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United States ex rel Tyson v. Amerigroup Illinois

March 13, 2007

UNITED STATES OF AMERICA, EX REL. CLEVELAND TYSON; THE STATE OF ILLINOIS, EX REL. CLEVELAND TYSON; AND THE PEOPLE OF THE STATE OF ILLINOIS, PLAINTIFFS,
v.
AMERIGROUP ILLINOIS, INC. AND AMERIGROUP CORPORATION, INC., DEFENDANTS.



The opinion of the court was delivered by: Hon. Harry D. Leinenweber

MEMORANDUM OPINION AND ORDER

Relator Cleveland Tyson (hereinafter, "Tyson") filed this qui tam action under the False Claims Act (the "FCA"), 31 U.S.C. § 3729(a)(1) & (2), and the Illinois Whistleblower Reward and Protection Act (collectively, "the FCAs"), 740 ILCS 175/1, et seq., against Defendants Amerigroup Illinois, Inc. (hereinafter, "AI") and Amerigroup Corporation, Inc. (hereinafter, "AC"). Tyson alleged that Defendants defrauded the United States and the State of Illinois by engaging in discriminatory marketing practices in the course of conducting a Medicaid HMO. After several weeks of trial, a jury found for Plaintiffs.

I. BACKGROUND

Only a very basic factual background will be set forth here. Additional facts will be provided as necessary.

A. The False Claims Acts

The FCA permits private persons to file a form of civil action against, and recover damages on behalf of the United States, from any person who:

(1) knowingly presents or causes to be presented, to an officer or employee of the Unites States Government . . . a false or fraudulent claim for payment or approval;

(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government.

31 U.S.C. §§ 3729(a)(1)-(2). To state a claim under the FCA, plaintiffs must show that (1) defendants presented a claim for payment; (2) the claim was false; and (3) defendants knew the claim was false. 31 U.S.C. §§ 3729(a)(1)-(2). The Illinois Whistleblower Act is virtually identical. 740 ILCS 175/1 et seq.; see also U.S. ex rel. Humphrey v. Franklin-Williamson Human Services, Inc., 189 F.Supp. 2d 862, 867 (S.D. Ill. 2002).

B. Facts

At trial, Plaintiffs presented two liability theories. Under the first theory, Plaintiffs argued that Defendants fraudulently induced the IDPA to enter into contracts by promising not to discriminate based on the need for health services, even though it had no intention of keeping that promise. This misrepresentation made Defendants ineligible to contract with the IDPA and receive Medicaid funds. As such, all contracts at issue violated the FCAs.

Under the second theory, Plaintiffs argued that Defendants submitted false claims for payment, the enrollment applications (containing implied certifications), causing the State of Illinois to submit forms CMS-37 and CMS-64 (containing false express certifications) to the Federal Government. Because capitation rates were based on Defendants' promise that they would not discriminate, Defendants' discrimination undermined the actuarial basis for the capitation rates that IDPA paid to Defendants. By misrepresenting that it would not discriminate, Defendants knew that it would receive inflated capitation payments. As such, each enrollment form constituted a false claim because it sought the payment of capitation rates that Defendants knew were inflated. When the IDPA submitted the CMS-37 and CMS-64 forms, it certified that the expenditures were in compliance with federal laws and regulations; these certifications were likewise false.

The jury found for Plaintiffs in the amount of $48 million in government damages. Additionally, the jury's responses to special verdict forms evidenced agreement with both liability theories. The jury also found that there were 18,130 false claims; this interrogatory was asked purely for purposes of determining the applicable civil penalties. This interrogatory was not "upon one or more issues of fact the decision of which is necessary to a verdict," as the jury need not determine the number of false claims to return a verdict under the FCA. See FED. R. CIV. P. 49(b).

Thus, it was not a special interrogatory. Id.

