United States v. DC

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 7, 2015 Decided July 10, 2015
No. 14-7060
UNITED STATES OF AMERICA, EX REL. MICHAEL L. DAVIS,
AND
MICHAEL L. DAVIS,
APPELLANT
v.
DISTRICT OF COLUMBIA,
APPELLEE
Consolidated with 14-7061
Appeals from the United States District Court
for the District of Columbia
(No. 1:06-cv-00629)
Sara M. Lord argued the cause for appellant/cross-appellee.
With her on the briefs were Tenley A. Carp and Jeffrey S.
Jacobovitz.
Stacy L. Anderson, Senior Assistant Attorney General,
Office of the Attorney General for the District of Columbia,
argued the cause for appellee/cross-appellant. With her on the
2
brief were Karl A. Racine, Attorney General, Todd S. Kim,
Solicitor General, and Loren L. AliKhan, Deputy Solicitor
General.
Before: ROGERS and GRIFFITH, Circuit Judges, and
GINSBURG, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge ROGERS.
ROGERS, Circuit Judge: Upon remand of Michael L.
Davis’s qui tam lawsuit, see United States ex rel. Davis v.
District of Columbia, 679 F.3d 832 (D.C. Cir. 2012) (“Davis I”),
the district court ruled that the District of Columbia violated the
False Claims Act when it submitted a Medicaid reimbursement
claim for FY 1998 and imposed the maximum penalty of
$11,000. United States ex rel. Davis v. District of Columbia, 34
F. Supp. 3d 30 (D.D.C. 2014) (“Davis II”). Davis appeals,
contending the district court erred in ruling the District
submitted only one false claim. The District cross appeals,
contending it is entitled to summary judgment because it made
no false claim. The relevant federal regulations, which were
incorporated into the District’s Medicaid State Plan, required the
District to maintain records supporting its Medicaid
reimbursement claims that could be produced for audit.
Pursuant to contractual obligations, Davis’s firm, Davis &
Associates, Inc., was to prepare the FY 1998 interim Medicaid
claims and year-end cost report, and consequently his firm, not
the District, had physical possession of the underlying
documentation supporting the District’s claim. Given this
arrangement, the District reasonably understood when it
submitted the claim for payment that it could, through Davis &
Associates, make the supporting records available for audit.
Accordingly, we reverse and remand the case with instructions
to enter judgment for the District.
3
I.
The District of Columbia is eligible for reimbursement by
the federal government for a portion of the cost of providing
health-related services to Medicaid-eligible children pursuant to
the Individuals with Disabilities Education Act, 20 U.S.C.
§§ 1400 et seq. 42 U.S.C. § 1396b(c). The District of Columbia
Public Schools (“DCPS”) has been certified as a provider of
such services, including services for severely disabled students
in the Mamie D. Lee and Sharpe Health Schools and for students
in regular educational settings, as well as transportation for
students on days when a student receives a Medicaid-eligible
service. The version of the District’s Medicaid State Plan in
effect in 1998 provided that DCPS would be reimbursed in
accordance with the “Principles of Reasonable Cost
Reimbursement described at 42 CFR § 413, subparts A.-G.”
Pursuant to these principles, Medicaid reimbursement
operated in two stages. Throughout the fiscal year, providers of
health-related services such as DCPS submitted interim claims
to the D.C. Medical Assistance Administration (“MAA”) and
received interim payments based on fixed estimates of their
actual costs. See 42 C.F.R. §§ 413.60(a), (c), 413.64(a), (f). At
the end of the fiscal year, providers submitted cost reports of
their actual expenditures, see id. §§ 413.60(b), 413.64(f), and
following an audit, “a final adjustment [was] made” to settle the
difference between the interim payments and a provider’s actual
costs, id. § 413.64(f)(2). The federal government contributed
approximately 70 percent of the funds paid to providers by
MAA in 1998, and the District contributed the remaining 30
percent.
