United States v. Caremark, Inc.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
February 24, 2011
No. 09-50727
Lyle W. Cayce
Clerk
UNITED STATES OF AMERICA,
Plaintiff - Appellant
v.
CAREMARK, INC.; CAREMARK INTERNATIONAL, INC.; CAREMARK
INTERNATIONAL HOLDINGS, INC.; MEDPARTNERS, INC.,
Defendants - Appellees
Consolidated with
No. 09-51053
STATE OF ARKANSAS; STATE OF CALIFORNIA; STATE OF ILLINOIS;
STATE OF LOUISIANA; STATE OF TEXAS; STATE OF DELAWARE;
STATE OF MASSACHUSETTS; DISTRICT OF COLUMBIA; JANAKI
RAMADOS,
Plaintiffs - Appellants
v.
CAREMARK, INC.; CAREMARK INTERNATIONAL, INC.; CAREMARK
INTERNATIONAL HOLDINGS, INC.; MEDPARTNERS, INC.,
Defendants - Appellees
Appeals from the United States District Court
for the Western District of Texas
Nos. 09-50727, 09-51053
Before BARKSDALE, DENNIS, and HAYNES, Circuit Judges.
HAYNES, Circuit Judge:
The United States (the “Government”) and the States of Arkansas,
California, Illinois, Louisiana, Texas, Delaware, and Massachusetts, as well as
the District of Colombia and the relator (collectively, the “State Appellants”)
sued Caremark, Inc., Caremark International Holdings, Inc., and Caremark Rx,
Inc., f/k/a Medpartners, Inc. (collectively “Caremark”), claiming that Caremark
violated the False Claims Act (“FCA”) by unlawfully denying requests for
reimbursement made by state Medicaid agencies. The district court entered a
Rule 54(b) final judgment disposing of all of the Government’s FCA claims. It
also entered several partial summary judgment orders against the State
Appellants.
On appeal, the Government argues that the district court erred in holding
that: (1) Caremark did not impair an obligation to the Government within the
meaning of the FCA when it denied reimbursement requests from state Medicaid
agencies; (2) the Government’s complaint-in-intervention did not relate back to
the relator’s complaint; and (3) Caremark did not make false statements when
it rejected state Medicaid agencies’ reimbursement requests on grounds that
precluded the agencies from recovering money owed to the program.
In a separate appeal, the State Appellants sought and received from the
district court a certification order under 28 U.S.C. § 1292(b) on eight of the
district court’s orders granting partial summary judgment to Caremark or
denying the State Appellants’ motions for summary judgment, and we permitted
the State Appellants’ interlocutory appeal. The State Appellants argue that the
district court erred in holding that: (1) Caremark, Inc. v. Goetz, 480 F.3d 779 (6th
Cir. 2007), only established that Medicaid was the “payor of last resort”; (2) plan
restrictions are not false statements under the FCA if they exist in the client’s
plan; (3) Caremark’s good faith confusion about the applicable law was legally
2
Nos. 09-50727, 09-51053
relevant to the element of falsity, which is a necessary element for FCA liability;
(4) the out-of-network, preauthorization, and “billed-submitted” examples of
Caremark’s denials of reimbursement requests were not false; and (5)
Caremark’s conduct was not actionable under the Arkansas Medicaid Fraud
False Claims Act (the “Arkansas FCA”).1 We consolidated the appeals.
We AFFIRM the district court’s conclusion that Caremark did not make
“false” statements when it stated that it rejected reimbursement requests based
on restrictions that were contained in a client’s plan. Additionally, we hold that
the district court correctly held that out-of-network restrictions are substantive
limitations that can be applied to Medicaid.
However, we REVERSE the district court’s holding that the Government
cannot bring a claim under 31 U.S.C. § 3729(a)(7) under the facts alleged
because we conclude that Caremark may be held liable under that section for
causing the state Medicaid agencies to make false statements to the
Government. Additionally, we VACATE the district court’s holding that the
Government’s complaint-in-intervention does not relate back to the relator’s
complaint, as this conclusion has been superseded by statute. We also VACATE
the district court’s decision that preauthorization requirements are substantive
limitations that can be applied to Medicaid. Finally, we REVERSE the district
court’s holding that the Arkansas FCA does not allow liability for reverse false
claims. We REMAND for proceedings consistent with this opinion.
1
The district court’s certification order indicated three issues as to which certification
was appropriate: (1) whether Caremark’s statements “are not false as a matter of law”; (2)
whether the orders in question properly construe and apply the legal standard clarified by the
Sixth Circuit in Goetz; and (3) whether Caremark’s conduct is actionable under the Arkansas
FCA. We note that “it is the order, not the question, that is appealable” on an interlocutory
appeal such that we can consider all issues material to the certified order.
Castellanos-Contreras v. Decatur Hotels LLC, 622 F.3d 393, 398-99 (5th Cir. 2010) (en banc).
