A recent SDNY False Claims Act decision provides strong support for the argument that a false claim may not be based on conduct that follows federal or state rules and guidelines.
In United States ex rel. Doe v. Taconic Hills Central School District, relators alleged that the New York City Department of Education (“DOE”) and several school districts submitted fraudulent claims to Medicaid for case management services provided to disabled children when defendants had already received funding under the Individuals with Disabilities Education Act (“IDEA”).
New York State agencies receive federal grants under the IDEA, and distribute the funds to public school districts for the development of special education services. In addition, Medicaid provides federal funds to states for Targeted Case Management (“TCM”) services furnished to school children. The New York State Education Department issues a handbook that describes the type and scope of TCM services covered by Medicaid.
Relators alleged that defendants billed Medicaid for TCM services that had already been funded by IDEA grants. Relators argued that the school districts did not provide services beyond development and implementation of an Individualized Educational Program (“IEP”), which had been funded under the IDEA, and that billing Medicaid for those services was the presentation of a false claim.
Judge Crotty stated that the federal government approved New York’s Medicaid program, and it was then up to New York State to determine the standards and procedures for claims submission. The state provisions authorized schools to bill Medicaid for IEP reviews, regardless of whether they had received any IDEA funding. If there was a conflict between federal and state Medicaid regulations, the Court said, that was the fault of New York State. “[I]t is not appropriate to hold DOE liable for submitting a ‘false claim’ when it complied with all applicable regulations and therefore did absolutely nothing wrong.”
The Court questioned whether federal law is violated when a school bills Medicaid for services that also received IDEA funding. Even if it were a violation, however, the Court held that relators failed to sufficiently allege that defendants acted knowingly. The DOE billed Medicaid “under the exact procedures set up by the State. . . . As a result, it would have been impossible for the DOE to know that billing Medicaid – using rate codes provided by the State and approved by the Federal government – violated federal law.”
The Taconic Hills decision provides defendants with a strong argument that reliance on federal or state guidance can defeat a False Claims Act case by undermining the requirement that a false claim be presented with knowledge of its falsity.