COMMONWEALTH OF VIRGINIA v. COMMONWEALTH OF VIRGINIA, EX REL., HUNTER LABORATORIES, LLC, ET AL.
Record No. 170995
Supreme Court of Virginia
August 9, 2018
JUSTICE STEPHEN R. McCULLOUGH
PRESENT: All the Justices
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Thomas P. Mann, Judge
The relators in this qui tam case filed this action alleging that several laboratories illegally inflated the bills they submitted to Virginia’s Medicaid program. The case ultimately settled and the Commonwealth approved the settlement. The relators and the Commonwealth agree that the relators are entitled to 28% of the proceeds of the settlement. They disagree, however, with respect to whether that 28% share should come out of the total, or gross, proceeds of the settlement, or whether the 28% share should come out of the Commonwealth’s net share of the proceeds, specifically, what remains after the Commonwealth has refunded a portion of the proceeds to the United States. The trial court found in favor of the relators, concluding that they were entitled to receive 28% of the gross proceeds of the settlement. For the reasons noted below, we agree with the relators, and accordingly we affirm the judgment below.
BACKGROUND
I. FCA, VFATA AND MEDICAID PROGRAMS.
A suit brought by a private party on behalf of the state is known as a qui tam suit. These lawsuits are sometimes referred to colloquially as “whistleblower” suits. Qui tam is an abbreviation for the Latin phrase ”qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which means “who pursues this action on our Lord the King’s behalf as well as his own.” Vermont Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765, 768 n.1 (2000). Qui tam plaintiffs are referred to as “relators.” Although the concept originated in medieval England, it became part of the law of the United States in 1863 when President Lincoln persuaded Congress to enact the False Claims Act (“FCA“), ch. 67, §§ 1-9, 12 Stat. 696 (codified as amended at
The Virginia Fraud Against Taxpayers Act (“VFATA“),
the purpose of the statutory scheme is clear. The FCA is designed to help fight fraud against the government by encouraging private individuals to come forward with information about fraud that might otherwise remain hidden. The encouragement is provided by giving these individuals a relator’s share of any recovery obtained using the relator’s information in an FCA action, or an equivalent share of a recovery obtained using that same information to procure an “alternative remedy.”
United States ex rel. Barajas v. United States, 258 F.3d 1004, 1012 (9th Cir. 2001).
VFATA allows a private party to file a complaint on behalf of the Commonwealth alleging fraud against the Commonwealth.
If there is a recovery, the law entitles the relator to a portion of the recovery. The relator’s share is smaller if the Commonwealth elects to proceed with the action,
Medicaid is a joint federal and state program. As a general proposition, the federal government contributes approximately 50% of the funding of Virginia’s Medicaid program. See
II. THE QUI TAM CASE AND ITS SETTLEMENT.
The relators in this case filed a complaint alleging that, starting November 1, 1997, the defendant laboratories defrauded the Commonwealth’s Medicaid program by overcharging for certain lab tests. The Commonwealth declined to intervene and the case was unsealed. Ultimately, the relators settled with the defendants in the amount of $1,250,000. The defendants did not admit liability. The Commonwealth approved the settlement.
Following this settlement, the Commonwealth and the relators agreed that the relator’s share was 28% of the proceeds. However, the relators and the Commonwealth could not agree on how to calculate the proceeds of the settlement. The relators argue that the “proceeds of the settlement” means 28% of the gross proceeds of $1,250,000. The Commonwealth maintains that because Medicaid is a jointly funded state and federal program, the relator’s 28% must come from the Commonwealth’s share after deducting the portion of the settlement that it must return to the United States government as an “overpayment.” Twenty-eight percent of the gross
ANALYSIS
I. THE TERM PROCEEDS IN CODE § 8.01-216.7(B) MEANS GROSS PROCEEDS RATHER THAN NET PROCEEDS.
We review questions of statutory construction de novo. Perreault v. Free Lance-Star, 276 Va. 375, 384, 666 S.E.2d 352, 357 (2008). “In construing [a statute], we must apply its plain meaning, and we are not free to add [to] language, nor to ignore language, contained in [it]. That is to say, [w]hen the legislature has used words of a plain and definite import the courts cannot put upon them a construction which amounts to holding the legislature did not mean what it has actually expressed.” Andrews v. Richmond Redevelopment & Hous. Auth., 292 Va. 79, 86-87, 787 S.E.2d 96, 100 (2016) (citations and internal quotation marks omitted).
