State of New Mexico ex rel. King v. Behavioral Home Care, Inc.

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: __________
Filing Date: June 9, 2014
Docket No. 31,682
STATE OF NEW MEXICO ex rel.
GARY K. KING, ATTORNEY GENERAL,
Plaintiff-Appellant,
v.
BEHAVIORAL HOME CARE, INC.,
a New Mexico corporation,
Defendant-Appellee.
APPEAL FROM THE DISTRICT COURT OF BERNALLILO COUNTY
C. Shannon Bacon, District Judge
Gary K. King, Attorney General
Santa Fe, NM
Amy Landau, Assistant Attorney General
Albuquerque, NM
for Appellant
Davis & Gilchrist, P.C.
Bryan J. Davis
Albuquerque, NM
for Appellee
Bannerman & Johnson, P.A.
Deborah E. Mann
Albuquerque, NM
for Amicus Curiae New Mexico Association
for Home and Hospice Care
OPINION
1
GARCIA, Judge.
{1} The New Mexico Attorney General’s Medicaid Fraud Control Unit brought action
on behalf of the State against Behavioral Home Care, Inc. (BHC) alleging violations of the
New Mexico Medicaid Fraud Act (the MFA), NMSA 1978, §§ 30-44-1 to -8 (1989, as
amended through 2004), and breach of contract. The issue before this Court involves
whether the district court correctly dismissed the State’s claims against BHC for failure to
state a claim upon which relief can be granted. See Rule 1-012(B)(6) NMRA.
{2} The State alleged that BHC’s billing for Personal Care Option (PCO) services
provided by certain caregivers for whom BHC had not fully complied with the Caregivers
Criminal History Screening Act (CCHSA), NMSA 1978, §§ 29-17-2 to -5 (1998, as
amended through 2005), constituted false, fraudulent, or excess payments under the MFA.
The State further alleged that the same failure to comply with CCHSA screening
requirements constituted a breach of contract by BHC. The State requested relief pursuant
to Section 30-44-8 in the form of a recovery for any overpayments, civil penalties for each
overpayment, civil penalties for each false representation, attorney fees, interest, and costs.
In the two orders now being appealed by the State, the district court dismissed all of the
State’s claims.
{3} While the MFA provides the vehicle for suit, federal Medicaid statutes and
regulations define the requirements for Medicaid claims. To participate in the Medicaid
program, federal law requires home healthcare providers to comply with all applicable
federal, state, and local laws and regulations. United States ex rel. Joslin v. Cmty. Home
Health of Md., Inc., 984 F. Supp. 374, 376 (D. Md. 1997); see 42 U.S.C. § 1395bbb(a)(5)
(2006); 42 C.F.R. § 484.12(a) (2012). It is BHC’s compliance with the CCHSA that forms
the primary basis for the dispute in this case. As we address in detail below, not all
compliance issues translate into liability or fraud under the MFA. We hold that failure to
comply with the CCHSA regulations does not support MFA liability in this case and affirm
the district court’s dismissal of the State’s claims.
BACKGROUND
{4} “Congress created the Medicaid program in 1965 to supplement the Social Security
Act.” Starko, Inc. v. Presbyterian Health Plan, Inc., 2012-NMCA-053, ¶ 4, 276 P.3d 252,
cert. granted, 2012-NMCERT-003, 293 P.3d 184. “The program provides medical assistance
to persons whose income and resources are insufficient to meet the costs of necessary care
and compels participating states to share the costs of administering the program with the
federal government.” Id. (internal quotation marks and citation omitted). “New Mexico is
a participant state.” Id. The New Mexico Human Services Department (HSD) is charged
with administering Medicaid and maintaining a “statewide, managed care system to provide
cost-efficient, preventive, primary[,] and acute care for [M]edicaid recipients.” NMSA 1978,
§ 27-2-12.6(A) (1994); see Starko, 2012-NMCA-053, ¶ 28.
2
{5} In order to function as a Medicaid service provider, BHC executed a contract known
as an HSD Medical Assistance Division (MAD) 335 Provider Participation Agreement
(PPA). The PPA is a payment related form signed by BHC and HSD that specifically states,
“BY SIGNATURE, [BHC] AGREES TO ABIDE BY AND BE HELD TO ALL FEDERAL,
STATE, AND LOCAL LAWS, RULES, AND REGULATIONS, INCLUDING, BUT NOT
LIMITED TO THOSE PERTAINING TO MEDICAID AND THOSE STATED HEREIN.”
BHC also contracted with HSD as part of the Aging and Long Term Services Department
Disabled and Elderly Waiver Program to provide in-home PCO caregiver services for elderly
and disabled Medicaid recipients. BHC agreed in its Medicaid contracts to provide and
submit reimbursement claims for Medicaid funded services to the Medicaid eligible
population in accordance with all applicable state and federal Medicaid laws and the
regulations and standards of the New Mexico Medicaid Program, including, without
limitation, the CCHSA. See §§ 29-17-2 to -5; 7.1.9.1 to .11 NMAC (01/01/2006) (screening
requirements); 8.351.2.9 to .12 NMAC (07/01/2003, amended 01/01/2014) (sanctions and
remedies).
