An attorney for Texas fielded several questions from the Texas Supreme Court during oral arguments Wednesday about how the government’s $16 million summary judgment win against a dentist in a Medicaid fraud lawsuit can stand in the face of his claim he didn’t know he was doing anything wrong.
The main issue in the case is whether the state proved scienter — that Dr. Richard Malouf knew he was in violation of the law when he filed forms for reimbursement 1,842 times representing he had performed certain services that were actually performed by trainees at his All Smiles Dental Clinic — which is required for the judgment to stand.
After Texas was granted the early win by Travis County District Judge Catherine Mauzy, Malouf appealed and a three-justice panel affirmed the holding in October 2022. He took his fight to the Texas Supreme Court in January 2023, and in November the court agreed to hear the case.
W. Lance Cawthon of The Snell Law Firm argued on behalf of Malouf and told the court the summary judgment against his client was “inappropriate to begin with by the nature of the scienter element” and said the evidence tied to each of the alleged 1,842 unlawful acts is “inconclusive and controverted.”
Justice Debra Lehrmann asked Philip A. Lionberger, an assistant solicitor general arguing for the state, to begin his argument by explaining how Texas conclusively established that Malouf knowingly committed a violation.
Lionberger told the court to think about the evidence in this case as being sorted into two piles.
“The first would be the most egregious acts, and the second pile would be Dr. Malouf’s exceptions,” he said, explaining Malouf’s claim that a Medicaid representative instructed him that using his billing number if he was supervising the dentist actually doing the work was OK.
“The most egregious are the over 1,000 times after Jan. 1, 2009, where Dr. Malouf billed as the treating dentist when he was no longer actually a practicing dentist.”
That answer drew questions as to whether Malouf was still licensed — he was — and whether the difference between being a practicing dentist and a licensed dentist is significant.
“He’s saying he’s the treating dentist [in Medicaid reimbursements] but he’s not practicing dentistry at the time,” Lionberger told the court. “The dentists he said he’s supervising … all of them said we didn’t discuss patient treatment, protocols, notes, he did not supervise us, he wasn’t shadowing us and did not evaluate our treatments. So, right there, that excuse he offered … that’s just flatly false.”
Justice Jane Bland asked what harm had come from Malouf’s use of the incorrect billing number if the state isn’t contending there was any lost revenue or that the services he billed for weren’t performed.
Lionberger said Malouf’s motive in using the incorrect “Texas Provider Identifier” number came down to cash flow concerns. A dentist can’t bill Medicaid until that dentist is assigned a TPI number, and there’s a 95-day deadline to bill after a service is provided.
So by using his number, rather than waiting for the new dentists in his clinic to get their TPI numbers, Malouf was able to get his claims paid without delay.
“It’s a liquidity issue,” Lionberger said. “They were trying to rush.”
Justice Evan Young asked how the court should handle the argument from Malouf that the state told him using his TPI number in this circumstance was OK and whether he’s suffered a due process violation if that did occur. Lionberger said it wouldn’t be a due process issue but one of equitable estoppel.
“And that doesn’t run against the state when it’s acting in sovereign capacity based on the unauthorized statements of employees or representatives,” Lionberger said.
Justice Brett Busby followed up.
“So he has no defense if the state says ‘This is totally fine, please do it this way,’ and then says ‘Well, it’s a violation, it’s an unlawful act under the statute,’ he has no defense to that?” Justice Busby asked. “That’s your position?”
Unless Malouf can show that the representatives who made the alleged statement to him were authorized to do so, Lionberger said, Justice Busby is correct.
Justice Lehrmann asked if the case was perhaps inappropriate for summary judgment and why the court shouldn’t send it back down to the trial court where Malouf may end up losing on the merits. Lionberger responded that wasn’t an option the court should pursue in this case.
“No reasonable, fair-minded fact finder could differ in their conclusions” about the fraud the government alleges took place, he said “in light of all the evidence in the record.”
Justice Lehrmann asked Cawthon why remand wouldn’t be the appropriate remedy in this case.
“How can we possibly render for your client?” she asked.
He said under the Texas Medicaid Fraud Prevention Act, there are three requirements the state had to meet to prove its case: scienter, which Texas failed to do on summary judgment here because Malouf denied he knew he was doing something wrong. The other two prongs, Cawthon said, involve disclosures on the Medicaid reimbursement form. Texas had to show that Malouf failed to identify the type of license he had and that he used the wrong TPI number.
But on the form Texas requires dentists to use, there is no option for specifying the license type because the form already specifies it is for use by a dentist.
“It’s not sufficient to prove one or the other,” Cawthon said. “The statute… requires you show both of those pieces of information are false or incorrect in order to find liability… because of the form that is used in the process it is impossible to get both of those pieces of information incorrect.”
He said that requirement reflects the legislature’s understanding that sometimes mistakes are made, while also recognizing that if both pieces of information are submitted incorrectly, “it almost gives you a self-proving case on scienter element, because who on earth is submitting a claim that misstates both their identification number and what kind of license they have?”
Justice Lehrmann also asked Cawthon to refute arguments from the state that Malouf’s testimony that he didn’t know he was doing anything wrong was “not sufficient, self-serving, conclusory, et cetera.”
“Your honor, I don’t know what type of evidence is available if you can’t provide evidence of your own thought and awareness,” Cawthon said. “When you’re a defendant, and an element of the claim against you is that you knew. … [H]ow do you prove that any other way besides simply telling the court, or the jury, in deposition or trial, what you were thinking and what you knew?
“It’s sort of like proving a negative,” Justice Lehrmann said.
“It is,” Cawthon said. “And another problem with the self-serving, not readily controverted argument is, if a person’s state of mind cannot be controverted, how can it be conclusively proven, either?”
Malouf is also represented by Jason W. Snell of The Snell Law Firm.
Texas is also represented by Reynolds B. Brissenden and Noah Reinstein of the Texas attorney general’s office.
The case is Malouf v. State of Texas ex rel. Ellis, case number 22-1046.