II. STANDARD

Judgment as a matter of law must be granted where "no reasonable jury could have found for [plaintiffs] on each essential element of their claim." Harper v. Albert, 400 F.3d 1052, 1061 (7th Cir. 2005). This is a stringent standard, Christie v. Foremost Ins. Co., 785 F.2d 584, 586 (7th Cir. 1986); "any conflicts in the evidence must be resolved in favor of the resisting party, and every permissible inference favoring that party which can be drawn from the evidence must be drawn." Pieczynski v. Cerda, 1988 WL 67646 at *1 (N.D. Ill. June 20, 1988).

When a motion for judgment as a matter of law is based on an insufficient evidence argument, a court must decide whether the jury was presented with a "legally sufficient amount of evidence from which it could reasonably derive its verdict." Massey v. Blue Cross-Blue Shield of Illinois, 226 F.3d 922, 924 (7th Cir. 2000). The motion must be denied if "the evidence presented, combined with all reasonable inferences permissibly drawn therefrom, is sufficient to support the verdict when viewed in the light most favorable to the party against whom the motion is directed." Mathur v. Board of Trustees of Southern Illinois University, 207 F.3d 938, 941 (7th Cir. 2000). If a rational jury could have found for the plaintiff, then the court must uphold the verdict. Id. at 941.

This Court must grant a new trial where "the clear weight of the evidence is against the jury verdict, the damages are excessive or for some other reason the trial was not fair." Scaggs v. Consolidated Rail Corp., 6 F.3d 1290, 1293 (7th Cir. 1993). This standard requires a court to accord "the jury's verdict great deference." Calusinski v. Kruger, 24 F.3d 931, 936 (7th Cir. 1994). A jury's verdict cannot be overturned if a reasonable basis exists in the record to support the verdict, viewing the evidence in the light most favorable to the prevailing party, and leaving issues of credibility and weight to the jury. Kapelanski v. Johnson, 390 F.3d 525, 530 (7th Cir. 2004). Where a jury instruction is at issue, a party is entitled to a new trial if the Court finds that "(1) the instruction inadequately states Seventh Circuit law; and (2) the error likely confused or misled the jury causing prejudice to the movant." Gile v. United Airlines, Inc., 213 F.3d 365, 375 (7th Cir. 2000).

III. AMERIGROUP ILLINOIS' MOTION FOR JUDGMENT AS A MATTER OF LAW/MOTION FOR NEW TRIAL

A. Fraudulent Inducement Theory

Under their first liability theory, Plaintiffs contended that AI fraudulently induced the IDPA to enter into a contract by (1) signing the 2000 MCO Contract (which included a marketing restriction against health-based discrimination) and (2) stating in a April 30, 1999 letter that "AMERICAID will not discriminate against clients with health issues which includes pregnant women."

1. Actionable False Statements

Initially, AI asserts that its express (but false) assurances that it would comply with the non-discriminatory marketing requirements are not actionable under the FCA. As this Court held in the summary judgment opinion, U.S. ex rel. Main v. Oakland City University, 426 F.3d 914, 917 (7th Cir. 2005) precludes AI's argument. Under Oakland City, Plaintiffs must show that (1) the non-discrimination provisions were prerequisites to participation in the Medicaid HMO program under federal law; (2) AI knew when it signed the 2000 MCO Contract with the IDPA that discriminatory marketing practices were forbidden; and (3) AI planned to utilize discriminatory marketing practices. AI argues that Plaintiffs attempt to premise FCA liability on the mere breach of contract or violation of regulations, but this is not the case (as made perfectly clear in Oakland City). "[M]aking a promise that one intends not to keep is fraud" and actionable under the FCA; an after-the-fact breach of a contract -- that was not planned at the time the contract was entered into - is just that: a breach. Oakland City, 426 F.3d at 917. AI's attempts to distinguish Oakland City are likewise misguided.

