Last week, the U.S. Court of Appeals for the Eleventh Circuit reinstated two relators’ $69 million claims against Medco Health Solutions, Inc. (“Medco”) and several of its subsidiaries and officers, holding that the claims were alleged with sufficient particularity to satisfy Federal Rule of Civil Procedure 9(b). Among other things, this decision confirms the significant implications of the recent expansion of FCA liability to require that any “overpayments” be returned to the government within 60 days of the date they are “identified.” 42 U.S.C. § 1320a-7k(d).
In United States ex rel. Matheny v. Medco Health Solutions, Inc., No. 10-15406 (11th Cir. Feb. 22, 2012), the relators were former employees of Medco subsidiaries who alleged that Defendants had knowingly concealed overpayments from Medicare, Medicaid, and other federal healthcare programs. The root of the allegations was a 2004 Corporate Integrity Agreement (“CIA”) with HHS’s Office of the Inspector General (“OIG”), pursuant to which Defendants were required to remit any payments from the government that “lacked sufficient documentation or were received in duplicate or in error.” Slip Op. 3-5. The CIA dubbed these “Overpayments” and, critically, required that they be returned within 30 days of their identification. Id. at 4.
Rather than return such funds as was required, the complaint alleged, Defendants engaged in various schemes to conceal and retain them. Id. at 5. Relators claimed, for example, that Defendants transferred the Overpayments to unrelated or fictitious patient accounts or eliminated them altogether through a “datafix” computer program. Id. Count I was premised on the CIA’s certificate of compliance requirement; according to the relators, when Defendants swore to the government that they were in compliance with the agreement, such certification was knowingly false and intended to avoid remitting the Overpayments. Id. at 5-6. Count II was based on a separate obligation under the CIA requiring Defendants to submit to the government so-called Discovery Samples, which were supposed to be random samples of patient accounts that could be checked for compliance with the CIA. If five percent or more of the accounts were in violation, then a full audit was required; otherwise, that was the end of the matter. Id. at 6. The relators alleged that Defendants rigged the deck by removing any accounts containing evidence of Overpayments from the samples in order to generate a perfect error rate of 0%, thereby avoiding an audit that would have uncovered the hidden Overpayments. Id. at 6-7.
Suit was brought under the FCA’s reverse false claim provision, 31 U.S.C. § 3729(a)(7), and the Eleventh Circuit held that both counts were sufficiently pled for purposes of Rule 9(b). Generally speaking, the Court found that the CIA imposed an obligation to pay money to the government and that the relators had sufficiently pled the requisite who, what, when, where, and why of the suspected fraud. In that regard, the relators benefited from their alleged personal awareness because the court is “more tolerant toward complaints that leave out some particulars of the submissions of a false claim if the complaint also alleges personal knowledge or participation in the fraudulent conduct.” Id. at 17, 27.
Particularly noteworthy, the court held that it was enough to plead that the CIA required remittance of all Overpayments within 30 days and that Defendants did not do so. Id. at 17-23. The Eleventh Circuit rejected the district court’s ruling that the relators’ failure to demonstrate that the money was not eventually repaid was fatal to their complaint. Id. at 17-18 n.13. Instead, the court held that all that mattered was that the CIA had been violated at the time of the certification: “The failure to [remit Overpayments] within the thirty day deadline is itself a violation of the CIA, regardless of whether the Overpayments were eventually repaid.” Id. Given that recent FCA amendments also require the return of overpayments to the government shortly after their identification at the risk of FCA liability, the Eleventh Circuit’s decision confirms the significant implications of this expansion of liability.