Fourth Circuit U.S. Court of Appeals Dismisses Virginia Whistle Blower Action

Wednesday, July 20, 2016
By George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law

On July 7, 2016, the U.S. Fourth Circuit Court of Appeals dismissed a lower court judgment and remanded to state court a qui tam action alleging certain medical laboratories defrauded Virginia’s Medicaid program. The whistle blower action was brought under the Virginia Fraud Against Taxpayers Act (VFATA).  Our firm has experience with this state law, having defended other healthcare providers sued under it.

The Qui Tam Action.

The relators in this case, Hunter Laboratories, LLC, and Chris Riedel, brought the qui tam action in December 2007 in a Virginia trial court alleging multiple medical laboratories took part in defrauding the government. According to the relators, the medical laboratories defrauded Medicaid by engaging in a "pull through" scheme. It was claimed that the defendants offered deep discounts for certain services to "induce" providers to use the labs, which generated "pull through" referrals for diagnostic testis for Medicaid-covered patients. The relators argued that the defendants violated Virginia's Medicaid regulations concerning fees, resulting in false claim submissions to the program.

The Court Says:  "No Federal Issues."

The Defendants had removed the case from the Virginia state trial court to the federal district court claiming it involved a federal question.  The basis for removal was that there was an allegation alleging the "pull through" theory, which hinged on the interpretation of a federal law—namely, the federal Anti-Kickback Statute.

According to the appeals court, this case didn’t necessarily raise any federal issues.  Therefore, the federal court did not have jurisdiction.  The court opined that the fact that Medicaid is a joint federal-state program "does not make a federal case out of every Medicaid dispute."

Who Had Jurisdiction?

The Fourth Circuit raised the question of whether the federal district court ever had jurisdiction in the first place. To prove the "pull through" theory, relators only had to show a violation of the Commonwealth’s Medicaid regulations—i.e., the undercharging for certain services to induce Medicaid referrals, and then overcharging the state when providing those same services to Medicaid patients, the appeals court explained.  It found that the district court didn’t have subject matter jurisdiction over the whistle blower action.  Therefore, it dismissed the case and ordered that it be remanded it to state court.

The U.S. District Court for the Eastern District of Virginia later dismissed the action after defendants settled for $1.25 million. Click here to read the motion to dismiss.

The Conclusion.

The lesson learned in this case and of this decision is that the mere fact that Medicaid “is jointly funded by the federal government and the Commonwealth does not make a federal case out of every Medicaid dispute.”  The court vacated the prior judgment and remanded to the district court for remand back to the state court, which is where it started almost nine years ago.

To read the court opinion in full, click here.

I'm not sure this opinion was correct.  Perhaps the Court felt that this was a matter that really should be tried by a state court instead of a federal court.  Perhaps the opinion oversimplifies the issues involved. Perhaps it was the defense strategy to just litigate this case as far as they could in federal court and then litigate some more in state court, driving the legal expenses and costs way, way up, a tactic we often see. Perhaps the Defendants did not make it clear that when speaking of the Medicaid Program, we are looking at a program which is promulgated pursuant to federal statutes and involves a majority of federal funding.  What is clear is that the Defendants were able to ties this case up for nine years and obtain what appears to be a favorable settlement, probably as a result.

The Medicaid Program was created by federal law and is regulated by federal law.   It was originally created in 1965 by the Social Security Amendments which added Title XIX to the Social Security Act, 42 U.S.C. §§ 1396, et seq.  The majority of Medicaid funding is federal funding in every state,  ranging anywhere from 51% to 76% (in Virginia, its is funded 51% by the federal government). Therefore, this had to be mostly federal money at issue in this case.

Contact an Experienced Health Law Attorney to Assist in Qui Tam Cases.

Our firm represents both relators (whistle blowers) and defendants in qui tam/false claims act/whistle blower cases.  We have assisted whistle blowers in perfecting and making such claims.

Our attorneys have successfully defended whistle blower cases, including one brought in Virginia state court under the Virginia Whistle Blowers Act. It is extremely important that the health care provider obtain experienced professional representation in responding to a Medicaid Program audit notice. There are many problematic legal issues that a Medicaid audit seeks to identify in such audits. Correct responses to audit questionnaires and the provision of complete, legible, well-organized, responsive medical records (and other supporting documentation) must be provided.

To find out more information on qui tam cases, click here to read one of my prior blogs.

If you have knowledge of false claims being filed against Medicare, Medicaid or any other type of government program, please contact us, and we will be happy to assist you. Our law firm represents health professionals and health care organizations almost exclusively. Yet, we have been involved in a number of whistleblower/qui tam cases, in which we represent the person who files the claim.

We have been involved in a number of qui tam cases, in which we represent the person who files the claim. We have developed relationships with recognized experts in health care accounting, health care financing, utilization review, medical review, and other experts that assist us in such matters.

The Health Law Firm and its legal professionals represent health care providers in health care fraud cases including False Claims Acts, Medicare and Medicaid fraud and qui tam or whistleblower cases. These include physicians, medical groups, mental health professionals, pharmacies, nursing homes, home health agencies, hospitals and other health facilities. To contact The Health Law Firm, please call (407) 331-6620 or (850) 439-1001 and visit our website at


“Fourth Circuit U.S. Court of Appeals Says Virginia Whistleblower Action Alleging Medicaid Fraud Belonged in State Court.” AHLA Weekly. (July 15, 2016). Web.

About the Author: George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law.  He is the President and Managing Partner of The Health Law Firm, which has a national practice.  Its main office is in the Orlando, Florida, area.  The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone: (407) 331-6620.

KeyWords: False Claims Act (FCA) lawyer, submitting false claims, Virginia Medicare fraud attorney, whistleblower's lawyer, Virginia Health lawyer, qui tam false claims act legal counsel, health care fraud attorney, false medical billing claims attorney, Virginia whistleblower defense attorney, False Claims Act defense lawyer, federal health care programs, qui tam defense lawyer, health care law attorney, health care fraud scheme, Medicaid fraud attorney, health care professional legal representation, health care fraud defense lawyer, health law, Florida health law attorney, The Health Law Firm

“The Health Law Firm” is a registered fictitious business name of George F. Indest III, P.A. – The Health Law Firm, a Florida professional service corporation, since 1999.
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