Opinion ID: 781574
Heading Depth: 2
Heading Rank: 1

Heading: The DHS Audit Reports Were Public Disclosures.

Text: 13 Section 3730(e)(4)(A) provides that the source of a public disclosure must be a criminal, civil, or administrative hearing ... a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or ... the news media. Only public disclosures from one of these enumerated sources may give rise to the FCA jurisdictional bar. See, e.g., United States ex rel. Rabushka v. Crane Co., 40 F.3d 1509, 1513 n. 2 (8th Cir.1994), cert. denied, 515 U.S. 1142, 115 S.Ct. 2579, 132 L.Ed.2d 829 (1995). Hays and the United States as intervenor argue that the DHS audits and audit reports do not fall within the category of administrative ... report [or] audit because they were not conducted and prepared by an agency of the federal government. They rely upon United States ex rel. Dunleavy v. County of Delaware, 123 F.3d 734, 745 (3d Cir.1997), where the court reasoned that because the second use of the word administrative in § 3730(e)(4)(A) is surrounded by congressional and Government Accounting Office, Congress must have meant to include only reports, audits, and investigations of federal government agencies. The district court noted but did not address this issue. We reject the Third Circuit's textual approach and conclude that Medicaid compliance audits and audit reports conducted and prepared by the state agency authorized to administer this cooperative federal/state program are public disclosures within the meaning of § 3730(e)(4)(A). 14 In the first place, applying the Third Circuit's contrary ruling to the federal Medicaid and Medicare programs would produce anomalous results. When Congress amended the FCA in 1986, it defined claim to include requests for money made to grantees of the federal government, see 31 U.S.C. § 3729(c). The legislative history explained this was done to clarify that false claims for FCA purposes include claims submitted to state agencies under the Medicaid program and other State, local, or private programs funded in part by the United States where there is significant Federal regulation and involvement. S. REP. No. 99-345 at 22, 1986 U.S.C.C.A.N. at 5287. It would be an inconsistent interpretation of the 1986 amendments to conclude that a fraudulent payment request submitted to DHS is a false claim against the United States for purposes of § 3729(c), but a DHS audit is not an administrative audit for purposes of § 3730(e)(4)(A) because DHS is not a federal agency. 15 In the second place, this subpart of § 3730(e)(4)(A) has not been rigidly limited to disclosures by federal agencies or legislative bodies in other contexts. For example, under Medicare, Congress has delegated many administrative tasks to private insurance companies. In Nurse Anesthetists, 276 F.3d at 1043-44, we described an audit performed by an insurer for the federal Department of Health and Human Services (HHS) as an administrative audit that could trigger the jurisdictional bar. Similarly, in United States ex rel. Schwedt v. Planning Research Corp., 39 F.Supp.2d 28, 31-33 (D.D.C.1999), the court held that public disclosures in an audit report prepared for the federal government by an outside accounting firm satisfied the jurisdictional bar. These cases suggest that anti-fraud compliance audits conducted by state or local agencies or private contractors should qualify as public disclosures if they are prepared by or at the behest of the relevant federal agency, or by or at the behest of a state agency that administers the federal grant program under significant Federal regulation and involvement. 16 Construing the term administrative ... report [or] audit in this fashion, we conclude that the DHS audits here in question, like the private Medicare audits at issue in Schwedt, clearly qualify. Medicaid, codified at 42 U.S.C. §§ 1396 et seq., is a cooperative federal-state program through which the federal government provides financial assistance to assist States in furnishing health care to the poor. See Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990). State governments administer Medicaid, but they function under detailed federal statutory and regulatory controls in exchange for fifty percent federal financing. Participating States must develop a state plan for medical assistance, develop cost-based payment rates to reimburse medical providers for services rendered to eligible recipients, and designate a single agency to evaluate cost reports submitted by private vendors of health services and reimburse vendors for allowed expenses. See 42 U.S.C. § 1396a(a); 42 C.F.R. § 431.10(b)(1). The designated agency, here DHS, must audit records that support cost-based payments to vendors. 42 C.F.R. § 447.202. And it must adopt a Fraud Detection and Investigation Program meeting strict federal standards. The agency must conduct a preliminary investigation whenever it receives a complaint of Medicaid fraud or abuse from any source. It must request a full investigation by the state's Medicaid Fraud Control Unit [i]f the findings of [the] preliminary investigation give [DHS] reason to believe that an incident of fraud or abuse has occurred in the Medicaid program. 42 C.F.R. §§ 455.14, 455.15(a); see also MINN. STAT. § 256B.04, subd. 10. And it must report the findings of those investigations to HHS, 42 C.F.R. § 455.17(b), setting the stage for either federal or state criminal or civil enforcement actions. See MINN. RULES § 9549.0041, subp. 15.C. 17 Viewed from this perspective, the Third Circuit's decision in Dunleavy is readily distinguishable on the facts. The alleged public disclosure in that case was a county Grantee Performance Report submitted to the Department of Housing and Urban Development by the unit of local government accused of violating the FCA. As the Third Circuit noted, those reports have been compiled and produced by a party whose principal motivation (assuming the truth of the fraud claim) is the elimination of the paper trail of fraud. 123 F.3d at 745. Moreover, under the federal grant program at issue in Dunleavy — the Housing and Community Development Act of 1974 — grantee compliance audits are conducted by federal agencies, HUD and the General Accounting Office. See 42 U.S.C. § 5304(e), (f). Congress did not delegate that function to a state agency, as is the case with Medicaid. Thus, while we do not disagree with the Third Circuit's decision in Dunleavy, we conclude the court ruled more broadly than necessary in stating that a state agency disclosure may never be an administrative ... report [or] audit for purposes of § 3730(e)(4)(A). 18