This conclusion, that the proceeds of settlement means the gross proceeds, is fortified by the fact that, on fifty-four occasions, the General Assembly has employed the limiting word “net” in conjunction with the term “proceeds.” See, e.g.,
The Commonwealth argues that “Medicaid fraud recoveries obtained under the VFATA are inherently different from other types of fraud recoveries” because Medicaid is a jointly funded state and federal program. Appellant’s Opening Br. at 12; see
The Commonwealth does not make any arguments based on the statute’s plain language. Instead, it asserts that the VFATA was enacted with the chief purpose of returning misappropriated public funds to the treasury. Extrapolating from this intent, the Commonwealth posits that the share of a qui tam recovery to which the United States government is entitled must be deducted from the overall proceeds. Once this deduction is made, the relator’s share can be taken out of what remains. This procedure, it argues, will maximize the funds recovered by Virginia.
The pro rata share to which the United States is equitably entitled, as determined by the Secretary, of the net amount recovered during any quarter by the State . . . with respect to medical assistance furnished under the State plan shall be considered an overpayment to be adjusted under this subsection.
(emphases added). This statute employs the term “net amount recovered” and speaks of a share to which the United States is “equitably entitled.”
In 2008, the United States Department of Health and Human Services (“HHS“) sent a letter to state officials which stated that
For State [False Claims Act] legal actions neither the relator’s share, nor legal expenses (whether borne by the State or the relator) or other administrative costs arising from such litigation, may be deducted from the Federal portion of the entire proceeds of the litigation.
Following a lawsuit brought by the State of Alabama, however, a United States District Court vacated this letter and entered an order of remand to afford the Centers for Medicare & Medicaid Services the opportunity to promulgate a new rule that complies with the notice and comment requirements of the Administrative Procedure Act. See Alabama v. Centers for Medicare & Medicaid Services, 780 F. Supp. 2d 1219, 1232 (M.D. Ala. 2011). No regulations or guidance have since been issued.
The United States points out in its amicus brief that “HHS has not yet made an adjustment to Virginia’s federal Medicaid funding in light of the settlement in this case.” United States Amicus Br. at 6. Furthermore, once HHS has determined the federal share of this settlement, Virginia has the option of contesting HHS’s determination concerning the amount of the “overpayment.” Id. at 7. The argument the Commonwealth advances, that the United States is entitled to a full repayment undiluted by the cost of the relator’s share, does not find any support in the text of federal statutes, case law, or United States regulations or guidance.
reduction in the relator’s share will produce more revenue from qui tam actions than construing “proceeds” to mean gross proceeds. A significant reduction in the relator’s share will discourage relators from bringing these lawsuits. The Commonwealth receives nothing when a relator decides to stay home and foregoes the risk and expense associated with a qui tam suit. Speculation about the potential for the Commonwealth to recover less from qui tam actions constitutes an insufficient basis upon which to depart from what constitutes the most natural, plain language reading of
II. THE RECORD IS INSUFFICIENT FOR US TO DETERMINE WHAT CLAIMS MIGHT PREDATE THE ENACTMENT OF THE VFATA.
The relators alleged that the excessive billing took place from November 1, 1997 to September 25, 2014. VFATA’s effective date was January 1, 2003. Noting that the retroactive application of statutes is disfavored, see, e.g., Bailey v. Spangler, 289 Va. 353, 358-59, 771 S.E.2d 684, 686 (2015), the Commonwealth argues that there is no indication that the General Assembly intended for the VFATA to have retroactive effect and, consequently, the relators are not entitled to a share of the settlement proceeds from any false or fraudulent billings that were made prior to the VFATA’s effective date of January 1, 2003. The parties, however, settled for an undifferentiated amount of $1,250,000. The Commonwealth approved this settlement. Aside from blind guesswork, we
CONCLUSION
We will affirm the judgment of the trial court.
Affirmed.