By Jeffrey H. Brochin, J.D.
A contractual arrangement under which Computer Science Corporation (CSC) was compensated as a business agent for billing to the federal government under the Individuals with Disabilities Education Act (IDEA) (P.L. 101-476) was found to be in violation of the False Claims Act (FCA) (31 U.S.C. §3729 et. seq.), a federal court in New York has ruled. The incentive payment provisions in the contract between CSC and the City of New York (NYC) fell within the scope of the regulatory prohibitions, and the contents of CSC’s enrollment application showed that it was likely aware that full disclosure could affect the state’s approval decision (U.S. ex rel. Forcier v. Computer Sciences Corporation, August 10, 2017, Batts, D.).
Background. CSC’s corporate predecessor submitted an application to the state of New York to be a billing agent in January 2008. The application directed CSC to provide a copy of the fee schedule it would be using to charge for its services. However, in response, CSC stated only that its contract provided for a monthly fixed fee for fiscal agent operations support, while omitting mention of the incentive pay provisions. Thereafter, Medicaid authorized its enrollment as a billing agent.
Upon intervening in the qui tam action, the U.S. and New York alleged that CSC induced the state to approve its enrollment as a billing agent by concealing its incentive payment arrangement with NYC under which, if CSC obtained Medicaid payments above certain threshold dollar levels, it would be entitled to receive an "incentive payment" equal to 15% of the amount of Medicaid payments above the stipulated level. According to sworn testimony from CSC’s project manager, CSC personnel believed that it was not appropriate to have an incentive clause based on a percentage of collections in its contract, and they discussed their concerns numerous times both internally and with NYC. However, the incentive provisions remained part of the contract. CSC and NYC filed their motions to dismiss the complaint in intervention, and for the reasons stated below, the motion was denied in part and granted in part.
IDEA funding. Pursuant to the provisions of the IDEA, federal IDEA funding was made available to states only to the extent that the costs of evaluation and care for eligible children were not paid for by other sources, including private insurance and Medicaid. Under the corresponding state Early Intervention Program (EIP), municipalities seeking reimbursement were required to first seek payment from private third party insurers prior to claiming payment from Medicaid or the Department of Health (DOH), for services delivered. The costs not covered by private insurance or Medicaid were to be shared equally by the state and NYC.
Nine-9 and 0Fill schemes. Both the federal and state governments alleged that CSC made use of the "Nine-9" and "0Fill" schemes in order to evade the secondary payer requirement. Under the Nine-9 scheme, it was alleged that CSC submitted claims to private insurers for children with evidence of private coverage, but the claims were submitted inaccurately by filling in nine ‘9s’ into the policy number field on the claims instead of using the correct policy numbers, knowing that claims submitted without a valid policy number would automatically be denied by the insurer. Similarly, under the ‘0fill’ scheme, CSC was alleged to have implemented a software program that would identify any claim that had been pending before a private insurer for more than 90 days (later changed to 120) and then submit the claim to Medicaid with a 0Fill modifier which was intended for situations where the private insurance claim had been denied or the business agent knew there was no third party coverage.
Regulations against ‘factoring.’ CSC argued that the regulations cited by the intervenors did not apply to the provisions in the CSC-NYC contract because: (1) the regulations only apply when a provider reassigns its right to Medicaid payment (i.e. factoring), which NYC did not do here; and (2) the regulations concerned compensation actually paid to a billing agent, and not hypothetical payments. The first argument was based on a federal regulation, and CSC further contended that the enabling statute was only concerned with the "factoring" of Medicaid receivables (selling of receivables to collection agencies who then present them to the state for payment); however, because the regulation excluded business agents such as CSC from the definition of a "factor", the regulation could not serve as the basis for liability.
The court noted that while the regulation indeed prohibited payments to factors, nowhere was the regulation’s scope limited solely to factors. The regulation clearly stated that payment could be made to a business agent but only so long as the agent’s compensation was unrelated to the amount billed. The regulations did not permit incentive-based payment arrangements, and the court found that the incentive payment provisions of the CSC-NYC in fact fell within the regulatory prohibitions.
Fraudulent inducement theory. The intervenors further alleged that CSC fraudulently induced Medicaid to approve its enrollment as a billing agent by misrepresenting its compensation arrangement on the enrollment application. Specifically, in response to the application’s instruction to provide the fee schedule that it would be using, CSC stated only that it would receive a monthly fixed fee for fiscal agent operations support, while omitting mention of the incentive payment provisions in its contract. The court noted that a statement need not contain express falsehoods to be actionable under the FCA, and that the Supreme Court had recently held that half-truths, or representations that state the truth only so far as it goes, while omitting critical qualifying information can also give rise to FCA liability. Accordingly, the court held that CSC did not present a persuasive reason to dismiss the fraudulent inducement claim.
Implied false certification theory. The court also discussed the intervenors’ false certification theory as a basis for liability. It noted that the majority of district courts have interpreted the relevant Supreme Court ruling as creating affirmative limitations on implied false certification claims, such that liability may only attach where: (1) the claim makes specific representations about the goods or services provided, and (2) the failure to disclose noncompliance with material legal requirements renders these representations misleading half-truths. The court found that even assuming that the representations could be considered specific representations, it was hard to see how CSC’s failure to disclose its incentive-based fee structure rendered the representations misleading with respect to the goods or services provided. Accordingly, the court ruled that failure to disclose regulatory non-compliance with respect to the fee structure did not amount to implied false certification liability and dismissed those claims.
The case is No. 1:12-cv-01750-DAB.
Attorneys: Li Yu, U.S. Attorney's Office, for the United States. Bret A. Finkelstein (Arnold & Porter Kaye Scholer LLP) for Computer Sciences Corp.
Companies: Computer Sciences Corp.
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