In its November 12, 2014 decision in Thulin v. Shopko Stores Operating Co., the Seventh Circuit unanimously rejected the relator’s claim that alleged violations of the Federal Assignment Law (42 U.S.C. § 1396k(a)(1)(A)) gave rise to False Claims Act (FCA) liability, upholding the district court’s dismissal of the case. This ruling is important because it conveys a willingness (at least in the Seventh Circuit) to impose limitations on the types of statutory violations that can provide the basis for FCA liability, in a landscape where relators increasingly seek to use the FCA as a vehicle to enforce compliance with all manner of statutory and regulatory requirements.

The relator’s allegations primarily concerned Shopko’s billings for medications prescribed to individuals covered both by private insurance and Medicaid.  In essence, the relator claimed that Shopko committed fraud because it billed Medicaid for the full amount Medicaid had contracted to pay even where the private insurer contracted to pay a lesser amount.  Thus, for example, if a private insurer had agreed to cover a prescription for $20,plus a $5 copay, while Medicaid had agreed to pay $30 for the same prescription, Shopko would bill Medicaid $10—both the unpaid copay and the extra owed under the Medicaid contract— rather than just the $5 for the unpaid copay.  The relator alleged that this violated the Federal Assignment Law because the government had the right to an assignment of the benefits of the private health insurance rates under that law.

The Seventh Circuit found that the relator’s theory had “little if any support.”  First, the Seventh Circuit found that the alleged violation of the Federal Assignment Law did not form the basis for a claim to be “false.” The Seventh Circuit relied on the Supreme Court’s decision in Wos v. E.M.A. ex rel. Johnson, 133 S. Ct. 1391 (2013), for the proposition that the Federal Assignment Law concerns recoveries by individual Medicaid beneficiaries from a party responsible for injury (e.g., a tortfeasor in a car accident)—not businesses that contract with and receive payments from Medicaid.  Second, the court held that Shopko was allowed to bill as it did— it was Medicaid’s responsibility to withhold payments above a private insurer’s contracted rate—pointing to Centers for Medicare & Medicaid Services’ manual that specifically directs state Medicaid agencies to “withhold payment ‘[w]henever you are billed for the difference between the payment received from the third party based on’” a preferred provider agreement.  The court held that “Shopko’s alleged actions may … result in additional bureaucratic hassle on both Medicaid’s and Shopko’s end, but they are not false or fraudulent under the state Medicaid manual or any other regulation or law to which Thulin points.”

Shopko is the Seventh Circuit’s second recent ruling limiting the reach of the FCA.   Last summer it issued a decision limiting the worthless services theory of liability under the FCA.  United States ex rel. Absher v. Momence Meadows Nursing Center, Inc., No. 13-1886 & 13-1936 (7th Cir. Aug. 20, 2014).