United States v. United Healthcare Insurance Co.
848 F.3d 1161
| 9th Cir. | 2016Background
- Swoben, a qui tam relator, alleged Medicare Advantage plans (UnitedHealthcare, Aetna, WellPoint, Health Net) and Healthcare Partners conducted biased retrospective chart reviews that identified only under‑reported diagnoses (increasing risk scores) and concealed or failed to report over‑reported diagnoses, violating the False Claims Act by making false § 422.504(c) certifications.
- Allegations include use of specialized software/templates and coders instructed or structured so previously‑submitted codes were concealed from reviewers or not withdrawn, and RADV audits showing high over‑reporting error rates.
- Swoben filed multiple amended complaints; the district court dismissed the third amended complaint with prejudice and denied leave to file a proposed fourth amended complaint as futile and for undue delay. Swoben appealed only the denial of leave to amend.
- The Ninth Circuit reviewed de novo the futility issue and for abuse of discretion the denial of leave to amend, and solicited supplemental briefing on whether one‑sided retrospective reviews can make § 422.504(c) certifications false.
- The Ninth Circuit held the proposed amendment pleaded a cognizable legal theory and met Rule 9(b) particularity for UnitedHealthcare and Healthcare Partners (but not yet for Aetna, WellPoint, Health Net), and that denying leave for undue delay was an abuse of discretion because no prejudice or bad faith was shown. The judgment was vacated and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether designing/performing retrospective reviews to identify only under‑reported diagnoses can render § 422.504(c) certifications false under the FCA | Swoben: one‑sided reviews that conceal over‑reporting evidence and occur despite RADV notice make certifications false (reckless/disregard or deliberate ignorance) | Defendants: no authority required plans to verify third‑party codes or unearth unsupported codes; passive forwarding of provider data is not false certification | Ninth Cir.: Yes — one‑sided reviews designed to avoid revealing over‑reporting can make certifications false where they show reckless disregard or deliberate ignorance, especially if plan was on notice (cognizable legal theory) |
| Whether Swoben pleaded fraud with particularity under Rule 9(b) | Swoben: complaint and proposed fourth amended complaint allege who, what, when, where, how for UnitedHealthcare and Healthcare Partners; broader allegations as to other defendants can be cured | Defendants: allegations are collective, lack representative examples or specific instances tying Aetna/WellPoint/Health Net to the scheme | Ninth Cir.: Complaint satisfies Rule 9(b) for UnitedHealthcare and Healthcare Partners; allegations regarding Aetna, WellPoint, Health Net are conclusory and must be amended to add particulars |
| Whether amendment would be futile | Swoben: amendment would state a viable FCA claim under § 422.504(c) and meet pleading standards | Defendants: no reasonable obligation then existed to undertake affirmative steps to validate third‑party diagnosis codes; certifications were qualified "to best knowledge and belief" | Ninth Cir.: Amendment not futile — due‑diligence and good‑faith obligations (from CMS preamble and regs) encompassed reckless/disregard and deliberate ignorance; the proposed factual allegations are sufficient to survive dismissal for some defendants |
| Whether denial of leave to amend for undue delay was proper | Swoben: no prejudice, bad faith, or new legal theory; early stage of litigation; first attempt to cure pleading defects | Defendants: Swoben knew facts since 2005 and delayed; they would be prejudiced by needless motion practice | Ninth Cir.: Denial was an abuse of discretion — undue delay alone insufficient; no evidence of prejudice or bad faith, so leave should have been granted to allow further amendment |
Key Cases Cited
- Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010) (Rule 9(b) requires who, what, when, where, how of alleged fraud)
- Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 (9th Cir. 2003) (Rule 9(b) pleading standards for fraud)
- United States v. Bourseau, 531 F.3d 1159 (9th Cir. 2008) (discussing Congress’s "ostrich"/limited‑inquiry standard for FCA scienter)
- Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (U.S. 2016) (implied false certification and materiality under the FCA)
- United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166 (9th Cir. 2006) (false certification theory elements under the FCA)