{6} The New Mexico Legislature enacted the CCHSA “to ensure to the highest degree
possible the prevention of abuse, neglect[,] or financial exploitation of care recipients,”
including Medicaid recipients, by caregivers who provided “direct care or routine and
unsupervised physical or financial access to any care recipient served by that provider[.]”
Sections 29-17-3, -4(B). It provides that a care provider may not employ a caregiver unless
the caregiver has first submitted to a request for a nationwide criminal history screening.
Section 29-17-5(C). The screening requirement applies to caregivers who would provide
services to any patient, not just Medicaid patients, irrespective of whether the patient paid
out of pocket or with private insurance. Section 29-17-4(B), (D). Statutory compliance only
requires submission of the caregiver’s criminal history application, not receipt of screening
results, prior to billing for the PCO caregiver services. Section 29-17-5(E). Should a
caregiver have a disqualifying criminal conviction in his or her history, the CCHSA provides
for a reconsideration procedure. Section 29-17-5(F). During the pendency of the
reconsideration period, the caregiver may continue to provide caregiver services on behalf
of the healthcare provider. Id.
{7} The New Mexico Legislature enacted the MFA and provided both a definition for
Medicaid fraud in Section 30-44-7(A) and also made the falsification of documents a fourth
degree criminal offense under Section 30-44-4. Pertinent to this case, Medicaid fraud
“consists of: . . . presenting or causing to be presented for allowance or payment with intent
that a claim be relied upon for the expenditure of public money any false, fraudulent,
excessive, multiple[,] or incomplete claim for furnishing treatment, services[,] or goods[.]”
Section 30-44-7(A)(3). Falsification of documents “consists of:
. . . knowingly making or causing to be made a misrepresentation of a
material fact required to be furnished under the program or knowingly failing
or causing the failure to include a material fact required to be furnished under
the [Medicaid] program in any record required to be retained in connection
3
with the program pursuant to the [MFA] or regulations issued by the
department for the administration of the program, or both; or . . . knowingly
submitting or causing to be submitted false or incomplete information for the
purpose of receiving benefits or qualifying as a provider.”
Section 30-44–4(A).
{8} Between approximately April 2004 and July 2009, BHC electronically submitted
over 1,800 PCO billing claims for services provided by certain caregivers whose criminal
history screening applications had not been submitted as required by the CCHSA (the
Unscreened Caregivers). BHC submitted its Medicaid reimbursement claims pursuant to an
Electronic Claim Submission Agreement (the Electronic Agreement). The Electronic
Agreement required BHC to “acknowledge[] that claims will be paid from [f]ederal and
[s]tate funds” and that “anyone who misrepresents or falsifies” any information relating to
a claim may be subject to a fine and/or imprisonment under federal and state law. By
submitting a claim electronically, BHC was also required to agree that the claim contained
“true, accurate, and complete information” and that “[t]he cashing of each check attached
to each Remittance Advice [was] a representation and certification that [BHC] represented
the claim for services . . . and that the services were rendered . . . .” BHC was not required
to expressly certify compliance with all Medicaid contractual provisions or all applicable
state and federal regulations in order to submit the Electronic Agreement.
{9} The State asserts two MFA causes of action against BHC as a result of its billing
claims for the services provided by the Unscreened Caregivers. First, the State maintains that
BHC’s PCO claims for the Unscreened Caregivers’ services constituted falsification of
documents as defined in MFA Section 30-44-4(A) and/or Medicaid fraud under Section 30-
44-7(A). The State specifically alleges that each claim for payment prior to the completion
of the Unscreened Caregivers’ criminal history screening was a false or fraudulent claim
under these two statutory provisions. The State’s second cause of action maintains that
BHC’s PCO payment claims for the Unscreened Caregivers’ services were in breach of
BHC’s MAD 335 PPA contracts with HSD. The State argues that it was entitled to recover
the 1,800 PCO claims submitted for the Unscreened Caregivers’ services as overpayments
and civil penalties under Section 30-44-8(A) of the MFA.
{10} The district court dismissed both of the State’s claims for failure to state a claim upon
which relief can be granted. See Rule 1-012(B)(6). Its first order granted BHC’s Rule
1-012(B)(6) motion to dismiss the State’s first cause of action (statutory recovery of
Medicaid overpayments under the MFA). The court held that the State may not recover the
claimed MFA overpayments in addition to a claim for the recovery of civil penalties under
Section 30-44-8(A)(2). The district court determined that Section 30-44-7(A)(3) was the
only applicable liability provision that required BHC to comply with the CCHSA and its
regulations prior to billing Medicaid for in-home caregiver services. It explained, however,
that BHC’s non-compliance with the CCHSA and its regulations was not actionable under
the MFA because submission of criminal history screening applications for Medicaid
4
caregivers was a “condition[] of participation in Medicaid” rather than a “condition[] of
[Medicaid] payment.” The district court’s second order granted BHC’s Rule 1-012(B)(6)
motion to dismiss the State’s amended cause of action (breach of contract for Medicaid
overpayments). Because the Medicaid regulations were not applicable to the State’s claims,
the district court reviewed BHC’s breach of contract claim under the common law. The court
determined that the State failed to state a claim for relief under Rule 1-012(B)(6) because
of its failure to allege facts that would support any recoverable damages for breach of
contract.
