The Second Circuit affirmed a district court’s dismissal of a qui tam case alleging the city of New York submitted false claims for payment to Medicaid. The plaintiff alleged he was aware of a scheme to manipulate data so that claims deemed ineligible would be submitted for reimbursement, but the court found that the relator had no knowledge of the claims that were actually submitted to the government. While the relator submitted evidence of his knowledge of ineligible claims, he failed to account for the possibility that the claims were corrected before they were submitted for payment or that the city may have disclosed any defects to the United States. The relator also failed to describe the details of the alleged scheme, other than his conclusion that officials must have engaged in one.
Plaintiff Andrew Gelbman appealed from a district court decision dismissing his qui tam complaint alleging that the City of New York and the Health and Hospitals Corporation submitted false claims for payment to Medicaid.
In his complaint, Gelbman alleged the defendants manipulated data in eMedNY—an automated computer screening system used to determine whether a healthcare claim is reimbursable under Medicaid. According to Gelbman, the defendants rigged the manner in which claims were processed, so that claims that were flagged by eMedNY as ineligible for reimbursement were instead submitted to the federal government. Gelbman asserted that he learned of the alleged fraud while employed as an information specialist performing work on eMedNY.
According to Gelbman, during meetings various city entities, officials acknowledged that data needed to be edited to ensure the city was reimbursed for claims that would otherwise be ineligible. Gelbman also alleged that he discovered “files and records” showing that the United States government had reimbursed the city on claims that eMedNY had, at some point in time, identified as (1) untimely, (2) submitted without proper prior authorization, (3) duplicative, (4) submitted by providers who were not properly enrolled in the Medicaid program, or (5) had already been paid by another insurer or by Medicare. Gelbman’s complaint identified the laws that allegedly rendered these claims ineligible, as well as detailed payment information for more than 80 individual exemplar claims. The plaintiff estimated that, from 2009 through 2015, the submission of these five types of Medicaid claims has resulted in the federal government overpaying the city by more than $14 billion in Medicaid reimbursements.
The defendants successfully moved the district court to dismiss for failure to state a claim and for failure to allege fraud with particularity. The district court granted the motion, denied Gelbman’s request for leave to amend, and dismissed the action with prejudice. Gelbman appealed.
However, the appeals court agreed the complaint failed to satisfy Rule 9(b)’s rigorous pleading requirements. The district court noted Gelbman’s failure to provide details about the eligibility status of the Medicaid claims at the time of their submission to the federal government. The court found the complaint assumed that the city submitted claims to the federal government that were ineligible for Medicaid reimbursement because these claims had, at some point prior to their submission, been flagged as ineligible by eMedNY. However, that assumption presupposes several conditions.
For example, the identification of a claim as ineligible in eMedNY could have been an error that was later corrected, or the health care providers might have corrected the underlying problem that rendered the claim ineligible before it was submitted to the government. Further, Gelbman failed to identify the specific expense reports that NYSDOH actually submitted to the federal government, and therefore it is possible that the city fully disclosed any potential defects in the claims submitted for reimbursement.
While a relator need not always alleged the actual submission of false claims to the federal government, but can plead on information and belief, the complaint must make plausible allegations that the claims submitted to the government were uniquely within the defendant’s knowledge and control and adduce specific facts reporting a strong inference of fraud. The appeals court agreed that Gelbman had done neither.
Gelbman failed to show that the claims actually submitted to the government—as opposed to those described in his complaint—were within his knowledge. He also failed to describe how the scheme was carried out. Instead, he merely alleged in a conclusory fashion that his superiors conspired with various representatives to alter data to ensure payment of ineligible claims. Without these details, the court could only speculate how the city went about defrauding the United States out of $14 billion over six years, which it declined to do.
The court also held that Gelbman’s reverse false claims theory failed for the same reason. The court found the complaint failed to plausibly allege the defendant’s caused the submission of false claims to the government, and therefore cannot show the defendants had an affirmative obligation to reimburse the government for any improperly paid claims.
