This morning SCOTX will hear oral arguments in a case analyzing the materiality requirements of “false statement” and “omission” claims under the Texas Medicaid Fraud Prevention Act (TMFPA). The Houston [1st] Court of Appeals reversed and remanded a lower court’s grant of summary judgment in favor of a provider accused of bilking the state on a large scale.
Laboratory Corporation of America Holdings d/b/a Laboratory Corporation of America v. The State of Texas and NPT Associates (No. 25-0127; No. 01-23-00043-CV; December 31, 2024) arose from LabCorp’s alleged breach of Texas Medicaid’s best-price regulations requiring participants to agree to “charge no higher rates to the Texas taxpayer than it charges to private customers.” Violations of these provisions are enforceable via the Texas Medicaid Fraud Protection Act. NPT Associates previously used the TMFPA in 2013 when it launched a qui tam action against LabCorp in Travis County, triggering the OAG’s investigative and enforcement duties. Based on its investigation, the State concluded that LabCorp had violated both Texas Medicaid’s best-price regulations and anti-kickback rules. Subsequently, in its January 2021 petition, the State claimed LabCorp: (1) engaged in discounted pricing agreements with health insurance companies (ie. Humana, Cigna, UnitedHealthcare, Blue Cross and Blue Shield of Texas), (2) approved special-price-requests from Texas healthcare providers, and (3) made “Out of Network Laboratory Services Agreements” with healthcare providers waiving lab fees for patients whose health insurance coverage required they use a different lab. Since the lab-testing fees LabCorp gave to non-Medicaid payors were discounted relative to those it submitted to Texas Medicaid for reimbursement, LabCorp violated Texas’s best-price regulations.
Consequently, the State sued LabCorp, alleging breach of TMFPA sections 36.002(1) by submitting unlawful reimbursement claims under § 36.002(2) (the “omission provision”) by failing to rectify overpayments under § 36.002(1) & (4)(B) (the “false statement provision), and for making false statements on its provider agreements §§ 36.002(1), (2), (4)(B). LabCorp moved for summary judgment on the best-price allegations, arguing that each of the aforementioned TMFPA provisions contained a materiality requirement, “either explicitly or implicitly,” that could not be met since the State continued to pay LabCorp’s claims despite allegedly knowing about its billing practices. The trial court granted the motion. The State non-suited its anti-kickback claims without prejudice and the court entered a final judgment in November 2022. The State appealed, arguing that materiality was not required under the pertinent TMFPA provisions and that even if it was, the State had sufficiently raised a genuine issue of material fact based on (1) the millions of claims LabCorp had sent Texas Medicaid for greater reimbursement on the same services, and (2) evidence of more than 100 Texas Medicaid provider agreements promising that LabCorp would follow the State’s best-price regulations.
In an opinion by Justice Kelly, joined by Chief Justice Adams and Justice Rivas-Molloy, the court of appeals agreed with the State that summary judgment had been unwarranted under the omission provision since the statute’s plain language did not require materiality. The omission provision provides that “knowingly conceal[ing] or “fail[ing] to disclose information that permits a person to receive a benefit or payment under a health care program that is not authorized or that is greater than the benefit or payment that is authorized” is unlawful. § 36.002(2). Reviewing this language de novo, the court found nothing to suggest that a failure to disclose had to be “material” as the term, which appears in three other § 36.002 provisions for unlawful acts, was absent from the omission provision. The court concluded that omitting the term indicated the Legislature’s intent not to impose a materiality requirement under the omission provision. LabCorp responded that the omission provision’s use of the word “permit” implied a materiality requirement, but the court didn’t bite. Noting that § 36.002(1), which prohibits “knowingly making… a false statement or misrepresentation of a material fact to permit” an unauthorized payment, contains both “material” and “permit,” the court reasoned that if the latter implied materiality, it would be superfluous to include both. Thus, the Legislature’s use of “permit” could not be construed as a materiality requirement.