The principles of reasonable cost reimbursement further
required providers such as DCPS, upon penalty of suspension of
payments, id. § 413.20(e), to “provide adequate cost data”
4
supported by “financial and statistical records which must be
capable of verification by qualified auditors,” id. § 413.24(a);
the cost information had to “be accurate and in sufficient detail”
“to support payments made for services furnished to
beneficiaries,” id. § 413.24(c); see also id. § 413.20(d)
(recordkeeping requirements).
In 1995, DCPS awarded Health Management Systems, Inc.,
a contract to design, develop, and implement a “Medicaid
Reimbursement Recovery Program” for DCPS’s special
education program. Davis’s firm, Davis & Associates, was a
subcontractor that, for a period of years, “acting on behalf of
DCPS,” was responsible for collecting and submitting data to
MAA for the payment of interim claims, reconciling approved,
denied, and pending claims, and “maintaining original claim
documentation for audit purposes.” Davis & Associates
prepared, submitted, and retained supporting documentation for
interim claims by DCPS’s special education program during FY
1998. It was informed in December 1998 that the firm’s
contract would not be renewed and that it would be replaced by
Maximus, Inc., beginning in FY 1999. Davis & Associates
prepared a year-end cost report for FY 1998, but DCPS declined
to submit it. Davis & Associates retained previously collected
supporting documentation provided by DCPS that Davis avers
was sufficient and appropriate to justify the reimbursement
request his firm prepared.
Instead of using the report prepared by Davis & Associates,
DCPS submitted two FY 1998 cost-settlement reports prepared
by Maximus: one in January 2000 setting forth DCPS’s
expenditures on health-related services for special education
students (the “Special Education Cost Report”) and another
between January and May 2000 stating its expenditures on
transportation for those students (the “Transportation Cost
Report”). The Transportation Cost Report stated that it had been
5
prepared by comparing the paid interim health-related service
claims submitted by Davis & Associates to the roster of
Medicaid-eligible students authorized to receive transportation
services, in order to derive the number of “service days” DCPS
provided transportation, and then multiplying that number by
DCPS’s per-student, per-day reimbursable transportation costs.
It ultimately calculated that the District was owed an additional
$1.7 million in unreimbursed federal funds.
MAA informed DCPS in May 2000 that its auditor, Bert
Smith & Company, was auditing the final cost reports for fiscal
years 1996, 1997, and 1998. See 42 C.F.R. § 413.64(f)(2). In
July 2001, Bert Smith submitted to the District a final report on
the FY 1998 Transportation Cost Report that identified
approximately $9.5 million in Medicaid-eligible costs incurred
by DCPS’s transportation system; this netted out (after
accounting for the interim payments and applying the federal
reimbursement rate) to the District being owed $5.4 million in
federal Medicaid funds for transportation services. Upon
examination of both the FY 1998 Special Education and
Transportation Cost Reports, however, Bert Smith
recommended that the District return approximately $7.6 million
in federal funds for FY 1998.
In 2002, MAA advised the Centers for Medicare and
Medicaid Services (“CMS”), the federal agency administering
the Medicaid program, “that it was encountering difficulties in
determining final reimbursement amounts to DCPS for services
rendered from 1996 through 1998 because the cost information
from DCPS was incomplete.” CMS, Focused Financial
Management Review 1 (2003). After performing a “brief FM
review,” spending a day and a half at Bert Smith and examining
its process, CMS concluded that Bert Smith had, in the face of
“incomplete and insufficiently detailed cost information” from
DCPS, “applied sensible, practical testing and conservative
6
judgments to determine allowable Medicaid costs” and that
MAA should finalize the $7.6 million settlement proposed by
Bert Smith. Id. at 2–4.
On April 4, 2006, Davis filed a qui tam lawsuit alleging that
the District violated the False Claims Act, 31 U.S.C. § 3729(a),
by submitting, through DCPS, the Maximus FY 1998 year-end
cost reports when it knew it “did not have in [its] possession
documentation to support and verify that Medicaid reimbursable
services were provided.” Compl. ¶ 30. His amended complaint
identified the date the allegedly false claim was submitted as
January 2000. See Am. Compl. ¶ 15. The district court initially
dismissed the complaint on the ground that, under this court’s
precedent, Davis was not an original source of the information.
United States ex rel. Davis v. District of Columbia, 773 F. Supp.
