Fifth Circuit Affirms Dismissal of Qui Tam Complaint Due to Lack of Materiality in Significant False Claims Act Decision

The U.S. Court of Appeals for the Fifth Circuit affirmed on April 15, 2020 the dismissal of a non-intervened qui tam action in United States ex rel. Porter v. Magnolia Health Plan¹, because the relator failed to adequately allege that the defendant’s purported misrepresentations were “material” to the government’s payment decision. This decision will aid significantly defendants seeking to invoke the materiality standard announced by the Supreme Court in Universal Health Servs., Inc. v. United States ex rel. Escobar at the motion to dismiss stage.

The defendant, a health plan, contracted with the Mississippi Division of Medicaid to help administer the state’s Medicaid program, including providing care management services. The health plan’s contracts required it to “strictly adhere” to all applicable federal and state law, including the Mississippi Medicaid Division’s policies and regulations.

The relator is a former care manager employed by the defendant. She alleged that the health plan was required by Mississippi regulation to use either licensed registered nurses or licensed social workers to provide care management services, but instead staffed its care management positions with licensed practical nurses, causing it to receive payments to which it was allegedly not entitled.

The relator informed the Mississippi Division of Medicaid and the U.S. Attorney’s Office of her concerns that her employer was using licensed practical nurses for care management positions in either late 2011 or early 2012, and filed her qui tam lawsuit in 2016. The district court granted the defendant’s motion to dismiss on grounds that the complaint did not satisfy the Escobar materiality standard, and the Fifth Circuit affirmed.

The Fifth Circuit assumed without deciding that the relator was correct and that Mississippi regulations required that the health plan utilize only licensed registered nurses or licensed social workers to provide care manager services. However, the Court held that a broad, boilerplate certification of compliance with all laws is too general to establish that compliance with every regulation is a condition of payment. Quoting the district court, the Fifth Circuit explained: “Here, the district court concluded that the contracts between [the health plan] and [Mississippi] ‘contain broad boilerplate language generally requiring a contractor to follow all laws, which is the same type of language Escobar found too general to support a FCA claim.’ We agree.”

The Court relied further on the fact that the Mississippi Division of Medicaid “took no action after [the relator] informed the Division that [the health plan] was staffing care and case management positions with licensed practical nurses.” To the contrary, the Court noted that the state “continued payment and renewed its contract with [the health plan] several times” and, even after the relator’s suit was unsealed, awarded the health plan a contract for a fourth time. The Court took judicial notice of certain facts necessary to establish that the state had renewed its contracts with the defendant.

The Fifth Circuit’s decision is an important application of Escobar at the motion to dismiss stage. Defendants will find this a useful decision to cite for the proposition that boilerplate certifications of regulatory compliance are insufficient under Escobar and the proposition that a court can find a lack of materiality based on the fact that an agency failed to take action after being informed of the regulatory violations.