U.S. v. Caremark Inc.

634 F.3d 808

UNITED STATES of America, Plaintiff–Appellant,

v.CAREMARK, INC.; Caremark International, Inc.; Caremark International Holdings, Inc.; Medpartners, Inc., Defendants–Appellees.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.

Nos. 09–50727

09–51053.

United States Court of Appeals, Fifth Circuit.

Feb. 24, 2011.

Benjamin M. Schultz (argued), U.S. Dept. of Justice, Civ. Div., App. Staff, Allie Pang, U.S. Dept. of Justice, Washington, DC, for U.S.Howard M. Pearl (argued), William Paul Ferranti (argued), Winston & Strawn, L.L.P., Chicago, IL, Jennifer L. Weaver, Charles A. Trost, Waller Lansden Dortch & Davis, L.L.P., Nashville, TN, Merritt M. Clements, Farley P. Katz, Charles John Muller, III, Strasburger & Price, L.L.P, San Antonio, TX, for Defendants–Appellees.Appeals from the United States District Court for the Western District of Texas.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 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.

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, 126 S.Ct. 1752, 164 L.Ed.2d 459 (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 from a third party. 42 C.F.R. § 433.140; Ahlborn, 547 U.S. at 289, 126 S.Ct. 1752. 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) 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...