In United States v. Caremark, Inc., Case Nos. 09-50727 and 09-51053, the Fifth Circuit held that a pharmacy benefits manager may be found liable under Section 3729(a)(7) of the federal FCA under a theory of “indirect reverse false claims.” In 1999, a former employee of pharmacy benefit manager, Caremark, Inc., filed a qui tam suit on behalf of the United States, Arkansas, California, Florida, Illinois, Louisiana, Tennessee and Texas. The complaint alleged that Caremark had improperly denied reimbursement requests for patients that were eligible for dual coverage under the private health plan administered by Caremark as well as under Medicaid. Although states generally receive at least 50% of their funding from the federal government for Medicaid expenditures, federal regulations also require the states to seek reimbursement from private insurers for dual-eligible patients and do not provide for federal funding in such instances. Thus, Caremark’s rejection of coverage to otherwise eligible patients allegedly caused the federal and state governments to pay claims that should have been paid by Caremark. The United States and the various states intervened in this action in 2005 and 2006.  

Since the claims at issue accrued prior to Congress’ amendment of the FCA under the Fraud Enforcement and Recovery Act (FERA) on May 20, 2009, the pre-FERA version of the federal FCA applied, which attaches liability under Section 3729(a)(7) when a person “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 [federal] Government.”

Because the alleged false statements were premised on Caremark’s denial of coverage rather than on the submission of any claim for reimbursement, the Fifth Circuit viewed the conduct in question as a “reverse” false claim. Moreover, because the alleged false statements were not made directly to the federal government but rather to state Medicaid agencies, the court characterized this as an “indirect” reverse false claim. The Fifth Circuit then held that if the government is able to prove that Caremark knowingly made false statements to the states knowing that these statements could cause the states to impair their obligation to the federal government, Caremark will be liable under Section 3729(a)(7). The Fifth Circuit's decision reversed the district court's holding that Caremark did not have any obligation to the federal government for denials of reimbursement requests that Caremark submitted to state Medicaid agencies.