Nevertheless, where an issue is not fully developed in the district court, we may decline to
reach it. See Sw. Bell Tel., L.P. v. City of Hous., 529 F.3d 257, 263 (5th Cir. 2008).
3
Nos. 09-50727, 09-51053
I. BACKGROUND AND PROCEDURAL HISTORY
Caremark is a pharmacy benefits management company (“PBM”) that
administers pharmacy benefits for its clients, which include insurance
companies, managed care organizations, and public and private health plans and
organizations. Caremark’s role is to manage its clients’ plans in accordance with
each plan’s provisions. Each plan has benefits and restrictions, such as only
covering prescriptions filled at certain pharmacies or requiring preauthorization
for a prescription to be covered by the plan.
A. Statutory Background
Some people who are eligible under a plan administered by a PBM are also
eligible for Medicaid. These individuals, referred to as dual-eligible individuals,2
sometimes identify themselves at a pharmacy as Medicaid recipients instead of
privately-insured individuals, thus resulting in a state Medicaid agency paying
the bill. However, if the state Medicaid agency discovers that a Medicaid
recipient is a dual-eligible individual, the agency must seek reimbursement from
the private insurer (known as a “third party”) under federal law. 42 U.S.C.
§ 1396(a)(25). In addition to requiring state Medicaid agencies to seek
reimbursement from third parties, federal law directs the States to enact laws
that require Medicaid recipients to assign their rights to receive payments from
any third party to the state Medicaid agency. 42 C.F.R. §§ 433.137-.254 (2009).
State Medicaid agencies receive substantial funding from the Government.
See 42 C.F.R. § 433.140; Ark. Dep’t of Health & Human Servs. v. Ahlborn, 547
U.S. 268, 275 (2006) (“The [Medicaid] program is a cooperative one; the Federal
Government pays between 50% and 83% of the costs the State incurs for patient
care . . . .”). However, the Government does not provide federal funding (known
as federal financial participation or “FFP”) if a State is able to recover funds
2
In this opinion, the phrase “dual eligible” does not mean an individual covered by both
Medicare and Medicaid, as the term is sometimes used.
4
Nos. 09-50727, 09-51053
from a third party. 42 C.F.R. § 433.140; Ahlborn, 547 U.S. at 289. Additionally,
if the Government provides FFP and the State later recovers from a third party,
federal law requires the State to return a portion of the reimbursement to the
Government. 42 C.F.R. § 433.140(c).
B. Plaintiffs’ Claims
In 1999, the relator, a former Caremark employee, filed a qui tam action
on her own behalf and on behalf of the United States, Arkansas, California,
Florida, Illinois, Louisiana, Tennessee, and Texas, claiming that Caremark
violated the FCA and similar state laws by making false statements to avoid
liability to the Government and state Medicaid agencies. In 2005, the United
States, Arkansas, Florida, Louisiana, and Tennessee intervened, and California
intervened in 2006. The relator and intervenors claim that Caremark
unlawfully denied or rejected reimbursement requests for dual-eligible
individuals, and such actions resulted in losses to the Government and the state
Medicaid agencies because they had to pay claims that should have been covered
by Caremark. The plaintiffs alleged, among other things, that Caremark
assigned “dummy codes” instead of actual pharmacy codes to claims for which
Medicaid requested a reimbursement resulting in the unlawful denial of the
state Medicaid agencies’ requests. The plaintiffs also alleged that Caremark
improperly applied card-presentation, timely-filing, and out-of-network plan
restrictions to reject reimbursement requests from state Medicaid agencies.
C. Declaratory Judgment: Caremark, Inc. v. Goetz
After this suit was filed, Caremark brought a declaratory judgment action
in the United States District Court for the Middle District of Tennessee to clarify
whether certain pre-existing restrictions were enforceable against Tennessee
Medicaid (“TennCare”). Caremark, Inc. v. Goetz, 395 F. Supp. 2d 683 (M.D.
Tenn. 2005). Caremark asked the district court to address three restrictions: (1)
5
Nos. 09-50727, 09-51053
card-presentation restrictions; (2) timely-filing limitations; and (3) out-of-
network limitations.3 Id. at 688.
The card-presentation restriction requires a plan participant to present a
Caremark card at the time of the sale to be covered by the plan. Some plans
allow a participant who fails to present a card at the point of sale to submit a
request for reimbursement after the fact, which is referred to as a “paper claims”
benefit. TennCare and the Government argued that the card-presentation
requirement discriminated against Medicaid because Medicaid could not ensure
that a dual-eligible participant presented his or her Caremark card at the point
of sale. They argued that applying this restriction to dual-eligible individuals
resulted in the state Medicaid agencies and the Government paying for
prescriptions that should have been covered by Caremark’s clients.
Timely-filing limitations impose a restriction on the number of days a plan
participant has to submit a request for reimbursement. TennCare and the
Government argued that timely-filing limitations discriminate against Medicaid
because it is often impossible for state Medicaid agencies to meet the filing
deadlines.