STANDARD OF REVIEW
{11} A Rule 1-012(B)(6) motion tests the legal sufficiency of a party’s allegations, so we
review de novo a district court’s granting of such a motion. Padwa v. Hadley, 1999-NMCA-
067, ¶ 8, 127 N.M. 416, 981 P.2d 1234; see Padilla v. Wall Colmonoy Corp., 2006-NMCA-
137, ¶ 7, 140 N.M. 630, 145 P.3d 110 (recognizing that “a Rule1-012 B)(6) motion tests the
legal sufficiency of the complaint, not the facts that support it” (internal quotation marks and
citation omitted)). If a plaintiff is not entitled to recover under any theory of the facts alleged
in the complaint, it is appropriate to grant a motion for dismissal under Rule 1-012(B)(6).
Padilla, 2006-NMCA-137, ¶ 7. On appeal we accept as true all well-pleaded factual
allegations and resolve all doubts in favor of the sufficiency of the complaint. Padwa, 1999-
NMCA-067, ¶ 8.
{12} Our analysis requires us to review the district court’s interpretation of the MFA.
Questions of statutory interpretation are reviewed de novo on appeal. N.M. Indus. Energy
Consumers v. N.M. Pub. Regulation Comm’n, 2007-NMSC-053, ¶ 19, 142 N.M. 533, 168
P.3d 105. In discerning the Legislature’s intent, “we are aided by classic canons of statutory
construction” and “look first to the plain language of the statute, giving the words their
ordinary meaning, unless the Legislature indicates a different one was intended.” Id. ¶ 20.
“When statutory language is clear and unambiguous, we must give effect to that language
and refrain from further statutory interpretation.” Anadarko Petroleum Corp. v. Baca, 1994-
NMSC-019, ¶ 9, 117 N.M. 167, 870 P.2d 129 (internal quotation marks and citation
omitted). Only if an ambiguity exists will we proceed further in our statutory construction
analysis. See State v. Maestas, 2007-NMSC-001, ¶ 14, 140 N.M. 836, 149 P.3d 933 (“Unless
ambiguity exists, [the appellate courts] must adhere to the plain meaning of the [statutory]
language.”).
DISCUSSION
I. MFA Overpayment and Penalty Claims
{13} We first address the district court’s rulings that the State’s statutory claims for civil
penalties and overpayments were not legally sufficient under the MFA. The State argues that
BHC violated the MFA because of an implied certification that should be recognized under
New Mexico law and an alleged violation of the terms of BHC’s Medicaid contracts when
5
it submitted the Electronic Agreement for the payment of the services provided by the
Unscreened Caregivers. The State asserts that BHC knew the Unscreened Caregivers’
services did not comply with New Mexico CCHSA requirements and that it was in breach
of the MAD 335 PPA contracts. The legal issue raised by this allegation is whether BHC’s
failure as a Medicaid provider to comply with certain CCHSA screening application
requirements constitutes billing and payment fraud under the MFA and exposes BHC to
liability under the MFA. This legal issue arises as a matter of first impression in New
Mexico.
1. Applicable Liability Provisions Under the MFA
{14} As a preliminary matter, we first address the applicability of the State’s attempt to
impose MFA liability under Section 30-44-4(A) for falsification of documents and under
Section 30-44-7(A) for Medicaid fraud. In the proceedings below, the district court
determined that Section 30-44-7(A)(3) was the only liability provision in the MFA that was
“potentially applicable” to the State’s argument. Although the State summarily argues on
appeal that BHC’s conduct also violated Section 30-44-4(A) of the MFA, it failed to then
develop a substantive or legally articulate challenge to the district court’s determination that
Section 30-44-4 was inapplicable to its claims. We decline to address this inarticulate
argument addressing Section 30-44-4(A). See Elane Photography, LLC v. Willock, 2013-
NMSC-040, ¶ 70, 309 P.3d 53 (“It is of no benefit either to the parties or to future litigants
for [the appellate courts] to promulgate case law based on our own speculation rather than
the parties’ carefully considered arguments.”). We will therefore consider the State’s
argument only as it pertains to Medicaid fraud under Section 30-44-7(A)(3) of the MFA.