2d 21, 33 (D.D.C. 2011); see 31 U.S.C. §§ 3730(e)(4)(A)–(B)
(2000). After this court concluded the Supreme Court had
overruled that precedent, see Davis I, 679 F.3d at 837–39, and
remanded the case, the district court granted in part and denied
in part the parties’ cross motions for summary judgment, Davis
II, 34 F. Supp. 3d at 50.
In moving for summary judgment, Davis argued in his
memorandum of points and authorities that DCPS did not
possess service documentation supporting the Maximus FY
1998 year-end cost reports. He asserted in the statement of
material facts supporting his motion for summary judgment that
DCPS is required to maintain both cost documentation, showing
a provider’s expenditures on health-related services, and service
documentation, such as medical records and progress notes that
show a Medicaid-eligible child received a reimbursable service
on a given day. The District opposed Davis’s motion and also
moved for summary judgment, arguing that Davis’s claims were
barred by the statute of limitations and that Davis had failed,
after discovery, to present any evidence the District had
7
knowingly submitted a false claim to the federal government.
The district court agreed with the District that Davis’s
claims regarding the FY 1998 Special Education Cost Report
were time barred, Davis II, 34 F. Supp. 3d at 38–41, and Davis
has not appealed. The court agreed with Davis that the District
made a false claim when DCPS submitted the FY 1998
Transportation Cost Report for payment because Davis &
Associates, not DCPS, had physical possession of the required
supporting documentation at that time, id. at 43; the
maintenance of such documentation was material to the federal
government’s decision to pay the reimbursement requested, id.
at 44–45; and DCPS submitted the false claim knowingly, id. at
46–47. The court rejected the District’s position that it had
constructive possession under an implied agency theory, finding
there was no evidence that “the Maximus Reports were prepared
or submitted in reliance on documents in Davis’s possession,”
and “the District had already fired Davis” when it submitted the
Transportation Cost Report to MAA in 2000. Id. at 43. The
court imposed the maximum $11,000 penalty for one false
claim. Id. at 48–49.
Both parties appeal, and our review is de novo, see United
States ex rel. Folliard v. Gov’t Acquisitions, Inc., 764 F.3d 19,
25–26 (D.C. Cir. 2014), although in view of our disposition of
the District’s cross appeal, there is no need to address Davis’s
appeal of the number of false claims.
II.
To establish a violation of the False Claims Act, 31 U.S.C.
§ 3729(a), a party may prove “that the defendant presented . . .
a claim to the government, that the claim was false, and that the
defendant knew that the claim was false.” United States ex rel.
Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214,
8
218 (D.C. Cir. 2003). A claim is legally false “when it rests on
a false representation of compliance with an applicable federal
statute, federal regulation, or contractual term.” United States
v. Sci. Applications Int’l Corp. (“SAIC”), 626 F.3d 1257, 1266
(D.C. Cir. 2010). Such a certification may be implied, and
“[c]ourts infer implied certifications from silence” when a
claimant fails to comply with obligations that are “‘a
prerequisite to the government action sought.’” Id. (quoting
United States ex rel. Siewick v. Jamieson Sci. & Eng’g, Inc., 214
F.3d 1372, 1376 (D.C. Cir. 2000)). Only false claims
“knowingly” made — i.e., with “actual knowledge of the [false]
information,” “deliberate ignorance of the truth or falsity of the
information,” or “reckless disregard of the truth or falsity of the
information,” — give rise to liability. 31 U.S.C. §§ 3729(a)–(b)
(2000). “[R]eckless disregard” in this context is “an extension
of gross negligence.” United States v. Krizek, 111 F.3d 934, 942
(D.C. Cir. 1997). To establish knowledge on the basis of an
implied false certification, Davis had to prove that the District,
acting through DCPS, knew both that it violated a legal
obligation and that its compliance was a condition of payment.
SAIC, 626 F.3d at 1271.