Out-of-network limitations provide that plan participants are not covered
or are covered at lower rates when the participants fill a prescription at a
pharmacy outside of the plan’s network. Again, TennCare and the Government
argued that this limitation could not be lawfully applied to Medicaid because
Medicaid could not ensure that a dual-eligible individual filled a prescription at
an in-network pharmacy.
In addressing these claims, the district court distinguished between
“procedural” and “substantive” restrictions and concluded that substantive
3
The United States District Court for the Middle District of Tennessee granted the
Government’s motion to intervene but denied its motion to transfer the case to the Western
District of Texas. Goetz, 395 F. Supp. 2d at 685.
6
Nos. 09-50727, 09-51053
restrictions could be applied to a state Medicaid agency, but procedural
restrictions that discriminated against Medicaid could not. Id. at 694. The
district court held that the card-presentation and timely-filing restrictions were
procedural and discriminated against Medicaid. Therefore, they could not be
applied to state Medicaid agencies. Id. at 696. The district court did not address
the out-of-network restrictions because TennCare and the Government conceded
that such restrictions could be applied to Medicaid. Id. at 693 & nn.3-4.
The Sixth Circuit affirmed. Caremark, Inc. v. Goetz, 480 F.3d 779 (6th Cir.
2007). The court elaborated on the distinction between procedural and
substantive restrictions, concluding that procedural restrictions were those that
“deal only with the manner or mode of requesting coverage” while substantive
restrictions deal with the “type or quantum of benefits available to a beneficiary
under the plan.”4 Id. at 788. Additionally, only procedural restrictions that
discriminate against Medicaid are not enforceable against Medicaid. Id.According to the Sixth Circuit, Caremark could not “shift[] responsibility [to pay
medical bills] onto the government by contractual fiat[.]” Id. (quoting Evanston
Hosp. v. Hauck, 1 F.3d 540, 543 (7th Cir. 1993)). The Sixth Circuit found that
by enforcing the card-presentation and timely-filing restrictions, Caremark was
inappropriately shifting the burden to pay for dual-eligible individuals’
pharmacy benefits from Caremark to TennCare. Id. at 789.
D. Summary Judgment Motions
In 2007, after the Sixth Circuit’s Goetz opinion was released, both sides
filed motions for summary judgment in this case. On August 27, 2008, the
district court issued an order granting in part and denying in part Caremark’s
motion for partial summary judgment against the Government and denying the
Government’s motion for summary judgment (the “Main Order”). United States
4
For the action at hand, the district court concluded that Goetz was the law of the case
and applied Goetz’s procedural-versus-substantive analysis to the FCA claims.
7
Nos. 09-50727, 09-51053
ex rel. Ramadoss v. Caremark Inc., 586 F. Supp. 2d 668, 689 (W.D. Tex. 2008).
The district court also granted Caremark’s motions for partial summary
judgment against the State Appellants and denied the State Appellants’ motions
for summary judgment. On June 19, 2009, the district court granted the
Government’s motion for entry of a partial final judgment pursuant to Federal
Rule of Civil Procedure 54(b), concluding that the Main Order “fully dispose[d]
of all claims asserted by the United States, on behalf of the Centers for Medicare
and Medicaid Services (“CMS”), to recover monies allegedly due to Medicaid.”
On October 2, 2009, the district court entered a certification order to the State
Appellants permitting them to appeal the eight partial summary judgment
orders. The Government and the State Appellants timely appealed to this court,
and we permitted the State Appellants’ interlocutory appeal.
II. STANDARD OF REVIEW AND JURISDICTION
We review a grant of summary judgment de novo, applying the same
standard as the district court. Gen. Universal Sys. v. HAL Inc., 500 F.3d 444,
448 (5th Cir. 2007). Summary judgment is appropriate if the moving party can
show that “there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a).5 The evidence
must be viewed in the light most favorable to the non-moving party. United Fire
& Cas. Co. v. Hixson Bros., Inc., 453 F.3d 283, 285 (5th Cir. 2006). Additionally,
because we have jurisdiction over the State Appellants’ appeal pursuant to 28
U.S.C. § 1292(b), our “review only extends to controlling questions of law.”
Castellanos-Contreras, 622 F.3d at 397. “Further, the court’s inquiry is limited
to the summary judgment record before the trial court.” Id.5
Effective December 1, 2010, Federal Rule of Civil Procedure 56 has been amended,
and the summary judgment standard is now reflected in Rule 56(a). The amended Rule 56
contains no substantive change to the summary judgment standard. Therefore, we cite to the
amended rule.
8
Nos. 09-50727, 09-51053
The district court had jurisdiction pursuant to 28 U.S.C. §§ 1331, 1345, and
1367, as well as 31 U.S.C. § 3732. We have jurisdiction over the Government’s
appeal of the final judgment pursuant to 28 U.S.C. § 1291. The district court
entered a Rule 54(b) partial final judgment against the Government on June 18,
2009. This partial judgment covered two issues: (1) “the United States’ claims
asserted under the [FCA] for the recovery of monies allegedly due to Medicaid”;
and (2) “the United States’ common law claim of recoupment for moneys allegedly
due Medicaid.”