2. Liability for Medicaid Fraud Based on a Regulatory Violation Alone
{15} The State alleges that BHC committed Medicaid fraud because it received payments
for services that it knew were not provided in compliance with state licensing laws and
regulations. To avoid dismissal of this allegation, the State must establish that BHC (1)
presented false or fraudulent claims for payment to HSD, and (2) that BHC intended for
HSD to rely on the false or fraudulent claims for purposes of reimbursement. See § 30-44-
7(A)(3) (defining Medicaid fraud as “presenting or causing to be presented for allowance
or payment with intent that a claim be relied upon for the expenditure of public money any
false, fraudulent, excessive, multiple[,] or incomplete claim for furnishing treatment,
services[,] or goods”). It is not necessary to address the intent element of the statute on
appeal. The question we address is whether regulatory compliance with the CCHSA was a
material condition of HSD payment for the Medicaid services, and therefore, whether
alleging that BHC submitted false certifications of regulatory compliance for the purpose of
receiving HSD payments states a claim for relief under Section 30-44-7(A)(3).
{16} Although this issue is novel, we are not without guidance. With respect to the
statutory language at issue in this litigation, pursuing Medicaid fraud under the MFA is
substantively similar to claims pursued under the federal False Claims Act (FCA). See 31
6
U.S.C. § 3729(a)(1)(A) (2006) (creating civil liability for any person who “knowingly
presents, or causes to be presented” to the government “a false or fraudulent claim for
payment or approval”); see also Pamela Bucy et al., States, Statutes, & Fraud: A Study of
Emerging State Efforts to Combat White Collar Crime, 31 Cardozo L. Rev. 1523, 1535
(2010) (noting that many states’ false claims statutes were passed in recent years, spurred
by Congress’ “financial incentive for states to pass FCAs that mirror the federal FCA”).
Given this analogous language, both parties have relied on federal case law interpreting the
meaning of a false or fraudulent claim under the federal FCA.
{17} To address whether the State has identified Medicaid fraud as defined by Section 30-
44-7(A)(3), we shall also reference case law interpreting the meaning of a false or fraudulent
claim under the FCA. New Mexico does not necessarily follow federal precedent in every
instance. See Ocana v. Am. Furniture Co., 2004-NMSC-018, ¶ 23, 135 N.M. 539, 91 P.3d
58 (“Our reliance on the methodology developed in the federal courts, however, should not
be interpreted as an indication that we have adopted federal law as our own.” (internal
quotation marks and citation omitted)); Charles v. Regents of N.M. State Univ., 2011-
NMCA-057, ¶ 15, 150 N.M. 17, 256 P.3d 29 (noting that our appellate courts look to federal
decisions for guidance but emphasizing that we have not adopted, wholesale, federal
decisions that may be helpful in deciding a particular case). The federal cases referenced by
the parties in this case have provided helpful guidance.
{18} “The FCA recognizes two types of actionable claims—factually false claims and
legally false claims.” United States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d
1211, 1217 (10th Cir. 2008). A factually false claims case is relatively straightforward,
arising where the government payee has submitted reimbursement claims for unnecessary
services or those that were never provided. Id. By contrast, a claim based on an alleged legal
falsehood arises where the government payee “has certified compliance with a statute or
regulation as a condition to government payment, yet knowingly failed to comply with such
statute or regulation.” Id. (emphasis, alteration, internal quotation marks, and citation
omitted). In this case, the State does not assert that BHC billed for services that were not
rendered or necessary—a factually false claim. Instead, the State raises a claim based on a
legal falsehood. The State claims that BHC impliedly submitted a legally false claim because
it attempted to collect payment from the government for services provided by the
Unscreened Caregivers who it knew were not in compliance with the CCHSA screening
application requirements. See United States ex rel. Wilkins v. United Health Grp., Inc., 659
F.3d 295, 305 (3d Cir. 2011) (explaining that an implied false certification claim under the
FCA “is premised on the notion that the act of submitting a claim for reimbursement itself
implies compliance with governing federal rules that are a precondition to payment”
(internal quotation marks and citation omitted)).
{19} The State essentially argues that because BHC once certified that it complied with
all state regulations to originally qualify as a Medicaid home healthcare provider and facility,
BHC is continually liable under the MFA for each failure to later adhere to all the original
certification requirements and regulations. BHC concedes that it “must comply with a host
7
of regulations contained in 8.315 [NMAC], including the performance of criminal history
screening on prospective caregivers” in order to participate as a provider of PCO services.
However, BHC contends that violations of state qualification and licensing regulations are
not actionable under the MFA, even where a healthcare provider certifies compliance with
all state laws, because Medicaid reimbursement is not conditioned on compliance with all
such regulations. We agree.
{20} The success of a legally false certification claim under the FCA depends on whether
it is based on “conditions of participation” in the Medicare program (which do not support
an FCA claim) or on “conditions of payment” from Medicare funds (which do support FCA
claims). Wilkins, 659 F.3d at 309; Conner, 543 F.3d at 1220; United States ex rel. Mikes v.
