Opinion ID: 787607
Heading Depth: 2
Heading Rank: 4

Heading: The Failure to Give Medicaid 100% Credit for Returned Medications

Text: 51 The reverse false claim provision of the FCA imposes liability on any person who knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government. 31 U.S.C. § 3729(a)(7). To make a prima facie case of liability under § 3729(a)(7), the plaintiff must prove that the defendant did not pay back to the government money or property that it was obligated to return. The District Court held that Pompton was not liable under the reverse false claim provision because it found that Pompton is under no legal obligation to credit Medicaid for returned medications. A prerequisite for liability under this theory is a legal obligation to credit Medicaid 100% for returned medications. The District Court noted that there is no federal or New Jersey Medicaid statute or regulation which specifically requires that Pompton do so. Id., at 15-16. 52 Quinn asserts that Pompton's failure to give 100% credit to Medicaid violated § 3729(a)(7) of the FCA. Quinn argues that § 8:39-29.4(j) of the New Jersey Administrative Code imposes a legal obligation on Pompton to credit Medicaid for returned pharmaceuticals. That section provides: 53 Where allowable by law, the facility shall generate a crediting mechanism for medications dispensed in a unit-of-use drug distribution system, or other system that allows for the re-use of medications. The crediting system shall be monitored by the provider pharmacist and a facility representative. 54 Pompton maintains that § 8:39-29.4(j) does not impose an obligation to credit Medicaid because Pompton is not a facility. Quinn responds that § 8:39-29.4(j) does require Pompton to credit Medicaid for returned medications because the definition of facility includes pharmacies. Quinn argues that this section requires Pompton to credit Medicaid 100% because credit means full credit, and [i]f something less than full credit was acceptable to the State, then the regulation would have said so. 55 As the District Court noted, [i]t is debatable whether ... [N.J.A.C. § 8:39-29-4(j)] even governs the conduct of Medicaid pharmacies. Section 8:39-29-4(j) is a regulation promulgated by the Department of Health and Senior Services, not Medicaid. The regulation appears under Chapter 39, which is titled Standards for Licensure of Long-Term Care Facilities. This alone suggests that nursing homes, as opposed to pharmacies, are required to create a crediting mechanism. 56 The term facility is defined as a facility or distinct part of a facility licensed by the New Jersey State Department of Health and Senior Services as a long-term care facility. N.J.A.C. § 8:39-1.2. Pompton is not a facility within this definition because it is not licensed as a long-term care facility. Furthermore, it does not make sense for Pompton, a pharmacy, to be considered a facility within the regulation's definition when, if it were considered a facility, it would, in addition, have to maintain a pharmacy. See id. § 8:39-29.1 (facilities shall have a consultant pharmacist and either a provider pharmacist, or if the facility has an in-house pharmacy, a director of pharmaceutical services). 57 Although Pompton is not a facility, the second sentence of the regulation requires Pompton, because it is a provider pharmacist, to monitor the facility's crediting system. See id. § 8:39-29.4(j). Therefore, Pompton, acting as a long-term care facility's mandatory pharmacy provider, does have an obligation under this regulation to observe, watch, or check the crediting mechanism put in place by the long-term care facility. See id. § 8:39-1.2. This obligation to monitor, however, does not expressly include an obligation to credit Medicaid for returned medications. 58 Quinn cites two passages in the New Jersey Register in support of his argument that Pompton has an obligation to credit Medicaid for returned medications. The first passage states: 59 The Department anticipates significant cost savings will accrue as a result of N.J.A.C. § 8:39-29.4(j) ... The rule discontinues the current requirement to destroy all unused medications ... [T]he product is returnable and can be dispensed again by the retail pharmacy. Although no statewide dollar impact is available, literally thousands of dollars of medications are destroyed by many facilities monthly. Both private pay consumers and the State Medicaid program will benefit from this proposed rule. 60 26 N.J.R. 1776 (Monday, May 2, 1994). The other passage states: 61 The economic impact of this amendment should result in savings to residents and families and third party payors such as Medicaid. These savings will occur as a result of drugs which will be returned to the pharmacy for credit. Drugs which have been ... returned to the pharmacy will be credited to that resident ... The overall savings to residents, families and Medicaid may exceed $200,000. 