Davis does not challenge that DCPS provided the claimed
services to Medicaid-eligible special education students. Davis
I, 679 F.3d at 840. In response to the District’s cross appeal, he
contends only that DCPS falsely certified when it submitted the
FY 1998 Transportation Cost Report that it had the records to
verify the services were provided on a particular day. Because
the record shows that DCPS had arranged with Davis &
Associates to maintain appropriate documentation supporting its
Medicaid claims, in compliance with the federal document
retention requirements incorporated into the District’s State
Plan, and that DCPS reasonably understood when it submitted
the FY 1998 Transportation Cost Report that it could produce
the underlying documentation for audit, the Transportation Cost
9
Report contains no implied false certifications, and the District
made no false claim.
The federal regulations incorporated into the District’s State
Plan required providers to maintain adequate documentation for
audit. Providers were to produce for examination “such records
and documents as are necessary to ascertain information
pertinent to the determination of the proper amount of program
payments due.” 42 C.F.R. § 413.20(d)(2) (1999); see also id.§ 413.24(a). These regulations, on which Davis relies, provided
that “[a]dequate cost information” “capable of being audited” —
i.e., data that is “accurate and in sufficient detail” to verify
payments — “must be obtained from the provider’s records.”
Id. § 413.24(c). CMS would suspend payments to a provider
that failed to “maintain . . . adequate records for the
determination of reasonable cost.” Id. § 413.20(e).
Not all failures to comply with a federal statute or
regulation expose a provider to liability under the False Claims
Act. “[A] false certification of compliance with a statute or
regulation cannot serve as the basis for a qui tam action under
the [False Claims Act] unless payment is conditioned on that
certification.” Siewick, 214 F.3d at 1376. In other words, a
defendant may be held liable under the False Claims Act for
falsely certifying it complied with a statute or regulation only if
“certification was a prerequisite to the government action
sought.” Id. The parties dispute whether the regulations the
District allegedly violated are conditions of payment, rather than
conditions of participation in the Medicaid program. Several of
our sister circuits have recognized the difference and cautioned
against treating all Medicare and Medicaid regulations as
conditions of payment. E.g., United States ex rel. Hobbs v.
MedQuest Assocs., Inc., 711 F.3d 707, 714 (6th Cir. 2013);
United States ex rel. Wilkins v. United Health Grp., Inc., 659
F.3d 295, 310–11 (3d Cir. 2011); United States ex rel. Conner
10
v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1220 (10th Cir.
2008); Mikes v. Straus, 274 F.3d 687, 699–700 (2d Cir. 2001).
We need not decide whether the regulations at issue here
are “prerequisites” to payment because, even if they are, Davis
has not met his burden to show that the District was in knowing
violation of these regulations when DCPS submitted the FY
1998 Transportation Cost Report. Nothing in the District’s State
Plan or the Medicaid regulations on which Davis relies
conditioned payment on DCPS’s physical possession of
documentation supporting its year-end cost reports. DCPS was
required only to “maintain” documentation such that the
information could be “obtained” for audit. See 42 C.F.R.
§§ 413.20(e), 413.24(c) (1999). Davis conceded as much in his
sworn False Claims Act disclosure statement, see 31 U.S.C.
§ 3730(b)(2) (2000), averring that for FY 1996, Davis &
Associates, not DCPS, supplied documentation of DCPS’s
Medicaid claims to CMS for audit, and CMS “approved all
DCPS Special Education direct service and transportation
Medicaid reimbursement claim payments.” Michael L. Davis
Disclosure Statement 3 (Apr. 2006) (“Davis Statement”).
Davis has failed to show a “genuine dispute,” FED. R. CIV.
P. 56(a), over whether DCPS reasonably could have relied on
the same arrangement when it submitted the FY 1998
Transportation Cost Report. Unlike for service documentation,
he does not challenge DCPS’s possession of adequate cost
documentation. Nor does he dispute that adequate service
documentation existed supporting DCPS’s FY 1998 interim
claims. Instead, Davis claims that his firm, Davis & Associates,
had “sufficient and appropriate documentation” in its possession
when it submitted the FY 1998 interim claims and prepared a
FY 1998 year-end cost report on behalf of DCPS and that the
firm “maintained” and “retained” such documentation. Pl.’s
Resp. Def.’s Statement Facts ¶¶ 16, 19; Davis Statement at 2–3.