Straus, 274 F.3d 687, 701-02 (2d Cir. 2001). The claim will fail unless compliance with the
allegedly violated state law or regulation is a condition of the government’s payment of the
claim. See, e.g., Mikes, 274 F.3d at 697; United States ex rel. Thompson v. Columbia/HCA
Healthcare Corp., 125 F.3d 899, 902 (5th Cir. 1997); United States ex rel. Hopper v. Anton,
91 F.3d 1261, 1266-67 (9th Cir. 1996); United States ex rel. Wall v. Vista Hospice Care,
Inc., 778 F. Supp. 2d 709, 720 (N.D. Tex. 2011); United States ex rel. Conner v. Salina Reg’l
Health Ctr., Inc., 459 F. Supp. 2d 1081, 1086 (D. Kan. March 4, 2006). “A violation
concerns a condition of payment if such violation might cause the government to actually
refuse payment.” United States ex rel. Spay v. CVS Caremark Corp., 913 F. Supp. 2d 125,
147 (E.D. Pa. 2012) (alteration, internal quotation marks, and citation omitted); see
Chesbrough v. VPA, P.C., 655 F.3d 461, 468 (6th Cir. 2011) (“[I]t is not the violation of a
regulation itself that creates a cause of action under the FCA. Rather, noncompliance
constitutes actionable fraud only when compliance is a prerequisite to obtaining payment.”);
see also United States ex rel. Landers v. Baptist Mem’l Health Care Corp., 525 F. Supp. 2d
972, 978 (W.D. Tenn. 2007) (“Conditions of [p]articipation are quality of care standards
directed toward[] an entity’s continued ability to participate in the Medicare program rather
than a prerequisite to a particular payment.”).
{21} Though we have yet to address the viability of an implied false certification claim
under the MFA, we consider the federal precedent instructive. Like the FCA, Section 30-44-
7(A)(3) imposes a materiality element which requires that the false or fraudulent certification
be integral to the government’s payment decision. On appeal, we recognize that the State
does not dispute this materiality requirement. Rather, it argues that the federal distinction
between conditions of payment and conditions of participation is irrelevant in this case
because BHC’s certification of CCHSA compliance was both a material prerequisite for
participation in the Medicaid program and a condition of Medicaid reimbursement and
payment. See Conner, 543 F.3d at 1222 (“[S]ome regulations or statutes may be so integral
to the government’s payment decision as to make any divide between conditions of
participation and conditions of payment a distinction without a difference.” (internal
quotation marks and citation omitted)).
{22} The State cites New York v. Amgen Inc., 652 F.3d 103, 115 (1st Cir. 2011), to support
its assertion that CCHSA compliance should be considered a condition of Medicare payment
8
because such compliance is a mandatory prerequisite to ever receiving payment. Amgen is
readily distinguishable from the instant case. The Amgen case involved false and fraudulent
claims to state Medicaid agencies that arose from alleged kickbacks to healthcare providers.
Id. at 105. Kickbacks are specifically recognized as a form of fraud in the provider
participation agreements signed by healthcare providers. Id. at 114 (citing NMSA 1978, §
27-11-3(B)(6), (C)(3)). In Amgen it was unnecessary for the federal court to distinguish
between conditions of payment and conditions of participation because the contract
provisions at issue explicitly identified the fraudulent kickback conduct as a condition of
Medicaid payment. 652 F.3d at 115 (“[T]he New Mexico agreement requires providers to
acknowledge that non-compliance with anti-kickback laws vitiates a provider’s ability to get
its claims paid.”).
{23} More significantly, the Amgen holding must also be reconciled with the
well-established principle that the FCA is not a vehicle for regulatory compliance. See, e.g.,
Hopper, 91 F.3d at1267; see also United States ex rel. Lamers v. City of Green Bay, 168
F.3d 1013, 1020 (7th Cir. 1999) (“[T]he FCA is not an appropriate vehicle for policing
technical compliance with administrative regulations.”). Thus, the overwhelming majority
of courts have held that a violation of the underlying statute or regulation by itself does not
create a false certification cause of action under the FCA. See United States v. McNinch, 356
U.S. 595, 599 (1958) (addressing an application for credit insurance and recognizing that the
FCA “was not designed to reach every kind of fraud practiced upon the [g]overnment”);
United States ex rel. Graves v. ITT Educ. Servs., Inc., 284 F. Supp. 2d 487, 501 (S.D. Tex.
2003) (“A general statement of adherence to all regulations or statutes governing
participation in a program through which federal funds are received is insufficient as a basis
of [FCA] liability.”); see also Wall, 778 F. Supp. 2d. at 720 (“A sustainable FCA allegation
premised on a false certification of compliance with statutory or regulatory requirements
must be based upon a ‘condition of payment,’ not a ‘condition of participation.’ ”). This
reluctance to expand the intended scope of the FCA is particularly evident where a
government payee has failed to comply with state regulations like the CCHSA screening
requirement at issue here. See United States ex rel. Swan v. Covenant Care, Inc., 279 F.
