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United States Ex Rel. Trinh v. Northeast Medical Services, Inc.

United States District Court, Ninth Circuit

April 26, 2013



CLAUDIA WILKEN, District Judge.

Plaintiffs United States of America and the State of California bring this action against Defendant Northeast Medical Services (NEMS) for violations of the federal False Claims Act (FCA), 31 U.S.C. §§ 3729 et seq., and the California False Claims Act (CFCA), Cal. Gov't Code §§ 12650 et seq., and for various torts. NEMS moves to dismiss for lack of subject matter jurisdiction and failure to state a claim. Plaintiffs oppose the motion. After considering the parties' submissions and oral argument, the Court denies the motion.


NEMS is a non-profit health center that provides medical care to low-income communities throughout the San Francisco Bay Area. For the past four decades, NEMS has received federal funding for this work under § 330 of the Public Health Services Act. 42 U.S.C. § 254b. Under that provision, NEMS is required to provide medical services to communities with limited health care access and must not refuse services to any person based on that person's inability to pay. 42 U.S.C. § 254b(a)(1). As a further condition of its funding, NEMS must provide services to any person enrolled in Medicaid. 42 U.S.C. § 254b(k)(3).

Medicaid is a federal program that offers participating states financial assistance to provide medical services to the poor. Cal. Welf. & Inst. Code § 10740. While states "do not have to participate in Medicaid, ... those that choose to do so must comply both with statutory requirements imposed by the Medicaid Act and with regulations promulgated by the Secretary of [HHS].'" Managed Pharmacy Care v. Sebelius , 705 F.3d 934, 939 (9th Cir. 2012) (citations omitted). One of these requirements is that participating states reimburse "Federally-qualified health centers" (FQHCs), like NEMS, for the services they provide to Medicaid enrollees. 42 U.S.C. § 1396a(a)(15). Thus, FQHCs typically receive funding from both the federal government (under the Public Health Services Act for services they provide to the poor) and the State (under the Medicaid Act for services they provide to Medicaid enrollees).

California participates in Medicaid through its Medi-Cal program. Cal. Welf. & Inst. Code § 10740. It is therefore required to reimburse NEMS for the organization's costs in providing care to Medicaid enrollees. 42 U.S.C. § 1396a(bb). It provides these reimbursements through a "managed care organization" called the San Francisco Health Plan (SFHP), with which the State has contracted to help administer Medi-Cal in the San Francisco area. SFHP provides NEMS with regular payments that are meant to estimate NEMS's prospective costs for treating Medicaid enrollees for the upcoming fiscal year. At the end of every fiscal year, NEMS is required to report its actual costs to the Department of Health Care Services (DHCS), the agency tasked with administering Medi-Cal, so that the agency can determine whether the SFHP's prospective payments fully compensated NEMS for its Medicaid-related costs that year. 42 U.S.C. § 1396a(bb)(5). If the report reveals that SFHP's prospective payments exceeded NEMS's actual Medicaid costs for the year, then NEMS must return any excess funding it received to DHCS. If the report shows that SFHP's payments fell short of NEMS's actual costs for the year, then DHCS must make up the shortfall by paying NEMS the difference. This process, which the Medicaid Act requires all FQHCs to complete, is known as the annual "reconciliation."

In the present case, the state and federal governments allege that NEMS knowingly underreported the amount of funding it received from SFHP on the reconciliation reports it submitted to DHCS between 2001 and 2010. Docket No. 26, Complaint-in-Intervention § 2. As a result, the governments claim, "NEMS received inflated year-end payments from Medi-Cal." Id.

Two former NEMS employees, Loi Trinh and Ed Ta-Chiang Hsu, initiated this action in May 2010 by filing a qui tam suit on behalf of the governments after they learned of the potential misreporting. Id . §§ 36-37. After investigating Hsu and Trinh's allegations, the federal government elected to intervene in August 2012, Docket No. 17, and the State followed suit in January 2013, Docket No. 24. Two weeks later, on January 15, 2013, the governments filed their joint complaint-in-intervention, alleging violations of the FCA and CFCA and asserting claims for unjust enrichment, fraud, concealment of material facts, intentional misrepresentation, and negligent misrepresentation. Compl.-in-Interv. §§ 38-77. Their complaint charges NEMS with extracting millions of dollars in inflated reconciliation payments from Medi-Cal. Id . §§ 31-33.


I. Subject Matter Jurisdiction

Subject matter jurisdiction is a threshold issue which goes to the power of the court to hear the case. Federal subject matter jurisdiction must exist at the time the action is commenced. Morongo Band of Mission Indians v. Cal. State Bd. of Equalization , 858 F.2d 1376, 1380 (9th Cir. 1988). A federal court is presumed to lack subject matter jurisdiction until the contrary affirmatively appears. Stock W., Inc. v. Confederated Tribes , 873 F.2d 1221, 1225 (9th Cir. 1989).

Dismissal is appropriate under Rule 12(b)(1) when the district court lacks subject matter jurisdiction over the claim. Fed.R.Civ.P. 12(b)(1). A Rule 12(b)(1) motion may either attack the sufficiency of the pleadings to establish federal jurisdiction, or allege an actual lack of jurisdiction which exists despite the formal sufficiency of the complaint. Thornhill Publ'g Co. v. Gen. Tel. & Elecs. Corp. , 594 F.2d 730, 733 (9th Cir. 1979); Roberts v. Corrothers , 812 F.2d 1173, 1177 (9th Cir. 1987).

II. Failure to State a Claim

A complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). On a motion under Rule 12(b)(6) for failure to state a claim, dismissal is appropriate only when the complaint does not give the defendant fair notice of a legally cognizable claim and the grounds on which it rests. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 (2007). In considering whether the complaint is sufficient to state a claim, the court will take all material allegations as true and construe them in the light most favorable to the plaintiff. NL Indus., Inc. v. Kaplan , 792 F.2d 896, 898 (9th Cir. 1986). However, this principle is inapplicable to legal conclusions; "threadbare ...

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