Recently, the United States Court of Appeals for the Eighth Circuit affirmed the lower court’s dismissal of a Medicare Advantage (MA) False Claims Act (FCA) liability case. In United States ex rel. Hold v. Medicare Managed Care Advisors, Elizabeth Holt – a relator – alleged that Medicare Medicaid Advisors Inc. (MMA), formerly named Carefree Solutions USA Inc., Carefree Insurance Inc. (Carefree)—a wholly owned subsidiary of Aetna Inc.—and the insurance carriers UnitedHealthcare Insurance Inc. (United), Humana Inc. (Humana), and Aetna Inc. (Aetna), (collectively, the “carriers”), violated the False Claims Act (FCA).
Holt alleged that since the start of MMA in 2006, the company has engaged in a “systematic, company-directed fraud scheme,” including falsifying CMS-mandated agent certifications and widespread violations of MA marketing regulations.
After filing the lawsuit, the defendants moved to dismiss the claims. The District Court agreed to dismiss Holt’s complaint because it found that no claims were submitted to the Centers for Medicare and Medicaid Services (CMS); that the alleged regulatory violations were not material to CMS’ contract with the carriers; and the complaint failed to plead with particularity, as required by the Federal Rule of Civil Procedure 9(b). Holt appealed to the Court of Appeals for the Eighth Circuit.
In the recent decision, the Court of Appeals for the Eighth Circuit references the definition of “claim” under the FCA, noting that in situations where a FCA case involves money demanded from a recipient of federal funds, there must be five elements satisfied for thereto be a claim under the statute: (1) a “request or demand”; (2) “made to a contractor, grantee, or other recipient” of money or property “the United States Government . . . provided”; (3) “the United States Government . . . provided any portion of the money or property requested or demanded,” or if the requestee pays the requestor before the government issues payment to the requestee, “the United States Government . . . will reimburse . . . any portion of the money or property which” the requestee pays the requestor; (4) the payment given to the requestor will “be spent or used on the Government’s behalf or to advance a Government program or interest”; and (5) the request does not violate 31 U.S.C. § 3729(b)(2)(B). Each of those elements must be pleaded with “requisite particularity.”
With respect to materiality, the Court cited the Escobar decision of the Supreme Court, which found that the “term ‘material’ means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” Additionally, Escobar noted that in findings of materiality, the effect on the likely or actual behavior of the recipient of the alleged misrepresentation is also important. Over time, essentially three non-exhaustive factors are considered when it comes to materiality: (1) whether the government has expressly designated the legal requirement at issue as a condition of payment; (2) whether the alleged violation is minor or insubstantial or instead goes to the essence of the bargain between the contractor and the government; and (3) whether the government made continued payments, or does so in the mine run of cases, despite actual knowledge of the violation.
Looking specifically at the marketing scheme allegations, the Eighth Circuit found that the first Escobar factor – condition of payment – does not favor a finding of materiality for the marketing scheme allegations because the regulations do not expressly state, as a condition of payment, that a carrier or their agent must follow the Medicare marketing regulations to receive payment. Additionally, the alleged failure to follow marketing regulations does not go to the “essence” of CMS’s contract with the carriers. When a carrier fails to comply with the marketing requirements, “CMS may impose one or more of the sanctions” outlined in the regulations.” There is no such direction in the regulations that state CMS must sanction a carrier because the carrier’s agent committed a marketing violation. Finally, the Court found that none of the alleged violations harmed the purpose of CMS’s contract because marketing services “likely do not hinder CMS’s or a carrier’s ability to provide those medical services.”