KL Prevails in Appeal: State Qui Tam Fraud Claim Not Subject to Contractual Arbitration

By: Lance Martin


KL’s Curtis Leavitt and Lance Martin recently prevailed in an appeal before the California Court of Appeals, Second Appellate District, in which the Court of Appeals affirmed the denial of a healthcare provider’s motion to compel arbitration of a qui tam claim. The Appellate Court determined that Insurance Fraud Prevention Act (“IFPA”) claims qualify as qui tam actions and are not subject to contractual arbitration provisions because they are brought on behalf of the state, which is not a party to the contract between the insurer and provider. This decision confirms that health insurers can pursue billing fraud lawsuits on behalf of the State of California even when the State does not intervene.


KL filed a qui tam complaint on behalf of its payor client, alleging violations of the IFPA wherein the provider engaged in a bait-and-switch scheme. The IFPA, a California Insurance Code enforcement statute, authorizes private parties, including insurers and others, to bring civil actions in the name of the state against healthcare providers who submit false claims to healthcare payors. Under the alleged scheme, the provider performed surgeries at its in-network, contracted ambulatory surgery center but billed the health insurer as though the surgeries had been performed as its out-of-network, non-contracted surgery center, resulting in much higher payments.


The provider sought to compel the action to arbitration based on the services agreement between the health insurer and the provider’s in-network, contracted facilities. The trial court denied the motion to compel arbitration, finding that qui tam claims are not subject to binding arbitration provisions. Rather, such actions are brought on behalf of the state, which is not a party to the services agreement. The providers appealed. The California Court of Appeals upheld the trial court’s ruling, finding the health plan stands in the shoes of the State of California, which is the real party in interest. Thus, the State of California is the owner of the qui tam claim and cannot be compelled to arbitration without its consent.

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