Supp. 2d 1212, 1221 (E.D. Cal. 2002) (“The prevailing law is that regulatory violations do
not give rise to a viable FCA action unless government payment is expressly conditioned on
a false certification of regulatory compliance.” (internal quotation marks and citation
omitted)). The federal courts have repeatedly held that regulatory deficiencies that are not
material to government payment do not support a false claim action. Id. (explaining that only
two district courts “have held that submitting Medicare or Medicaid claims for services that
fail to meet the relevant statutory standard of care can constitute actionable fraud under the
FCA” and that “these questionable holdings have not been adopted by the Ninth Circuit or
any other appellate court”); see United States ex rel. Siewick v. Jamieson Sci. & Eng’g, Inc.,
214 F.3d 1372, 1376 (D.C. Cir. 2000) (noting that “all courts of appeals to have addressed
the matter, [hold] that a false certification of compliance with a statute or regulation cannot
serve as the basis for a qui tam action under the FCA unless payment is conditioned on that
certification” (emphasis omitted)); see, e.g., United States ex rel. Willard v. Humana Health
Plan of Texas Inc., 336 F.3d 375, 379, 382 (5th Cir. 2003); Lamers, 168 F.3d at 1016-17,
9
1020.
{24} Public policy recognizes that the failure to strictly comply with a regulatory scheme
as complicated as the MFA or the FCA does not always provide grounds for a fraudulent
payment suit, especially without taking into account the nature of the noncompliance or the
material aspects of the regulation. See Conner, 543 F.3d at 1221 (“[A]lthough the
government considers substantial compliance a condition of ongoing Medicare participation,
it does not require perfect compliance as an absolute condition to receiving Medicare
payments for services rendered.”); Hopper, 91 F.3d at 1267. Adoption of the State’s theory
of implied compliance could have a broad impact on all providers of Medicaid services. For
this reason, courts addressing compliance issues under the FCA have not supported such an
expansive interpretation of liability. As a result, we will not automatically conclude that
every request for payment accompanied by a statement of compliance with all applicable
regulations is material to the government’s subsequent payment to the provider and thereby
actionable as Medicaid fraud under the MFA.
{25} An alleged violation of a state Medicaid licensing regulation does not automatically
render a Medicaid provider ineligible to receive Medicaid payments. The MFA does not
support such expansive liability in the absence of an underlying statute or regulation that
conditions payment on compliance with the certification. Absent this requirement, the MFA
could turn “into a blunt instrument to enforce compliance with all . . . regulations [rather
than] only those regulations that are a precondition to payment.” Wilkins, 659 F.3d at 307(omission in original) (internal quotation marks and citation omitted). The mere fact that
BHC violated the statutory hiring requirements outlined by the CCHSA does not
automatically create a violation of a condition of Medicaid payment that supports a Medicaid
fraud cause of action under the MFA. Instead, the appropriate framework for resolving
Medicaid fraud false certification issues is to examine whether the defendant’s compliance
with the statutes and regulations in question was a condition to receiving payment from the
government. Hopper, 91 F.3d at 1266-68; see also Thompson, 125 F.3d at 902-03 (holding
that the FCA is implicated where the government conditions payment upon the certification
of compliance with regulations); United States ex rel. Lamers v. City of Green Bay, 998 F.
Supp. 971, 985 (E.D. Wis. 1998) (The “key inquiry is whether the claim in question has the
practical purpose and effect, and poses the attendant risk, of inducing wrongful payment.”
(internal quotation marks and citation omitted)). Accordingly, the success of the State’s
appeal depends on whether compliance with the CCHSA was a condition of HSD payment
for services rendered by BHC.
3. Failure to Comply with CCHSA Screening Requirements
{26} In the instant case, the State asserts that HSD payment was conditioned on BHC
billing for services conducted by “qualified” caregivers—those who had been hired in
compliance with CCHSA screening requirements. It asserts that HSD would not have paid
BHC for services provided by the Unscreened Caregivers had it known that they were not
10
“qualified” under the terms of the CCHSA. But, a disqualifying criminal history under the
CCHSA does not automatically affect the caregiver’s qualifications to provide caregiver
services. Section 29-17-5(F) (allowing for continued employment of a disqualified caregiver
and reconsideration of a disqualifying conviction during the subsequent reconsideration
proceedings). The State has neither alleged any facts to support an argument that the
Unscreened Caregivers provided a level of care that violated reasonable healthcare standards
or requirements, nor that care from the Unscreened Caregivers resulted in the “abuse,
neglect[,] or financial exploitation of care recipients.” Section 29-17-3. While the State
asserts that BHC had a policy of employing “unqualified” caregivers, the State could not
allege that HSD would have been entitled to withhold payment solely because the
Unscreened Caregivers had disqualifying criminal convictions in their histories.
{27} Even when a care provider has expressly certified compliance with all state
regulations, the New Mexico Medicaid regulations make clear that not every regulatory
deficiency constitutes actionable false or fraudulent conduct under the MFA. See 8.351.2.11
NMAC. For example, the statutes and regulations allow, but do not require, HSD to sanction
a provider for non-fraudulent misconduct, including a violation of the CCHSA. Section 29-
17-5(L); 8.351.2.11 NMAC. If HSD determines that termination from the Medicaid program
is the appropriate sanction for a provider’s non-compliance with a condition of participation,
it must allow the provider notice and an opportunity to correct the identified misconduct
before termination. See 8.351.2.9 NMAC; 8.31.2.10(B)(1), (3) NMAC; see also 42 C.F.R.