AI also asserts that the false statement needed to have been a "condition to payment" and that this Court should read a "directness" requirement into the FCA which "demand[s] some direct relation between the injury asserted and the injurious conduct alleged," Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268 (1992). A condition to participation is a condition to payment, U.S. ex rel. Hendow v. University of Phoenix, 461 F.3d 1166, 1174 (9th Cir. 2006)(reasoning based on Seventh Circuit's opinion in Oakland City), and Plaintiffs presented sufficient evidence for a reasonable jury to have found that the non-discrimination provisions were conditions to participation. "If a false statement is integral to a causal chain leading to payment, it is irrelevant how the federal bureaucracy has apportioned the statements among layers of paperwork." Oakland City, 426 F.3d at 916. The requested "directness" requirement, furthermore, has been drawn by AI from case law outside the FCA context. See, e.g., Anza v. Ideal Steel Supply Corp., 126 S.Ct. 1991, 1996 (2006)(RICO). The mere fact that the Supreme Court has read such a requirement into other statutes is not sufficient justification for this Court to read it into the FCA.

2. Evidence of Inducement

AI also contends that Plaintiffs failed to present sufficient evidence that false statements actually induced the IDPA to enter into contracts because Plaintiffs did not present an "affirmative statement" that so indicates. U.S. ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996). Hopper, however, only requires that the jury have found that "the false statement is the cause of the Government's providing the benefit" -- or that the non-discrimination provisions are prerequisites to participation in the Medicaid program and AI falsely indicated it would comply. Id.

Oakland City never mentions this "affirmative statement" requirement. Plaintiffs introduced evidence at trial to satisfy the Oakland City standard: (1) the nondiscrimination provisions were prerequisites to participation in the Medicaid HMO program under federal law, see 42 U.S.C. § 1396(m)(2)(A)(v); (2) that AI knew about the nondiscrimination provisions and statutes and told IDPA that it would comply with them; and (3) that Amerigroup planned to violate (and was already violating) the non-discrimination provisions. It is thus this Court's belief that sufficient evidence was presented at trial to meet the Oakland City requirements for fraudulent inducement.

B. Implied Certification Theory

1. Materiality

a. Materiality Standard and Sufficiency of Evidence

Defendants contend that the non-discrimination provisions were not material because they were not a condition to payment under the IDPA contract. Plaintiffs assert that they met the materiality requirement as previously described by this Court.

At summary judgment, Defendants argued that unless the information withheld from the government was "information critical to the decision to pay," they were not liable under the FCA and that the existence of contractual remedies for the alleged violations precluded a finding of materiality. This Court held that "the question is whether Defendants would have been awarded the contracts and been paid or allowed to keep their contracts with HFS if HFS knew that they were discriminating against pregnant and ill individuals" and distinguished the cases on which AI still relies. U.S. ex rel. King v. F.E. Moran, Inc., 2002 WL 2003219 at *11 (N.D. Ill. Aug. 29, 2000)(citing Luckey v. Baxter Healthcare Corp., 183 F.3d 730, 732-33 (7th Cir. 1999)). As such, Plaintiffs are not required to prove that the false claims were "information crucial to the decision to pay" or identify a federal regulation that "expressly state[s] the provider must comply in order to be paid." Mikes v. Straus, 274 F.3d 687, 700 (2d Cir. 2001)(emphasis added).

The jury heard evidence that AI's promises not to discriminate were material because AI would not have been awarded the contracts without them. The Ninth Circuit has held that "a condition to participation is a condition to payment," as "if we held that conditions of participation were not conditions of payment, there would be no conditions of payment at all." Hendow, 461 F.3d at 1174-76; see also S. Rep. No. 345, 99th Cong., 2d Sess. at 9, reprinted in 1986 U.S.C.C.A.N. 5266, 5274 ("claims may be false even though the services are provided as claimed if, for example, the claimant is ineligible to participate in the program."). Plaintiffs presented evidence that the federal government could not have approved the 2000 contract absent these promises. Additionally, the nondiscrimination provisions were material because they formed the actuarial basis upon which capitation rates were calculated. Plaintiffs further assert that the enrollment forms were material to IDPA's payments because their submission, which impliedly certified compliance with the non-discrimination provisions of the contract, triggered the government's inflated payments. Additionally, the IDPA's certification of compliance with applicable laws and regulations (false because of AI's conduct) was material to the United State's decision to pay.