We have jurisdiction over the State Appellants’ appeal pursuant to 28
U.S.C. § 1292(b), which gives a district judge discretion to certify an order that
“involves a controlling question of law as to which there is substantial ground for
difference of opinion” and where the judge concludes “that an immediate appeal
from the order may materially advance the ultimate termination of the litigation
. . . .” The district judge certified all eight of its partial summary judgment orders
to this court. We have discretion to grant the district court’s certification order.
United States v. Garner, 749 F.2d 281, 286 (5th Cir. 1985). This court granted the
State Appellants’ petition for leave to appeal and consolidated it with the
Government’s appeal.
III. DISCUSSION
A. Did Caremark violate § 3729(a)(7) when it denied reimbursement
requests from state Medicaid agencies?
Claims under 31 U.S.C. § 3729(a)(7) require proof that the defendant
“knowingly 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 Government.” 31 U.S.C. § 3729(a)(7).6 This is known as a reverse false
6
Unless otherwise noted, citations to 31 U.S.C. § 3729 refer to the statute as it applied
to Caremark’s conduct prior to 2009, before Congress amended this section in the Fraud
Enforcement and Recovery Act of 2009 (“FERA” or “the 2009 amendments”). We cite to the
session laws when referring to FERA. The majority of FERA’s provisions took effect on May
9
Nos. 09-50727, 09-51053
claim because the effect of the defendant’s knowingly false statement is a failure
to pay the Government when payment is required. A direct claim, on the other
hand, occurs when a false claim for payment is submitted to the Government.
United States ex rel. Bain v. Ga. Gulf Corp., 386 F.3d 648, 652 (5th Cir. 2004). In
this case, the Government contends that Caremark made false statements to the
state Medicaid agencies—who receive over half of their funding from the
Government—that allowed Caremark to fraudulently avoid making payments to
the state Medicaid agencies. This is known as an indirect reverse false claim
because the defendant allegedly knowingly made a false statement to a third
party, knowing that its statement would “conceal, avoid, or decrease” an obligation
to the Government. 31 U.S.C. § 3729(a)(7).
The Government appeals the district court’s conclusion that “Caremark does
not have any obligation to the Government for denials of reimbursement requests
that Caremark submitted to state Medicaid agencies.” United States ex rel.
Ramadoss, 586 F. Supp. 2d at 692. The Government makes two arguments as to
why the district court was incorrect: (1) the Government provides direct funding
for state Medicaid agencies, and because defrauding a state Medicaid agency has
a direct impact on the Government, it is the same as defrauding the Government
itself;7 and (2) even if Caremark did not owe an “obligation” to the Government,
its false statements caused the state Medicaid agencies to make false statements
to the Government, which is itself a violation of 31 U.S.C. § 3729(a)(7). Because
20, 2009 (with several exceptions, one of which is noted later in this opinion). See Pub. L. No.
111-21, 123 Stat. 1617, 1625 (2009).
7
Caremark relies heavily on Allison Engine Co. v. United States ex rel. Sanders, 553
U.S. 662 (2008), to support its argument that an obligation to a federally-funded entity is not
an obligation to “the Government.” We find it unnecessary to address whether Allison Engine
would require such a conclusion, however, because we conclude that Caremark may
nonetheless be held liable under § 3729(a)(7) for causing the state Medicaid agencies to impair
their obligations to the Government.
10
Nos. 09-50727, 09-51053
we agree with the Government on the second point, we need not address the first
point.
The Government argues that even if Caremark does not owe an “obligation”
directly to “the Government,” it may be held liable for causing the States to impair
their obligations to the Government.8 Section 3729(a)(7) provides that a person
who causes a false statement to be made “to conceal, avoid, or decrease an
obligation to pay or transmit money or property to the Government” is liable
under the FCA. 31 U.S.C. § 3729(a)(7); see also United States ex rel. Riley v. St.
Luke’s Episcopal Hosp., 355 F.3d 370, 378 (5th Cir. 2004) (“The FCA applies to
anyone who knowingly assists in causing the government to pay claims grounded
in fraud, without regard to whether that person has direct contractual relations
with the government.” (internal quotations and citations omitted)).
Two cases have interpreted § 3729(a)(7) to allow liability for indirect reverse
false claims. See United States ex rel. Hunt v. Merck-Medco Managed Care,
L.L.C., 336 F. Supp. 2d 430, 444-45 (E.D. Pa. 2004); United States ex rel. Koch v.