11
Davis suggested during oral argument that it is unclear whether
the documents in his firm’s possession fully support the
expenses claimed in the FY 1998 Transportation Cost Report
because he does not know what services Maximus included in
its report. But the Maximus Transportation Cost Report stated
that Maximus based its calculations on the interim claims
submitted by Davis & Associates, and Davis claims his firm
retained adequate documentation supporting those claims.
Davis’s position that, unlike in FY 1996, Davis &
Associates was not under contract with DCPS when it submitted
the Transportation Cost Report, and therefore DCPS could not
reasonably expect his firm to produce the underlying
documentation for audit, is belied by the record, which shows
that Davis & Associates was the contractor responsible for
DCPS’s FY 1998 Medicaid claims. In his disclosure statement
Davis averred that Davis & Associates prepared DCPS’s interim
Medicaid claims and a year-end cost report for FY 1998, and he
alleged in his amended complaint that his firm prepared that
report “[p]ursuant to the terms of its contract,” Am. Compl.
¶ 13. Davis also averred in his disclosure statement that he
informed DCPS that “Maximus had not been the DCPS
Medicaid contractor for FY98,” Davis Statement at 2, and he
admitted in moving for summary judgment that Maximus was
not hired until May 1999, Pl.’s Statement Material Facts ¶ 11.
Davis has failed to show that Davis & Associates did not have
a continuing contractual duty to complete the work relating to
DCPS’s FY 1998 Medicaid claims.
There is no dispute that Davis & Associates’s duties “on
behalf of DCPS” included “maintaining original claim
documentation for audit purposes,” Def.’s Statement Material
Facts Not in Dispute ¶ 15; Pl.’s Resp. Def.’s Statement Facts
¶ 15; see Davis Statement at 1, and that the records in the firm’s
possession were the property of DCPS. Furthermore, Davis
12
conceded during oral argument that there was no dispute over
his willingness to produce the documentation for audit until
after DCPS made the alleged implied false certifications when
it submitted the FY 1998 Transportation Cost Report in early
2000. See Oral Arg. Recording 10:29–10:44. Davis also
acknowledged in his disclosure statement that he refused to
produce the necessary documentation because he thought Davis
& Associates had not been appropriately compensated, not
because there was no contract between his firm and DCPS
covering services for FY 1998. See Davis Statement at 3–4.
Consequently, DCPS reasonably relied on Davis & Associates
to maintain appropriate documentation for audit when it
submitted the FY 1998 Transportation Cost Report and did not
demonstrate “gross negligence” in discharging its legal
obligations. See Krizek, 111 F.3d at 942.
Davis’s suggestion, first raised during oral argument, that
DCPS was required as a condition of payment not only to
maintain the underlying service documentation for audit, but to
generate the FY 1998 Transportation Cost Report directly from
that documentation, comes too late. Generally, arguments raised
for the first time at oral argument are forfeited. See, e.g.,
Trumpeter Swan Soc’y v. EPA, 774 F.3d 1037, 1043–44 (D.C.
Cir. 2014); Williams v. Romarm, SA, 756 F.3d 777, 782–83
(D.C. Cir. 2014). Davis neither raised this argument in the
district court nor in his briefs on appeal, and he offers no
explanation, much less exceptional circumstances, to excuse his
failure to do so, see Adams v. Rice, 531 F.3d 936, 944–45 (D.C.
Cir. 2008); cf. Lesesne v. Doe, 712 F.3d 584, 588 (D.C. Cir.
2013); Meijer Inc. v. Biovail Corp., 533 F.3d 857, 867 (D.C. Cir.
2008). Such sandbagging is not sanctioned by the court. E.g.,
Williams, 756 F.3d at 783; cf. Se. Mich. Gas Co. v. FERC, 133
F.3d 34, 39 n.2 (D.C. Cir. 1998).
13
Accordingly, because DCPS reasonably understood its
contractual arrangement with Davis & Associates to fulfill its
obligation to maintain records “capable of being audited,” 42
C.F.R. § 413.24(c) (1999), we reverse the grant of summary
judgment for Davis and remand the case with instructions to
enter summary judgment for the District.