§ 488.28 (2013) (granting a care provider a reasonable time to achieve compliance with
conditions of participation); Mikes, 274 F.3d at 702 (“The fact that [the statute] permits
sanctions for a failure to maintain an appropriate standard of care only where a dereliction
occurred in ‘a substantial number of cases’ or a violation was especially gross and flagrant
makes it evident that the section is directed at the provider’s continued eligibility in the
Medicare program, rather than any individual incident of noncompliance.” (alterations,
internal quotation marks, citation omitted)); Hopper, 91 F.3d at 1267 (holding that the FCA
may not be used as a substitute for administrative remedies where regulatory compliance is
“not a sine qua non [for the] receipt of state funding”). The regulations require HSD to
impose the ultimate sanction of termination when a “provider has a previous suspension
from [Medicaid] with failure to correct identified deficiencies[,]” or immediately when a
provider is convicted of Medicare fraud. 8.351.2.11(E)(1)(a), (b) NMAC. The fact that HSD
may choose to institute a plan of correction or other alternative sanctions before addressing
the provider’s participation in the program makes it evident that the MFA does not require
perfect compliance at all times with regulatory standards such as those instituted by the
CCHSA. See Conner, 543 F.3d at 1220-21 (recognizing that provider noncompliance with
the FCA does not immediately suspend Medicare payments unless such noncompliance is
a recognized condition of payment); see also United States ex rel. N.M. v. Deming Hosp.
Corp., ___ F. Supp. 2d. ___, 2013 WL 7046410, at *7, 9 (D.N.M. Nov. 2013) (“[A]lthough
the government considers substantial compliance [with applicable regulations] a condition
of ongoing Medicare participation, it does not require perfect compliance as an absolute
condition of receiving Medicare payments for services rendered.” (internal quotation marks
and citation omitted)).
11
{28} The State’s position that compliance with the CCHSA requirements is an implied
condition of payment is only possible by weaving together isolated phrases from several
sections in a complex system of Medicaid regulation. This creative approach to implied
compliance is not supported by the structure of the statutory or regulatory scheme. To the
contrary, CCHSA permits providers to employ a caregiver with a disqualifying criminal
history during the pendency of an administrative reconsideration and, even after
reconsideration, if “the conviction does not directly bear upon the applicant’s, caregiver’s[,]
or hospital caregiver’s fitness for the employment.” Section 29-17-5(F). Strict compliance
cannot be reconciled with these exceptions allowed under CCHSA.
{29} The State has correctly identified certain caregiver qualification deficiencies that are
recognized as preconditions for Medicaid payment. These deficiencies include the lack of
necessary caregiver certifications and inadequate training. However, nothing in the State’s
complaint alleges that there were any deficiencies with the certifications or training of the
Unscreened Caregivers. The State merely argues that—by virtue of BHC’s failure to submit
criminal history screenings prior to billing—the Unscreened Caregivers were not fully
qualified to perform Medicaid services.
{30} Unlike failures to meet minimum certification and training requirements to
adequately perform caregiving services, the State has presented no authority that the criminal
background screenings required by CCHSA constitute an equivalent performance-based
deficiency that must be recognized as a condition of payment. See Mikes, 274 F.3d at 697(“Since the [FCA] is restitutionary and aimed at retrieving ill-begotten funds, it would be
anomalous to find liability when the alleged noncompliance would not have influenced the
government’s decision to pay.”); see also State v. Guerra, 2012-NMSC-014, ¶ 21, 278 P.3d
1031 (emphasizing that where a party “cites no authority from any jurisdiction supporting
[its] argument, [then the appellate courts] may conclude that no such authority exists”).
BHC’s compliance with CCHSA thus raises only one serious question—whether BHC fell
below the requirements for Medicaid participation as a qualified provider. Because BHC was
recognized as a qualified provider at the time it was paid for the services provided by the
Unscreened Caregivers, its qualified provider status is not at issue in these proceedings. The
State was not pursuing a termination of BHC’s participation as a qualified provider.
Accordingly, there is no evidence that Medicaid provider payments were conditioned upon
compliance with CCHSA regulations. We conclude that BHC’s practice of failing to comply
with CCHSA was not in violation of the MFA as a condition for payment of Medicaid
services. Accordingly, we affirm the district court’s ruling on this issue.
4. Section 30-44-8(A) Overpayments
{31} We now address the State’s contention that the district court erred when it held that
the State could not seek the remedy of reimbursement of Medicaid overpayments under
Section 30-44-8(A). The State asserts that “[t]he plain language of Section 30-44-8(A)
requires consideration regarding whether BHC received program payments in violation of
the MFA.” We have already concluded that BHC’s failure to comply with CCHSA
12
regulations was not actionable under the MFA. As such, Section 30-44-8(A) is equally
inapplicable to the State’s claims and does not provide a separate statutory basis for recovery
of alleged overpayments. See § 30-44-8(A) (creating liability for payments obtained “by
reason of a violation of the [MFA]”). For this reason, we need not address at this time
whether the MFA provides for civil recovery of Medicaid overpayments in addition to other
penalties provided by law.