The parties disagree as to the meaning of former IDPA Bureau Chief of Contract Management Kelly Carter's (hereinafter, "Carter") testimony. Defendant claims that Carter's testimony that had she (and the IDPA) been aware of AI's marketing practices, the IDPA would have "taken the opportunity to reeducate them" rather than terminate the contract indicates that the materiality requirement was not met. Plaintiffs assert that Carter's testimony was not so clear; in fact, Carter testified that she would also have gone to her supervisors to let them know what was happening and seek direction on how to proceed. It is this Court's opinion that, regardless, there was sufficient evidence for a reasonable jury to have concluded that the materiality element was met.

b. Materiality Instruction

AI argues that it is entitled to a new trial because the jury was not properly instructed on the implied certification theory's materiality element. Instruction 32 stated: "Fourth: that the false claim or statement involved facts that were material to the government's payment." Defendants assert that an instruction explaining that AI's implied certificate of compliance with the non-discrimination duties needed to be a precondition to IDPA's payment in order for liability to attach, and that the given instruction gave the jury no guidance as to what the claim was and whether the claim "involved facts" that were "material" to payment.

This Court believes that the jury instruction was proper as given. Other courts have considered "materiality" a concept that has a clear enough meaning that it need not be defined in the jury instructions. U.S. v. Castillo, 406 F.3d 806, 821 n.6 (7th Cir. 2005); U.S. v. Matsumaru, 244 F.3d 1092, 1102-03 (9th Cir. 2001); U.S. v. Blasini-Lluberas, 169 F.3d 57, 67 (1st Cir. 1999). When reviewing a challenge to a jury instruction, furthermore, a court "must view the instruction as a whole and consider the challenged instruction 'both in the context of the other instructions given and in light of the allegations of the complaint, opening and closing arguments and the evidence of record.'" Sims v. Mulcahy, 902 F.2d 524, 533 (7th Cir. 1990). There was testimony at trial that the government could not have contracted with AI if it did not promise not to discriminate based on health status and that the non-discrimination provisions were integral to determining the level of capitation rates paid to AI -- as such, there should have been no confusion.

C. Rulings Regarding the Enrollment Forms

To be liable under the FCA, a defendant must submit a false claim: "any request or demand . . . for money or property . . . made to a contractor, grantee, or other recipient if the United States Government provides any . . . of the money or property . . . requested or demanded, or if the Government will reimburse any . . . recipient for any portion of the money . . ."

31 U.S.C. § 3729(c).

1. The Enrollment Forms as Claims

AI argues that enrollment forms cannot be claims because they do not demand payment and do not have the purpose of inducing the Government to immediately part with money. See 31 U.S.C. § 3729(c); U.S. v. Neifert-White Co., 390 U.S. 228, 232 (1968). These arguments were rejected in the summary judgment opinion; the enrollment forms are claims because they were "submitted in order to receive payment," even if payment was not immediate.

AI also argues this Court erred in instructing the jury that the enrollment forms constituted claims. As Plaintiffs point out, however, whether the enrollment forms were claims was a legal issue determined at summary judgment. Therefore, an instruction that the forms were claims was not improper, and Plaintiffs need not have presented evidence at trial that the enrollment forms were claims.

2. Falsity

a. Lack of a Falsity Instruction

AI argues that the Court erred by failing to instruct the jury how to determine if the enrollment forms (the claims) were false, and that by failing to give the jury such an instruction, the Court implied that each claim was false. It is not error to fail to give the definition of a statutory term where the term "carries its natural meaning and that meaning is accessible to all jurors." Castillo, 406 F.3d at 821. It appears to this Court that "false" carries its natural meaning and that this meaning would be accessible to the jurors. Instructions 31 and 32, furthermore, required the jury to find that AI submitted false claims.