62 29 N.J.R. 4415(a) (Monday, October 20, 1997). These two passages do lend support for Quinn's argument that state officials expected N.J.A.C. § 8:38-29.4(j) to result in savings for Medicaid as a result of crediting. It nevertheless is not clear who has an obligation to credit and how much credit is required to be given. 63 Even if the regulation imposed upon Pompton an obligation to credit Medicaid, as the District Court noted, it does not impose upon them a requirement that they credit Medicaid any specific amount for returned medications. Quinn, slip op. at 16. Quinn argues that credit means 100%. We conclude, however, that, in light of the absence of a clear obligation to credit Medicaid and the absence of any Medicaid or other regulation requiring provider pharmacies to credit at a specific rate, we can not impose FCA liability on Pompton. 17 64 Quinn also argues that Pompton, by deducting 50% to cover the costs of recycling, violates N.J.A.C. § 10:49-14.5. This Medicaid regulation provides: A provider shall not pay nor require payment of an administrative charge or service fee ... for services for which reimbursement is included as part of the Medicaid ... fee. The District Court rejected Quinn's argument, noting that it assumes that such a restocking fee pays for a service `for which reimbursement is included' in other Medicaid payments.... Id. 65 Quinn argues that the capitation payment Medicaid pays to Pompton for medications dispensed to Medicaid beneficiaries is understood to include the costs associated with returns. N.J.A.C. § 10:51-2.7, titled Prescription dispensing fee (capitation) provides, in relevant part: 66 (a) The New Jersey Medicaid and NJ KidCare programs capitate the dispensing fee for each prescription for beneficiaries in Medicaid-approved nursing facilities... Additional dispensing fees (add-ons) per prescription shall be given to pharmacy providers who provide the following levels of services: 67 1. Twenty-Four Hour Unit Dose Service: Pharmacies ... dispensing medication in a dispensing system in which a 24-hour supply of unit dose oral medication... is delivered for each beneficiary daily, shall be reimbursed the cost of all reimbursable medication plus a fee of $0.656 per beneficiary day. 68 Edward Vaccaro, Assistant Director of the Office of Health Service Administration within DMAHS, explained in his depositions that [t]he capitation ... attempts to compensate the pharmacy for different costs associated with delivery systems, which is why the 24-hour unit dose is the higher capitation.... He also stated that [c]apitation is intended to reimburse providers of long-term care pharmacy services for the costs associated with the dispensing of drugs ... [and][i]n the case of long-term care, I would consider recycling to be part of dispensing. Because only unit dose drugs may be recycled, it may be fairly understood by Vaccaro that the capitation fee covers the costs of redispensing the returned drugs. However, as Vaccaro admitted, there is no regulation that explicitly bars the collection of a restocking and redispensing fee. Furthermore, § 10:51-2.7 does not indicate that the cost of restocking and redispensing returned medications is included in the capitation payment. Therefore, Pompton is not charging an administrative charge or service fee ... for services for which reimbursement is included as part of the Medicaid... fee. N.J.A.C. § 10:49-14.5. 69 Finally, Quinn argues that Pompton acknowledges an obligation to fully credit Medicaid by submitting reimbursement checks to Medicaid. Nevertheless, in order for there to be liability under § 3729(a)(7) of the FCA, a misrepresentation must be made to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government. 31 U.S.C. § 3729(a)(7). Even if Pompton's payments are implicit representations that they are giving full credit, without a clear obligation to credit Medicaid, these representations are not made to avoid or decrease a legal obligation. As the District Court noted, [e]ven if the relevant regulations could be construed to contain such an obligation, the lack of clear legal authority might preclude any finding that Defendants breached the obligation with the requisite level of knowledge. Quinn, slip op. at 19, n.16. 70 We conclude, therefore, that the failure to credit 100% of the cost of the medication is not a basis for FCA liability. 18