in violation of Medicare rules, paid kickbacks to physicians, and failed to implement a compliance program. The district court dismissed the complaint, reasoning that the relators had not identified a single false claim, that the marketing violations were not relevant to CMS’s decision to pay, and that the relators failed to allege that the insurer had certified compliance with the Antikickback Statute (AKS) or that the government relied on such a certification in payment decisions.

The Third Circuit reviewed the origins of the implied false certification theory of liability, and announced that it was joining those courts which had adopted it:

We adopt the implied false certification theory for liability for several reasons. First, the implied false certification theory gives effect to Congress’ expressly stated purpose that the FCA should “reach all fraudulent attempts to cause the Government to pay [out] sums of money or to deliver property or services.” S.Rep. No. 99–345, at 9 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5274; see also United States v. Neifert–White Co., 390 U.S. 228, 232, 88 S.Ct. 959, 961 (1968) (“[T]he [FCA] was intended to reach all types of fraud, without qualification, that might result in financial loss to the government.”). Moreover, our ruling is consistent with Congress’ stated intent inasmuch as under the implied false certification theory of liability, even in the absence of a false certification of compliance, the Government or qui tam plaintiffs successfully may bring an action that holds a claimant liable for submitting legally false claims to the Government:

[A] false claim may take many forms, the most common being a claim for goods or services not provided, or provided in violation of contract terms, specification, statute, or regulation…. [Claims made to Medicare or Medicaid programs] may be false even though the services are provided as claimed if, for example, the claimant is ineligible to participate in the program….

S.Rep. No. 99–345, at 9, reprinted in 1986 U.S.C.C.A.N. 5266, 5274.

In addition, the language and the structure of the FCA support the conclusion that a claim based on an implied false certification “may constitute
[an actionable] false or fraudulent claim.”

(Final citation omitted.)
The court cautioned, however, that implied certification should be interpreted “expansively”, particularly in health care programs, and that the FCA plaintiff “must show that if the Government had been aware of the defendant’s violations of the Medicare laws and regulations that are the bases of a plaintiff’s FCA claims, it would not have paid the defendant’s claims.”

Applying this standard to the alleged marketing violations (and without reaching the question of particularity under Rule 9(b)), the Court found that they failed to state a claim. Adopting the “condition of payment” vs. “condition of participation” distinction adopted by other courts, the Third Circuit concluded that the marketing regulations were conditions of participation, and not a condition for receipt of payment from CMS. The Court found relevant the fact that CMS had mechanisms for managing and correcting these violations other than withholding payment due.

By contrast, the Court rejected the district court’s conclusion that the relator’s AKS allegations were similarly defective. The relators had specifically alleged monthly certifications, the Court noted, and it found that under an implied (if not express) certification theory, the underlying contracts and regulations supported the relators’ theory of liability:

We conclude that appellants, in stating a plausible claim for relief at this stage of the proceedings for their complaint to survive a Rule 12(b)(6) motion, need not allege a relationship between the alleged AKS violations and the claims appellees submitted to the Government.FN20 Rather, the complaint is sufficient to survive a Rule 12(b)(6) motion to dismiss because appellants have pleaded that appellees knowingly violated the AKS while submitting claims for payment to the Government under the federal health insurance program.

Lastly, the Third Circuit affirmed the district court’s dismissal of the marketing claims with prejudice, reasoning that the relators’ failure to state how they would have amended the complaint to meet the pleading standard was a critical omission.

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