Alleged Fraudulent Submission of Medicaid Claims Does Not Constitute Rendering or Failure to Render Medical Professional Services

Applying North Carolina law, the United States District Court for the Middle District of North Carolina has held that an insurer had no duty to defend or indemnify an insured for a qui tam action alleging false Medicaid reimbursement submissions because the suit failed to allege a claim arising out of the rendering of or failure to render medical professional services.  Affinity Living Grp., LLC v. StarStone Specialty Ins. Co., 2018 WL 4854650 (M.D.N.C. Oct. 5, 2018).

The insured, the owner of several adult care homes, was sued in a qui tam action for purportedly submitting false claims for Medicaid reimbursement.  The claimant alleged that the insured sought reimbursement for services not provided to residents and failed to meet the needs of residents and provide adequate personal care services in violation of the False Claims Act and a similar North Carolina statute.

The insured’s excess professional liability carrier denied coverage on the basis that the complaint did not constitute a claim “arising out of a medical incident,” which was defined as the alleged rendering or failure to render “medical professional services.”  The policy defined “medical professional services” to mean “health care services or the treatment of a patient including medical, surgical, dental, nursing, psychiatric, osteopathic, chiropractic or other health care professional services[.]”

The district court held that the insured’s billing and Medicaid reimbursement practices did not fall within the services covered by the policy, each of which entailed “some aspect of looking after a patient.”  The court further concluded that, although the claimant alleged that the insured failed to render “medical professional services” by asserting that the insured failed to provide adequate patient services, the qui tam claims did not “arise from” those services.  The court held that the insured’s alleged “independent act” of false billing “sever[ed] any connection between the medical incident alleged in the complaint and the injuries to the government that the False Claims Act suit [sought] to recover for.”