b. Evidence of Falsity

Defendants argue that there was insufficient evidence that the enrollment forms were false, as the Plaintiffs admitted that the forms were true and accurate on their face. Plaintiffs advanced two theories that the forms were false: (1) the forms purportedly included implied certifications that AI was not engaging in health-status discrimination and (2) the forms sought inflated capitation payments based on AI's certification that it would not discriminate against pregnant women and "unhealthies." This Court believes that there was sufficient evidence presented for a reasonable jury to determine that the enrollment forms were false. Plaintiffs showed that the forms included implied certifications that it was complying with the contracts. See Oakland City, 426 F.3d at 916 ("the phase-two application is itself false because it represents that the [enrollee] is enrolled in an eligible institution, which isn't true"). Plaintiffs also showed that AI's promises of non-discrimination were integral to payment because they formed the actuarial basis for the capitation rates and that by illegally excluding pregnant women and "unhealthies," AI undermined the basis of these capitation payments. Plaintiffs, furthermore, showed that AI submitted enrollment forms requesting inflated capitation payments -- payments to which it knew it was not entitled because it was engaged in discriminatory marketing practices not permitted under the IDPA contract.

Defendants argue that because the enrollment forms do not explicitly demand any particular amount of capitation-based payments, there was insufficient evidence of falsity. As this Court stated in the summary judgment decision, "a claim does not need to be an actual invoice." U.S. ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 199 (D.C. Cir. 1995). Defendants also argue that Plaintiffs failed to show that AI's enrolled population was actually "more healthy" than that on which the capitation rates were based. The enrollment forms impliedly certified that AI was complying with the contract terms; as AI was not (and the falsity is in the implied certification), Plaintiffs need not show the relative healthiness of AI's enrolled population.

3. Presentment to the Federal Government

The Federal FCA extends only to claims that are presented to "an officer or employee of the United States Government."

31 U.S.C. § 3729(a)(1), (a)(2). This Court has already held that claims submitted to state Medicaid agencies or intermediaries are considered to be claims presented to the federal government and can give rise to liability under the FCA. U.S. ex rel. Tyson v. Amerigroup Illinois, Inc., 2005 WL 2667207 at *1-3 (N.D. Ill. Oct. 17, 2005). AI argues that a new trial is necessary because Plaintiffs failed to show that the enrollment forms were submitted to the Federal Government.

Plaintiffs presented sufficient evidence of presentment. Plaintiffs showed that the IDPA submitted CMS-37 and CMS-64 forms to the federal government in order to obtain reimbursement for HMO-related expenses. The IDPA indicated the amount it anticipated to incur in HMO-related expenses on each CMS-37 and the amount it had actually paid on each CMS-64. These amounts were based on enrollment forms submitted by AI. AI's arguments that it did not cause these forms to be submitted or know that they would be submitted are frivolous. As a seasoned Medicaid participant, AI had to have been aware that the IDPA would seek reimbursement from the federal government for the claims.

AI argues that the implied presentment by the IDPA is insufficient as a matter of law because the IDPA submitted aggregated total expenditure tallies based in part on AI's enrollment forms rather than the forms themselves. In the motion to dismiss decision, this Court noted that "the federal government ultimately approved the purportedly false Medicaid claims processed and submitted by the IDPA." The practical effect of AI's argument would require that the IDPA submit thousands of enrollment forms to the federal government - rather than aggregate the same information into a single tally - solely to preserve future FCA actions. Although the Eastern District of Louisiana has ruled differently, this Court cannot see why aggregation by a State agency alone should foreclose federal FCA liability. See, U.S. ex rel. Rafizadeh v. Continental Common, Inc., 2006 WL 980676 (E.D.La. Apr. 11, 2006). This is not, after all, a case in which the false claims have been aggregated into a general budget or otherwise obscured; instead, they have been aggregated in such a way so as to cut down on the transmission of reams of paper.

AI also argues that the jury's response to the number of claims interrogatory did not include the CMS-37 and CMS-64 forms the IDPA submitted to the federal government, and thus, a reasonable jury could have found that these forms were presented to the federal government. This argument is beside the point; the interrogatory regarding the number of false claims cannot be used to impeach the verdict because it was not a special interrogatory.

D. Government Knowledge and Contract ...


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