Koch Indus., Inc., 57 F. Supp. 2d 1122, 1128-29 (N.D. Okla. 1999). In Hunt, the
relator claimed that Merck-Medco, a PBM, violated the FCA by making false
statements to Blue Cross/Blue Shield, a health insurance company that provided
health insurance to federal employees. Hunt, 336 F. Supp. 2d at 444. Merck-
Medco argued that it did not owe an obligation to the Government because its
obligation was to Blue Cross/Blue Shield and the statute required the obligation
8
We reject Caremark’s argument that the Government failed to raise this issue to the
district court. The Government made this argument in its opposition to summary judgment
and in additional briefing to the district court after the district judge told the parties that he
agreed with Caremark’s argument on this issue. Because this material issue was raised in the
district court and is therefore encompassed in its orders granting Caremark summary
judgment, we have jurisdiction over this issue although the district court did not expressly
discuss it. See Yamaha Motor Corp. v. Calhoun, 516 U.S. 199, 205 (1996) (noting that under
28 U.S.C. § 1292, “the appellate court may address any issue fairly included within the
certified order because it is the order that is appealable, and not the controlling question
identified by the district court” (internal quotations omitted)).
11
Nos. 09-50727, 09-51053
to be owed directly to the Government. Id. The Court rejected this “direct privity”
argument, ruling that the statute allowed liability if the party caused a false
statement “to be made or used.” Id. The court concluded that “[t]he fact that
Medco may not have been in direct contractual privity with the Government . . .
is not an automatic bar to § 3729(a)(7) liability.” Id. The court accepted the
Government’s argument that because “any contractual penalties owing from
Medco to Blue Cross [were] required by law to be turned over to the Government,
. . . the distinction between Medco and Blue Cross [was] legally worthless.” Id.
Because of this “unique relationship,” the “predictable, even certain, consequence
of its actions (or inactions) would and could be to reduce the amount of money
owed to a party (Blue Cross) that it knew was in direct contractual privity with
the Government.” Id.
Similarly, in Koch, the relator argued that the defendants violated
§ 3729(a)(7) by making false statements to a party who had mineral leases with
the Government. Koch, 57 F. Supp. 2d at 1124. The defendants argued that they
could not be held liable under § 3729(a)(7) because they made statements to the
lessee, not to the Government. Id. at 1127. The court disagreed, noting that the
defendants’ false measurements may have “caused the lessee or operator to
understate its royalty obligation to the Government.” Id. at 1129 (emphasis
added). The court rejected the defendants’ argument that “because subsection
(a)(7) and (c) [which defined the term “claim” for purposes of the FCA] were added
at the same time, the absence of any reverse false claim language in subsection
(c) conclusively demonstrates that Congress did not intend the FCA to impose
liability for indirect reverse false claims.” Id. at 1128. The court noted that
“[w]hile it is true that Congress did not explicitly include indirect reverse false
claims within the gambit of the FCA, it is not clear to this Court that Congress
intended to exclude them.” Id. at 1129. Instead, the court concluded that
12
Nos. 09-50727, 09-51053
Congress’s intent was to expand the FCA “to reach further to protect the
Government from fraud due to false filings.” Id. at 1128.
We have also interpreted a prior version of the FCA to encompass indirect
reverse false claims. Smith v. United States, 287 F.2d 299 (5th Cir. 1961). In
Smith,9 the defendant made false claims for payment to the Beaumont Housing
Authority (“BHA”) and also made false statements to the BHA to avoid financial
obligations. Id. at 300, 303-04. The court accepted the indirect reverse false claim
theory because “the False Claims Act applies even where there is no direct liability
running from the Government to the claimant.” Id. at 304 (emphasis added). The
court reasoned that had the BHA “not made these payments and had they not
been reflected in the quarterly reports, the Government, in one quarter, would
have received more rent and in the other would have made a lesser payment. The
expenses were therefore ultimately borne by the United States Treasury.” Id.The States have a legal duty to return federal funds if they are able to
recover from third parties. 42 C.F.R. § 433.140 (“If the State receives FFP in
Medicaid payments for which it receives third party reimbursement, the State
must pay the Federal government a portion of the reimbursement . . . .”). The
States also have a legal duty to seek reimbursement from a third party for dual-
eligible individuals. 42 U.S.C. § 1396a(a)(25)(A) (requiring the States to “take all
reasonable measures to ascertain the legal liability of third parties” and to seek
reimbursement for medical assistance to the extent of any third party’s legal
liability); 42 C.F.R. § 433.139(b)(1) (requiring the state agency to reject a claim
and return it to a third party for a determination of the amount of liability).
9
We note that the district court rejected the Government’s reliance on Smith because
it incorrectly concluded that the lessee leased directly from the Government. However, Smith
was not a case against the lessee, but against the lessee’s chief executive. 287 F.2d at 300.
The executive argued that he did not personally “make or cause to be made . . . any claim upon
or against the Government . . . .” Id. at 304. As noted above, we held that the FCA “applies
even where there is no direct liability running from the Government to the claimant.” Id.13
Nos. 09-50727, 09-51053
These requirements impose an obligation on the States to the Government. If
Caremark made false statements that an individual is not covered by a plan, these
false statements would cause the state Medicaid agencies to pay for the
prescription and seek reimbursement from the Government rather than from
Caremark. This, in turn, would cause the States to receive and to keep federal
funds to which they would not otherwise be entitled. Caremark’s actions therefore
could have impaired the States’ obligation to the Government under 42 U.S.C.
