Weekly Case Digests February 7, 2022 - February 11, 2022.

AuthorHawkins, Derek
PositionUnited States of America, et al., v. Molina Healthcare of Illinois, Inc., Samuel Moreland v. Cheryl Eplett, Warden and Beth A. Sweet v. Town of Bargersville

Byline: Derek Hawkins

7th Circuit Digests

7th Circuit Court of Appeals

Case Name: United States of America, et al., v. Molina Healthcare of Illinois, Inc., et al.,

Case No.: 20-2243

Officials: SYKES, Chief Judge, and WOOD and HAMILTON, Circuit Judges.

Focus: Breach of Contract FCA Violation

Sophisticated players in the healthcare market know that services come at a cost; providers charge fees commensurate with the services rendered; and payors expect to receive value for their money. There are many options from which to choose when designing a payment scheme, including fee-for-service, prepaid services using the health-maintenance organization model (HMO), and capitation payments, to name just a few. Each of these models attempts to balance expected services against expected costs.

The present case involves a capitation system, which is similar to the traditional HMO approach in which parties agree to a fixed per-patient fee that covers all services within the scope of a governing plan. Molina Healthcare of Illinois (Molina) contracted with the state's Medicaid program (which in turn is largely funded by the federal government, see Illinois Medicaid, https://www.benefits.gov/benefit/1628) to provide multiple tiers of medical-service plans with scaled capitation rates. Among those, the Nursing Facility (NF) plan required Molina to provide Skilled Nursing Facility (SNF) services. Molina itself, however, did not deliver those services; instead, it subcontracted with GenMed to cover this obligation. Molina received a general capitation payment from the state, out of which it was to pay GenMed for the SNF component. But little time passed before Molina breached its contract with GenMed and GenMed terminated the contract. After GenMed quit, Molina continued to collect money from the state for the SNF services, but it was neither providing those services itself nor making them available through any third party. Molina never told the government about this breakdown, nor did it seek out a replacement service provider.

Thomas Prose, the founder of GenMed, brought this qui tam action under both the federal and the state False Claims Acts. See 31 U.S.C. 3729 et seq.; 740 ILCS 175/1 et seq. (Because the state law does not differ in any meaningful way from the federal law, we refer in this opinion only to the federal law for the sake of simplicity.) Prose alleged that Molina submitted fraudulent claims for payments to the Department (which was for the most part just a conduit for federal fundsa point we will not repeat) for skilled nursing facility services. Although the district court agreed with Prose that the SNF services were material to the contract, it dismissed the case at the pleading stage because it found that the complaint insufficiently alleged that Molina knew that this condition was material. But on our independent reading of the complaint, we conclude that it plausibly alleges that as a sophisticated player in the medical-services industry, Molina was aware that these kinds of services play a material role in the delivery of Medicaid benefits. We therefore reverse and remand for further proceedings.

Reversed and remanded

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7th Circuit Court of Appeals

Case Name: United States of America, et al., v. Molina Healthcare of Illinois, Inc., et al.,

Case No.: 20-2243

Officials: SYKES, Chief Judge, and WOOD and HAMILTON, Circuit Judges.

Focus: Order Correcting Opinion Rehearing Denial Order

Defendants-Appellees filed a petition for rehearing and rehearing en banc on September 2, 2021. All judges on the original panel have voted to deny rehearing and a majority of judges in active service have voted to deny rehearing en banc, with the following amendments to the opinion: On page 14 of the Slip Opinion, the first full paragraph is amended to remove: "and so Molina is mistaken when it suggests that the implied version requires express representations about the goods or services to be provided. Material omissions can suffice." The final sentence of the amended paragraph now reads: "Implied and express statements raise distinct issues, however."

On page 15 of the Slip Opinion, the final sentence of the carryover paragraph is amended to read: "The complaint must include specific allegations that show that the omission in context significantly affected the government's actions." On page 29 of the Slip Opinion (Dissent of Chief Judge Sykes), the first paragraph after "C. Implied False Certification" is amended to remove: "That is, the majority simply states, without explanation, that material omissions are implied false certifications. Majority op. at 14 ('Material omissions can suffice.')" In the same paragraph, the final sentence is amended to read: "That approach cannot be squared with...

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