The Texas Supreme Court has agreed to hear a Dallas-area dentist’s appeal in a qui tam action involving about $538,000 in allegedly fraudulent Medicaid claims.
Richard J. Malouf, D.D.S. v. The State of Texas Ex Rels. Dr. Christine Ellis, D.D.S., and Madelayne Castillo (No. 22-1046, granted November 10, 2023; No. 08-20-00235-CV, issued October 14, 2022) stems from two qui tam actions against the dentist for Medicaid fraud commenced in 2012. The State intervened in late 2012. For the following seven years, the case went round and round, eventually reaching the summary judgment stage in 2020. A Travis County trial court granted the State’s motion for partial summary judgment on the alleged violations of the Texas Medicaid Fraud Prevention Act (Ch. 36, Human Resources Code). The State and Relators moved for expenses and attorney’s fees, which the trial court granted. The court entered a final judgment in favor of the State for $538,227.45 in fraudulent claims (plus 5% annual interest accruing since January 31, 2010) but whacked the dentist with more than $9.2 million in per violation minimum civil penalties (yes, you read that right). The judgment also awarded two times the fraudulent claims award for another $1,076,456.90. To summarize, a half-million-dollar Medicaid fraud case may end up costing the dentist more than $10 million in statutory damages, interest, and penalties. Yikes.
But that’s not the end of it. Chapter 36 authorizes the attorney general to “recover fees, expenses, and costs reasonably incurred in obtaining injunctive relief of civil penalties or in conducting investigations under this chapter, including court costs, reasonable attorney’s fees, witness fees, and deposition fees” (§ 36.007, HRC). It further allows private plaintiffs to “receive from the defendant an amount for reasonable expenses, reasonable attorney’s fees, and costs that the court finds to have been necessarily incurred” (§ 36.110(c)). The judgment awarded the attorney general $4,345,647 for attorney’s fees and $265,200.32 for costs and expenses. The two private plaintiffs got a total of nearly $1.1 million in fees and just over $9,000 in costs and expenses. Again, we’re talking about a case involving a half-million dollars in contested claims.
The dentist appealed the judgment. The appeal was docket-equalized from the Austin to the El Paso Court of Appeals, which upheld the trial court’s judgment as to everything but the State’s attorney’s fees. Here the court of appeals ruled that the method of calculating those fees based on a local private-sector market rate was improper. Chapter 36 authorizes the attorney general to recover fees “reasonably incurred,” meaning, according to the court, that such recovery “be limited to …the amount for which [the attorney general] became liable. That means a lodestar calculation based on local private-sector market rates is inappropriate in this case because the State was not liable for those rates. Instead, its attorney’s fee award must be limited to the court costs, attorney’s fees, witness fees, and deposition fees it actually paid, so long as it establishes that amount if reasonable and necessary.”
In his petition for review, the dentist contests the trial court’s grant of summary judgment despite a genuine issue of material fact as to whether he knowingly submitted fraudulent claims. The trial court determined that the dentist’s denial in his deposition testimony that he actually knew that his provider number was used on the claims when the services were provided by someone else was self-serving and disregarded it. The court of appeals upheld the trial court’s exercise of discretion and found other evidence in the record that the dentist had the requisite knowledge but submitted the claims anyway. The court likewise rejected the dentist’s argument that the trial court erred in granting summary judgment to the State because the State failed to prove that any of the contested claims contained an incorrect license type as required by statute.
One issue that is not, it appears, before SCOTX is the dentist’s argument that the civil penalties imposed upon him are unconstitutionally excessive. Just prior to trial (and after the case had been churning for eight years) the dentist sought leave to amend his pleading to add the constitutional challenge. The trial court denied leave, and the court of appeals affirmed, holding that allowing the new claims would change the whole nature of the case and cause prejudice to the State. Nor is the attorney’s fee calculation issue, which the court of appeals remanded to the trial court and is still pending there. Nevertheless, we wonder exactly what got SCOTX’s attention here. There are certainly evidentiary and statutory construction issues of some moment, but we are frankly shocked by the civil penalty and fee awards. Something seems very much out-of-whack when the penalties and fees are about nine times the actual damages to the State, even including the statutory multiplier.