Citing Universal Health Servs., Inc. v. U.S. ex. rel. Escobar, 579 U.S. 176, 185 (2016), LabCorp argued that SCOTUS had recognized the omission provision’s ‘implied materiality.’ In Escobar, the Supreme Court established that “common law could not have conceived of ‘fraud’ without proof of materiality” under the False Claims Act (FCA). However, quoting SCOTX, the court determined that although the FCA is “similar in aim and tactic” to the TMFPA, it “employ[s] materially different language and the language of [our] statutes controls the outcome here.” On this basis, the court reasoned that it did not need to use common-law principles to interpret the “clear and unambiguous” language of the omission provision. Finally, LabCorp claimed that the court could not solely rely on the plain meaning of § 36.002(2) because something as “immaterial” as omitting a middle initial, for example, could prompt TMFPA enforcement measures. The court, however, reiterated that the provision required a “knowing” omission, not an inadvertent one. The trial court thus erred in granting summary judgment for LabCorp since the omission provision did not require materiality as a matter of law.
Turning to an analysis of the language of the false statement provision in §§ 36.002(1), (4)(B)), the court rejected the State’s argument that the provisions did not require false statements or misrepresentations to be material. The false statement provision prohibits “knowingly” making or causing to be made “a false statement or misrepresentation of a material fact” concerning “information required to be provided by a federal or state law, rule, regulation, or provider agreement pertaining to a health care program” or permitting a person to receive unauthorized payment under a healthcare program. What followed was a grammatical dispute, hinging on whether the modifier “material fact” applied only to the “misrepresentation” or also to the “false statement.” Citing the “last-antecedent canon,” the State argued that the phrase “material fact” only modified the nearest word, “misrepresentation,” thus exempting it from showing that Labcorp’s “false statement” was also material. LabCorp disagreed, applying the “series-qualifier canon” to suggest that the provision barred the known making of “a false statement of material fact” or “[a] misrepresentation of material fact.”. The court ignored both canons of construction, siding with LabCorp on grounds that the text’s meaning was “unambiguous” and construing it so that the phrase “material fact” modified both “false statement” and “misrepresentation.”
Finally, the State argued that the trial court erroneously ruled for LabCorp because materiality under the false-statement provisions remained a genuine issue of material fact. The court agreed. As mentioned above, the state alleged that LabCorp made false statements when submitting reimbursement claims and misrepresentations when submitting over a hundred signed agreements certifying its compliance with best-price regulations. LabCorp argued that the allegations were immaterial since the State continued to pay claims and allow LabCorp to participate in the Medicaid program despite knowing about its billing practices in 2014 and 2015. If LabCorp’s logic that paying a claim could preclude civil penalties were entertained, however, the lower court would effectively enable Medicaid fraud to go unremedied, consequently jeopardizing taxpayer dollars and deterring the State from swiftly providing necessary funds to treat Medicaid recipients. The court recognized this problem, opining that while the State’s continued payment of LabCorp’s claims may have been relevant to materiality, it was not conclusive of materiality as a matter of law.
As to LabCorp’s second claim, the parties disputed the extent to which Labcorp disclosed its billing practices. In summary judgment and on appeal, LabCorp asserted that it relayed billing practices to the State in a 2014 presentation and 2015 white paper. However, the State pointed out that neither the presentation nor the white paper acknowledged the best-price regulations or LabCorp’s compliance with them. Furthermore, the State argued that both pieces concerned Labcorp’ conduct in 2013, before the suit, and made no mention of its regulatory compliance since then. The court stated that this evidence, while relevant to materiality, was inconclusive for summary judgment. Since questions remained over whether the State knew of LabCorp’s billing practices or that LabCorp had violated the best-price regulations when the State already paid them, as well as to what extent the payment of claims indicated materiality under the TMFPA, the State raised genuine issues of material fact. The court thus concluded that LabCorp was not entitled to summary judgment on the State’s false statement provision claims,and reversed and remanded the trial court’s decision.
TCJL Research Intern Shaan Rao Singh researched and substantially drafted this article.
