RICHMOND, Va. (Legal Newsline) – The U.S. Court of Appeals for the Fourth Circuit ruled last month that a district court may never have had jurisdiction in a qui tam suit against several medical labs filed by the commonwealth of Virginia over alleged Medicaid false claims.
In 2007, relators sought a case against several medical labs in Virginia who the commonwealth of Virginia alleged made several false Medicaid claims. The case was moved to federal court, under the assumption that if these claims could be proven it would constitute federal violations of an anti-kickback statute.
One lab was cleared of any wrongdoing by a district court, but the remaining labs attempted to settle. Relators who filed the case proposed a settlement of $350,000 to be paid to the commonwealth, but the state objected and demanded the relators receive $139,000. The district court ruled in favor of Virginia, prompting the relators to appeal to the Fourth Circuit, which said the district court may never have had jurisdiction in the first place.
The case begs the question: Why did Virginia want the relators to have less than they requested? Norman Tabler Jr., an attorney for Faegre Baker Daniels in Indianapolis, weighed in on this question.
"My guess is that it was simply a case of Virginia wanting to keep as much of the $1,250,000 settlement as possible," Tabler told Legal Newsline in an email. "Every dollar that goes to the relators reduces Virginia’s net recovery. Or, maybe Virginia had a quarrel with the relators’ performance and role in pursuing the case."
Invoking Flying Pigs LLC v. RRAJ Franchising LLC, a case from 2014, the court applied the theory that requirements for a federal issue be handled according to four requirements that all must be met in order to proceed in the federal court: The federal issue must be necessarily raised, the issue must be actually disputed, the issue must be substantial, and the issue must be capable of resolution without disrupting any federal-state balance of authority in the matter.
In Flying Pigs, the court held that the first of those requirements cannot be met unless every single legal theory that supports a plaintiff's claim requires a resolution to the federal issue. In this particular case, the court ruled that because the issue could have been resolved, in context of the plain terms of the complaint, if the relators in the case proved that the labs acted against the regulations without actually breaking a federal law. In other words, not every dispute can qualify as a federal case, even though the program is jointly funded by state and federal government. Still, the case is a bit unusual, according to Tabler.
"This is a little unusual for a case that is settled by an agreement among all the parties," Tabler said. "Generally, you wouldn’t expect a relator to agree to a settlement without some indication that the relator’s award would be acceptable."
The facts of the case are very confusing to say the least, so it is hard to say why the commonwealth prevailed in this case.
"It’s hard to know because it’s so fact-dependent," Tabler said. "My guess is that Virginia argued – and the judge agreed – that the relators’ role in bringing the matter to light and securing the settlement wasn’t substantial enough to warrant the award they requested."
The case, Va. ex rel. Hunter Labs LLC v. Virginia, ended with the Fourth Cicuit Court vacating judgment and remanding it back to district court for remand back to state court where the whole thing began.
So why isn't a Medicaid issue always a federal issue? Tabler said it can be, but the details matter.
"Medicaid always can be a federal issue," Tabler said. "The problem for the relators here is that they brought the case in state court and raised only state issues. So it was completely resolvable without resorting to federal law."
Tabler said the case likely would have gone this way no matter what circuit dealt with it.