(Reuters) – Managed care company Molina Healthcare must face a whistleblower lawsuit accusing it of fraudulently billing Illinois’ Medicaid program for nursing home residents’ healthcare services that it did not actually provide, a federal appeals court ruled on Thursday.

A 2-1 panel of the 7th U.S. Circuit Court of Appeals revived a lawsuit filed by Thomas Prose, founder of former Molina contractor GenMed, under the False Claims Act, finding that the large difference between what Medicaid paid for nursing home patients and lower risk patients – more than $3,000 per patient – was enough to support Prose’s claim that the company made material misrepresentations.

Tejinder Singh of Goldstein & Russell, a lawyer for Prose, did not immediately respond to a request for comment. Nor did Molina or its attorney Albert Giang of King & Spalding.

Prose’s 2017 lawsuit, filed in the Northern District of Illinois, centers on Molina’s contract with Medicaid, under which the insurance program paid Molina a fixed amount per patient. Such per-patient payments are known as capitation payments.

The patients were divided into tiers, with Molina receiving $54 per month for the lowest tier, and $3,127 for the highest tier, which was comprised of patients living in nursing facilities.

According to the lawsuit, the contract called for Molina to provide care for nursing facility residents by medical professionals who specialize in caring for such residents. Such care is known as skilled nursing facility, or SNF, care, and the people who provide it are known as SNFists under Illinois law.

Prose alleged that, from 2014 until early 2015, Molina contracted with GenMed to provide SNF care to the highest-tier patients, since it could not do so itself. However, after terminating its contract with GenMed, Molina continued to collect payments from Medicaid at the highest rate for nursing home patients, even though it was no longer providing SNF care.

Prose alleged that Molina fraudulently induced the government to renew its contract with the company in 2016 and 2017 by misrepresenting that it would provide the SNF services.

Molina, moving to dismiss, said Prose had not pointed to any knowingly misleading and material misrepresentations the company made to the government.

U.S. District Judge Virginia Kendall dismissed the case, finding that Prose had not adequately alleged that Molina knew its provision of SNF care, or lack of it, to nursing home patients was material to the government’s decision to pay it at a higher rate.

Circuit Judge Diane Wood wrote Thursday that the district judge “failed to give proper weight to the complaint’s description of Molina as a highly sophisticated member of the medical-services industry.”

“Molina was quite familiar with capitation rates, and it knew that they are designed to allow the provider to be reimbursed for services rendered,” she wrote.

Wood said the price difference alone was enough to support materiality, adding, “it is hard to see why the government would be indifferent about paying $3,180 for services that should have been at the $54 level.”

Wood was joined by Circuit Judge David Hamilton.

Chief Judge Diane Sykes dissented, agreeing with the district court that Prose had failed to support his claim that SNF services were material to the government’s payments.

“SNFist services are one component of nursing-home care among many,” she wrote. She said nursing home patients’ inherently higher risk of needing medical care could also explain the difference in cost.

The case is USA ex rel Prose v. Molina Healthcare of Illinois inc, 7th U.S. Circuit Court of Appeals, No. 20-2243.

For Prose: Tejinder Singh of Goldstein & Russell

For Molina: Albert Giang of King & Spalding