II. Breach of Contract Claims
{32} The State also appeals the district court’s Rule 1-012(B)(6) dismissal of its breach
of contract claims against BHC. The State alleged that BHC breached its MAD 335 PPA by
filing Medicaid claims and retaining the Medicaid payments for services rendered to patients
by the Unscreened Caregivers. While it is true that BHC’s failure to submit the required
criminal screening requests for the Unscreened Caregivers constituted a breach of its MAD
335 PPA contract, the real issue on appeal is whether the State sought any remedy for this
breach that is allowed by the law. The State challenges the district court’s application of UJI
13-843 NMRA to its breach of contract claim.
{33} We have already concluded that the district court correctly found that the State failed
to allege facts that would support any recoverable damages under federal and state Medicaid
regulatory schemes. Thus, the only remedy available for the State’s breach of contract claim
is provided under the common law. See UJI 13-822 NMRA. But the purpose of allowing
damages for a common law breach of contract is to restore to the injured party what was lost
by the breach and what he or she reasonably could have expected to gain had there been no
breach. UJI 13-843. Accordingly, BHC sought dismissal by the district court, arguing that
“the State has suffered no damages as a result of BHC’s billing . . . for services rendered”
by the Unscreened Caregivers. BHC’s motion for dismissal questioned the State’s ability to
recover in damages “money that it paid for services it actually received.” In response, the
State argued that it did not waive any rights to recover damages for breach of contract under
the MFA. However, it did not address BHC’s argument that the State could not “support any
actual damages in contract based upon BHC’s conduct of billing for [the U]nscreened
[C]aregivers’ services.”
{34} The State in this case pursued only a reimbursement remedy under the MFA that is
inapplicable under the facts of the case. Even though BHC breached its MAD 335 PPA
contract, its allegedly false certifications were, under the MFA circumstances of this case,
not legally material to HSD’s ongoing decision to pay BHC for services provided by the
Unscreened Caregivers. If the State wished to contest the accuracy of BHC’s statement in
its motion to dismiss, that the State suffered no recoverable damages as a result of BHC’s
breach of contract, then the State was required to so by identifying a basis that entitled it to
relief. See Hovet v. Lujan, 2003-NMCA-061, ¶ 8, 133 N.M. 611, 66 P.3d 980. Although the
record indicates that the State filed a brief in opposition to BHC’s motion to dismiss, it did
not contest BHC’s statement that the State could not recover damages for services that it
actually received or otherwise establish that the pleadings told “a story from which the
13
essential elements [that are a] prerequisite to the granting of the relief sought can be found
or reasonably inferred.” Derringer v. State, 2003-NMCA-073, ¶ 5, 133 N.M. 721, 68 P.3d
961 (omissions, internal quotation marks, citation omitted). Other jurisdictions recognize
that in the absence of pleading allegations sufficient to establish recoverable damages or
relief that might be granted, the plaintiff may not defeat a motion to dismiss. See Aimis Art
Corp. v. N. Trust Secs., Inc., 641 F. Supp. 2d 314, 319 (S.D.N.Y. 2009); see also Dloogatch
v. Brincat, 920 N.E.2d 1161, 1166 (Ill. App. Ct. 2009); Greenwald v. Burns & Levinson,
LLP, 1 N.E.3d 294 (Mass. App. Ct. 2014) (non-precedential). Because the sole remedy
sought by the State for BHC’s breach of contract was based on inapplicable reimbursement
provisions of the MFA, the district court did not err when it ruled in favor of BHC on the
State’s breach of contract claim that alleged no other damages that were recoverable.
{35} The MFA is essential to policing the integrity of the State’s dealings with those to
whom it pays money. At the same time, the federal penalties afforded by the FCA are not
interchangeable with remedies for ordinary breaches of contract claims. See United States
v. Southland Mgmt. Corp., 326 F.3d 669, 684 (5th Cir. 2003) (addressing factual issues for
summary judgment but noting and distinguishing the nature of FCA claims and remedies
from ordinary breach of contract claims). While we do not condone a care provider’s alleged
failure to adhere to CCHSA requirements, the State has failed to allege common law contract
remedies or damages where it incurred no identified harm to PCO patients and enjoyed the
benefit of the BHC’s services that were provided. Liability cannot be imposed absent an
alleged injury and a remedy. Neither the district court nor this Court have been alerted to any
other non-MFA remedy sought by the State under its breach of contract claim. It was
therefore not necessary for the district court to determine whether BHC could be liable to
the State for a different remedy that the State is not pursuing under its breach of contract
theory in this case. As a result, we affirm the district court’s ruling to dismiss the State’s
breach of contract claim under Rule 1-012(B)(6).
CONCLUSION
{36} For the foregoing reasons, we affirm the district court’s Rule 1-012(B)(6) dismissals
of the State’s complaint against BHC.
{37} IT IS SO ORDERED.
____________________________________
TIMOTHY L. GARCIA, Judge
WE CONCUR:
____________________________________
JONATHAN B. SUTIN, Judge
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____________________________________
MICHAEL E. VIGIL, Judge
15