§ 1396a(a)(25). The Smith, Hunt, and Koch cases are instructive because they all
allow FCA liability for knowingly making a false statement that will cause a third
party to impair its obligation to the federal government. Smith, 287 F.2d at 304;
Hunt, 336 F. Supp. 2d at 444-45; Koch, 57 F. Supp. 2d at 1128-29. The statute
does not require that the statement impair the defendant’s obligation; instead, it
requires that the statement impair “an obligation to pay or transmit money or
property to the Government.” 31 U.S.C. § 3729(a)(7) (emphasis added). We hold
that if the Government is able to prove that Caremark knowingly made false
statements to the States knowing that these statements could cause the States to
impair their obligation to the Government, Caremark will be liable under
§ 3729(a)(7). Because Caremark’s allegedly false statements could have caused
the state Medicaid agencies to impair their obligations to the Government, we
conclude that the district court erred in granting summary judgment to Caremark
on its § 3729(a)(7) claims based upon the argument that the statute, on its face,
does not apply to Caremark in the circumstances presented here.
B. When a relator initiates an FCA suit in which the Government later
intervenes, does the Government’s complaint-in-intervention relate
back to the relator’s complaint?
Caremark concedes that the district court’s analysis has been superceded
by statute, and we agree. In FERA, Congress specified that the Government’s
complaint-in-intervention “shall relate back to the filing date of the complaint of
the person who originally brought the action, to the extent that the claim of the
14
Nos. 09-50727, 09-51053
Government arises out of the conduct, transactions, or occurrences set forth, or
attempted to be set forth, in the prior complaint of that person.” Pub. L. No.
111-21, § 4(b), 123 Stat. 1617 (2009). Unlike other sections of FERA, Congress
specifically stated that this provision “shall apply to cases pending on the date of
enactment.” Id. § 4(f). Because this case was pending on the date FERA was
enacted, the Government’s complaint-in-intervention relates back to the relator’s
complaint. Therefore, we vacate the district court’s order on this issue.
C. Did Caremark make false statements when it rejected Medicaid
reimbursement requests based on restrictions that were contained
in a client’s plan?
Both the State Appellants and the Government argue that the district court
erred in holding that statements “where Caremark denied Medicaid
reimbursement requests based on restrictions that were contained in a client’s
plan” were not “false” statements subject to liability through application of
§ 3729(a)(7). The State Appellants challenge the district court’s conclusion that
a true statement cannot be false under the FCA. They argue that a factually true
statement can still be false if it is “legally impermissible.” The Government
challenges the district court’s conclusion that a claim is not false when there is a
legitimate good faith disagreement about the applicable law. It argues that an
ambiguity in the governing law does not preclude falsity; rather, the existence of
an ambiguity concerns whether the defendant acted knowingly, which is a distinct
element under the FCA. Thus, we focus our attention in this section on “false”
rather than “knowingly.”
Our analysis of this question is hampered by the fact that we are deciding
this case on an extremely limited record. The State Appellants’ appeal is a
certified appeal under 28 U.S.C. § 1292(b), and our review only extends to
“controlling questions of law.” Castellanos-Contreras, 622 F.3d at 397. The
Government’s appeal is pursuant to a Rule 54(b) final judgment, but because the
Government’s claims were disposed of early in the case, the record was not fully
15
Nos. 09-50727, 09-51053
developed. The district court’s opinion merely held that factually true statements
made prior to Goetz, when the law was unclear, cannot constitute a false
statement for purposes of the FCA. Not raised in this appeal is the question of
whether factually true statements can be false post-Goetz, as the district court has
not yet reached this issue.
Since false is the opposite of true, statements that are factually true are not
false statements about the facts. Indeed, neither the State Appellants nor the
Government argue that the statements at issue in this appeal were factually
incorrect. Instead, they argue that Caremark’s true statements that it denied
requests for reimbursement because the participants’ plans did not have a paper
claims provision were untrue because Caremark was not legally permitted to deny
those requests. The State Appellants rely on United States v. Bourseau, 531 F.3d
1159 (9th Cir. 2008), to support their argument. In Bourseau, the Ninth Circuit
noted that “courts decide whether a claim is false or fraudulent by determining
whether a defendant’s representations are accurate in light of applicable law.” Id.
at 1164.
We need not decide whether we agree with Bourseau’s analysis because we
decline to go farther than the matter addressed by the district court—whether
stating that a request was denied for a reason stated in a client’s plan is a “false
statement.” We conclude it is not. If, indeed, Caremark went further and stated
that its conduct was in compliance with the law or otherwise certified the legal
effect of its actions, that may present a different question, one we do not reach.
Therefore, we reject the State Appellants’ and the Government’s argument that
the district court erred in holding factually true statements, without more, were
not false for purposes of the FCA.
