Carl Thulin v. Shopko Stores Operating Co., L
2014 U.S. App. LEXIS 21449
| 7th Cir. | 2014Background
- Relator Carl Thulin, a former Shopko pharmacist in Idaho, alleged Shopko’s pharmacy software (PDX/Condor) inflated Medicaid reimbursement for "dual-eligible" patients by billing Medicaid the difference between Medicaid rates and insurer payments rather than only the patient copay.
- Thulin attached 31 PDX system printouts (all Idaho transactions) and sued in the Western District of Wisconsin under the federal False Claims Act (FCA) and analogous laws of eight states; the government and states declined to intervene.
- Thulin’s legal theory relied on 42 U.S.C. § 1396k(a)(1)(A) and 42 C.F.R. § 433.145, arguing Medicaid obtained the private insurer’s negotiated price via assignment and Shopko’s billing thus submitted false claims.
- Shopko moved to dismiss under Rules 9(b) and 12(b)(6); the district court dismissed the FCA claim with prejudice as legally deficient and declined supplemental jurisdiction over state claims.
- On appeal the Seventh Circuit accepted the complaint’s factual allegations as true but held Thulin’s statutory interpretation was implausible and unsupported by regulations, industry billing standards (NCPDP 5.1), and controlling precedent; the FCA claim therefore failed as a matter of law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether claims submitted to Medicaid were "false" under the FCA because Medicaid had rights to private insurer negotiated prices via 42 U.S.C. § 1396k and related regs | Thulin: §1396k and 42 C.F.R. §433.145 assign beneficiaries' insurer-negotiated price to Medicaid, so billing above the patient copay to Medicaid made claims false | Shopko: §1396k governs assignment of recovery/payment rights from third parties (e.g., tort recoveries), not pharmacy contracted prices; industry standards and billing protocols did not require reporting copays | Court: Rejected Thulin's novel reading; statute/regulations and precedent show assignment relates to third-party recovery, not required price reporting; claim implausible and dismissed |
| Whether Thulin adequately pleaded "knowledge" (actual, deliberate ignorance, or reckless disregard) under FCA and satisfied Rule 9(b) heightened pleading | Thulin: Shopko is a sophisticated multi-regional company that developed PDX and therefore should have known billing obligations; attached PDX documents support scienter | Shopko: Practices conformed to billing protocols; plaintiff’s allegations of corporate sophistication are conclusory and insufficient under 9(b) | Court: Even assuming falsity, allegations of corporate size/sophistication were too vague to plausibly plead scienter; pleading failed Rule 9(b)/Iqbal standards |
| Whether district court erred in refusing supplemental jurisdiction over state-law claims after dismissing federal claim | Thulin: (Implicit) federal dismissal should not preclude state claims proceeding in same forum | Shopko: District court properly declined to retain supplemental jurisdiction after dismissing all federal claims | Court: Affirmed district court’s discretionary refusal to exercise supplemental jurisdiction; state claims dismissed without prejudice |
Key Cases Cited
- Camasta v. Jos. A. Bank Clothiers, 761 F.3d 732 (7th Cir.) (standard of review on Rule 12(b)(6))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (application of plausibility and dismissal of conclusory allegations)
- United States ex rel. King-Vassel v. (King-Vassel), 728 F.3d 707 (7th Cir.) (FCA scienter standards and Rule 9(b) pleading)
- United States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818 (7th Cir.) (elements of FCA false-record/statement claims)
- United States ex rel. Crews v. NCS Healthcare of Ill., Inc., 460 F.3d 853 (7th Cir.) (claim falsity may arise from violation of statute/regulation/contract)
- Wos v. E.M.A. ex rel. Johnson, 133 S. Ct. 1391 (2013) (interpretation of 42 U.S.C. § 1396k as assignment of recovery/payment rights rather than pricing entitlement)
- Ark. Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268 (2006) (limitations on Medicaid reimbursement recovery principles)