On May 9, 2011, a federal district court in the Northern District Court of Indiana in the case of United States ex rel. McCoy v. Madison Center, No. 3:10-CV-259-RM (N.D. Ind. May 9, 2011) , dismissed as untimely the State of Indiana’s complaint-in-intervention in its entirety and the relators’ state law claim brought under the Indiana False Claims and Whistleblower Protection Act (“IFCWA”). In 2005, the relators filed a qui tam complaint in federal court in Indiana on behalf of the federal government and the State of Indiana, alleging violations of both the federal False Claims Act and IFCWA by the defendant, Madison Center, and sought recovery for injuries suffered by both the federal government and the State. Defendant is a non-profit psychiatric hospital serving Medicaid-eligible patients, including children.

The relators alleged that, from May 2002 to the time of the complaint in 2005, the defendant routinely submitted Medicaid reimbursement claims for psychiatric treatment of children without maintaining adequate documentation of medical necessity or treatment plans, fabricated medical records to justify reimbursement claims for the children, and improperly billed for non-reimbursable services or for services not provided. In June 2003, the relators warned the State that the defendant was trying to fabricate or “doctor” medical records in anticipation of an upcoming Medicaid audit, which prompted Indiana Medicaid auditors to raid the defendant’s office and initiate an immediate audit. The audit eventually estimated Medicaid overpayments to defendant between 2001 to 2002 of about $11 million.

The federal government declined to intervene in 2009. However, the State of Indiana filed a notice of intervention and a separate complaint in 2010 asserting state law claims for Medicaid fraud against the defendant under the IFCWA, common law fraud, breach of contract and unjust enrichment. The State’s complaint alleged, among other things, that the defendant failed to document its billings correctly, failed to maintain adequate documentation to support reimbursement claims, utilized incorrect units of service and lacked patient treatment plans.

Indiana’s complaint-in-intervention was held to be untimely because the court found that it sought to assert new claims and legal theories that did not arise from the same transaction or occurrence as the qui tam complaint. Although the court acknowledged that the State’s complaint covered the same time period and was based on findings from the June 2003 audit, which was prompted by the relators, the court also found that the relators’ complaint was limited to claims submitted on behalf of children and to claims of retaliation. Thus, the 6-year limitations period under the IFCWA barred the State’s claims, which effectively arose in June 2003 when the audit was completed.

The court also held that while the federal FCA claims may be preserved, the relators could not pursue any state law claims under the IFCWA because the statute was not enacted until 2005 and did not permit retroactive application. The court rejected arguments from both the relators and the State that the continuing nature of the defendant’s conduct mooted any retroactivity or statute of limitations defenses, because the complaints in question contained only generalized accusations and failed to allege any specific examples of fraud after June 2003, as required to sustain a continuing violations theory.

In reaching this decision, the court observed that 31 U.S.C. §3732(b) permits states to intervene and join state law claims for the recovery of state funds with federal FCA claims seeking the recovery of federal funds, as long as the state claims arise from the same transaction or occurrence as the federal claims. On the other hand, the state’s right to intervene under this section is permissive only and subject to the discretion of the court. Because Indiana had waited at least 7 years since its discovery of the fraud and more than 4 years since the relators’ original complaint to file its own complaint, the court found the State’s intervention to be untimely.