D. Did the district court err in its interpretation of Goetz?
The State Appellants argue that the district court erred in concluding that
“beyond availing that Medicaid is the ‘payor of last resort,’ Goetz did not establish
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Nos. 09-50727, 09-51053
that Medicaid regulations specifically prevent PBMs from applying existing
restrictions.” United States ex rel. Ramadoss, 586 F. Supp. 2d at 689. We decline
to address the district court’s interpretation of Goetz as a stand-alone issue.
Instead, we will address it as part of the analysis of the substantive contentions
on appeal.
E. Did the district court err in applying the Goetz procedural-versus-
substantive test to out-of-network, preauthorization, and billed-
amount plan restrictions?
Both the State Appellants and the Government argue that the district court
erred in applying Goetz to the facts of this case because Caremark’s reliance on
out-of-network and preauthorization requirements are false as a matter of law
under Goetz. The State Appellants also argue that the district court erred in
finding that Caremark’s “billed/submitted amount” and “amount billed used for
pricing” (referred to as the “billed-amount” restrictions) were not false under
Goetz. We address each argument below.
1. Out-Of-Network Restrictions
Addressing a specific example of an allegedly false statement, the district
court held that an out-of-network “restriction is substantive as it affects the type
or quantum of coverage under a plan, instead of the manner or mode of
reimbursement” because it “[l]imit[s] the pharmacies at which a plan participant
can fill prescriptions . . . .” United States ex rel. Ramadoss, 586 F. Supp. 2d at 710.
The district court noted that this has “nothing to do with the manner or mode of
seeking reimbursement.” The Government essentially concedes that out-of-
network restrictions are not at issue in this appeal. The Government merely
argues that the district court erred to the extent that it would apply this reasoning
to “Caremark’s practice with respect to Medicaid reimbursement requests to
which it did assign . . . dummy code[s].”
We conclude that this point of error is meritless because the district court
made clear that “for claims that actually allege Caremark made a false statement,
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Nos. 09-50727, 09-51053
for example, that a reimbursement request was denied based on a restriction that
was not in a corresponding plan [e.g., dummy codes], those claims may be
permissible under the FCA.” Id. at 686 n.20. The district court granted summary
judgment on the out-of-network example mentioned by the Government in its brief
because there was evidence that Caremark did not use a “dummy code” in
processing that particular claim. There was evidence that the prescription was
processed at an out-of-network pharmacy, so Caremark’s statement that it denied
the reimbursement request for that reason was not false. The Government does
not deny that this was the correct ruling on this particular example; therefore, its
complaint on this issue is without merit.
2. Preauthorization Requirements
The district court also held that preauthorization is a “substantive
restriction as it affects the type or quantum of coverage under a plan, instead of
the mode or manner of reimbursement.” United States ex rel. Ramadoss, 586 F.
Supp. 2d at 715. The Government argues that because Medicaid cannot comply
with a preauthorization requirement, “Caremark cannot lawfully apply the
restriction to deny reimbursement requests.” The Government claims that the
preauthorization requirement is procedural because it “deals only with the
manner or mode of requesting coverage.”
We conclude that further factual development on this issue is necessary.
From this limited record, we cannot determine whether the preauthorization
requirement functions as a “‘procedural’ roadblock[] to reimbursement,” Goetz, 395
F. Supp. 2d at 694, or a substantive limitation on coverage. For example, if
Caremark’s preauthorization requirement involves a decision about whether to
grant or deny requests for certain medications based on the medical needs of its
members, the requirement may be considered substantive. By contrast, if
preauthorization merely functions as a box to be checked in order for a patient to
obtain a drug, entailing no discretion on the part of Caremark about whether the
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Nos. 09-50727, 09-51053
request should be granted, the restriction may be procedural. On this limited
record, we cannot make this determination; therefore, we remand for further
factual development.
3. Billed-Amount Restrictions
Texas argues that the district court erred in concluding that Caremark did
not make false statements when it rejected requests for reimbursement from
Texas Medicaid because “Texas failed to provide the billed/submitted charge and
the Medicaid paid/allowed amounts.” We conclude that it is unnecessary to
address this issue because Texas did not dispute the district court’s conclusion
that the Texas FCA did not contain a provision allowing reverse false claims prior
to September 1, 2005. The denials for reimbursement requests that Texas now
challenges occurred from 1999 to 2000. Because these are alleged reverse false
claims that occurred prior to 2005, they would not be allowed under the district
court’s unchallenged interpretation of the Texas FCA. Therefore, we do not
address them.
F. Did the district court err in concluding that Caremark’s conduct is
not actionable under the Arkansas FCA?
