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Calif. Medicaid Ruling Shows Overcharging Not 'Always Illegal'


Private practices live in fear of violating the False Claims Act, but one proves the need for more judicial oversight between providers and government agencies.

The case seemed “open and shut.” At least until June 26, 2012, when a California federal district judge threw out Gonzalez v. Planned Parenthood of California, on the grounds that overcharging the government isn’t always illegal. Filed as a qui tam whistleblower case by a former chief financial officer, the claim was simple: Planned Parenthood had been overcharging California Medicaid (Medi-Cal) for nearly a decade, because the provider billed Medi-Cal more than “actual cost” for contraceptives administered to patients.

Many private practice physicians live in fear of being informed by a benefits utilization review auditor that one of a physician’s billing practices is actually forbidden by a federal or state program manual. Worse, because the failure to comply with program guidelines automatically constitutes a violation of the False Claims Act, repayment of the amount of the claim plus a penalty of as much as $11,000 per bill may be assessed. This fear is compounded by the OIG’s recent testimony before Congress that many physicians are falsely accused, because Medicaid auditors don’t understand Medicaid law.

In the recent California case, Planned Parenthood actually did violate the provisions of the benefit manual, but argued that such a violation was not necessarily a False Claims Act violation, unless the company also lied about the claim. Under the Medi-Cal Family Planning Procedures Manual, Planned Parenthood could bill the government no more than “cost” for contraceptive devices. Planned Parenthood obtained contraceptives at a discount, but did not pass the savings on to the state. Cases of this nature can be prosecuted administratively or through whistleblower lawsuits.

Government enforcement agencies much prefer the administrative route for several reasons. First, in an administrative action, the people making the rules are in charge of enforcement. Second, there is no immediate “referee.” Finally, a provider can be summarily punished, simply for resisting. In the usual case, for example, the Office of Inspector General will normally take the position that a failure to comply with any HHS dictate triggers a violation. Letters are sent, audits performed, and a bill is presented to the provider. Even if the provider doesn’t agree, the threat of huge penalties, criminal prosecution, freezing of assets, and threats of program exclusion mean resistance is largely futile.

A whistleblower lawsuit on the other hand, comes with a federal judge who is called upon immediately to decide if the conduct is actually illegal. Here, District Judge Howard Matz agreed with the defendant, “No case creates or imposes [False Claims Act] liability merely where one overcharges the government - the overcharging must be committed in conjunction with a false statement that is a lie.”

Matz observed that Planned Parenthood never tried to hide the fact that it had not followed the government’s billing manual, but instead, “with consistent candor and truthfulness,” openly did not comply. Nor did Planned Parenthood “lie” or misrepresent that the amounts billed were based upon actual cost. Therefore, the bills presented were not “false.”

The court then reviewed the whistleblower’s “False Certification” claim. Such a claim might be valid if a provider had certified each bill complied with the provisions of the Claims (“FPACT”) Manual, when it did not. However, the court dismissed this claim because “Plaintiff does not even allege that Defendants signed the FPACT manual. What Defendants did allegedly sign was the Provider Agreement, which did not require or amount to a promise to comply with every provision in the manual.”

The Gonzalez opinion highlights the problem of a lack of judicial oversight in the ongoing battle between medical providers and governmental agencies. In the absence of court opinions to the contrary, a government agency will normally take a most aggressive view - both of its own rule-making power, and what behavior it believes violates those rules. Judicial review of administrative enforcement actions is often impossible because settlements are frequently coerced by threats of program exclusion, or the staggering $11,000 per-claim penalty under the False Claims Act.

In many cases, it seems almost better to be sued by a whistleblower. It is only where a qui tam relator beats the government to the punch that a court is called upon to decide immediately, in a pre-litigation Motion to Dismiss, whether questionable conduct actually violates the law.

Case: P. Victor Gonzalez v. Planned Parenthood, No. CV 05-8818 AHM (FMOx), U.S. Dist. Ct. C.D. Calif.

Martin Merritt is a Dallas-based attorney, representing physicians, practices, and others in cases involving Stark Law, state and federal regulations, Medicare fraud and abuse compliance, as well as transactions and contracts. E-mail him here.

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