The district court held that the Arkansas FCA does not allow reverse false
claims. As noted above, a reverse false claim is a false statement that enables a
party to avoid making a payment to the government. The district court reasoned
that “[u]nlike the federal False Claims Act . . . , the Arkansas [FCA] does not
contain a reverse false claims provision.” See No. SA-99-CA-00914-WRF, United
States ex rel. Ramadoss v. Caremark Inc., Order Denying Arkansas’ Motion for
Summary Judgment and Granting in Part Caremark’s Cross Motion for Partial
Summary Judgment at 3 (W.D. Tex. Aug. 27, 2008). It also noted that “the
Arkansas FCA is more narrowly tailored and only creates liability for false claims
or applications used to secure benefits or payments from Arkansas Medicaid
(rather than avoiding a payment to Arkansas Medicaid).” Id.19
Nos. 09-50727, 09-51053
In its relevant provisions, the Arkansas FCA provides for a claim against
any person who: “[k]nowingly makes or causes to be made any false statement or
representation of a material fact in any application for any benefit or payment
under the Arkansas Medicaid program,” ARK. CODE ANN. § 20-77-902(1) (2003);
“knowingly makes or causes to be made any false statement or representation of
a material fact for use in determining rights to a benefit or payment,” id. § 20-77-
902(2); “[h]aving knowledge of the occurrence of any event affecting his or her
initial or continued right to any benefit or payment or the initial or continued
right to any benefit or payment of any other individual in whose behalf he or she
has applied for or is receiving a benefit or payment knowingly conceals or fails to
disclose that event with an intent fraudulently to secure the benefit or payment
either in a greater amount or quantity than is due or when no benefit or payment
is authorized,” id. § 20-77-902(3); “[k]nowingly makes or causes to be made or
induces or seeks to induce the making of any false statement or representation of
a material fact . . . [w]ith respect to information required pursuant to applicable
federal and state law, rules, regulations, and provider agreements,” id. § 20-77-
902(8)(B); or “[k]nowingly makes or causes to be made any false statement or
representation of a material fact in any application for benefits or for payment in
violation of the rules, regulations, and provider agreements issued by the program
or its fiscal agents,” id. § 20-77-902(10).
Based on the text of the statute, we conclude that the district court did not
err in holding that Sections 20-77-902(1), (2), (3), and (10) cannot be interpreted
to allow liability for a reverse false claim. These subsections use the terms
“benefit” and “payment,” both of which imply a payment or transfer of services
from the State of Arkansas to an individual, rather than a means to avoid an
obligation to pay money to the State of Arkansas. Although Arkansas correctly
argues that some federal courts (including the Fifth Circuit) interpreted the pre-
1986 version of § 3729(a) to encompass reverse false claims even though it did not
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Nos. 09-50727, 09-51053
include an express provision for such claims, see, e.g., Smith, 287 F.2d 299,
Caremark’s argument that Arkansas enacted the Arkansas FCA after Congress
amended § 3729(a) to include a provision for reverse false claims liability is
persuasive. Arkansas could have included a section that mirrored § 3729(a)(7),
but it chose not to do so.
However, we conclude that the district court erred in finding that no
provision of Section 20-77-902 of the Arkansas FCA could allow liability for a
reverse false claim. For example, under Section 20-77-902(8)(B), Caremark could
be held liable for knowingly making a false statement with respect to information
required to be provided under either Arkansas or federal law. ARK. CODE ANN.
§ 20-77-902(8)(B) (2003). Section 20-77-306 of the Arkansas Code provides that
third parties (such as Caremark) are legally liable to reimburse Medicaid for the
full amount of “any medical cost of an injury, disease, disability, or condition
requiring medical treatment for which Medicaid has paid, or has assumed liability
to pay . . . .” ARK. CODE ANN. § 20-77-306(b) (2009).
Section 20-77-902(8)(B) is even broader than the language found in both the
pre-1986 version of 31 U.S.C. § 3729(a) and the current version of § 3729(a)(7),
which requires proof that the person “knowingly ma[de], use[d], or cause[d] 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 Government.” Section 20-
77-902(8)(B) of the Arkansas FCA makes no mention of an “obligation”; it merely
requires proof that the person make a false statement “[w]ith respect to
information required pursuant to applicable federal and state law, rules,
regulations, and provider agreements.” ARK. CODE ANN. § 20-77-902(8)(B) (2003).
Therefore, we reverse the district court’s conclusion that reverse false claims could
not be actionable under Section 20-77-902(8)(B) of the Arkansas FCA.
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Nos. 09-50727, 09-51053
IV. CONCLUSION
We AFFIRM the district court’s entry of summary judgment for Caremark
on the Government’s and the State Appellants’ claims that Caremark made false
statements when it cited restrictions that were contained in a client’s plan as the
reason for rejecting reimbursement requests. We also AFFIRM the district court’s
conclusion that out-of-network restrictions are substantive limitations that can
be applied to Medicaid. However, we REVERSE the district court’s conclusions
that (1) the Government cannot bring a claim under 31 U.S.C. § 3729(a)(7); and
(2) the Arkansas FCA does not allow liability for reverse false claims.
Additionally, we VACATE the district court’s decisions regarding whether the
Government’s complaint-in-intervention relates back to the relator’s complaint
and whether preauthorization restrictions are substantive. We REMAND for
proceedings consistent with this opinion.
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