Background

The U.S. District Court for the Central District of California recently dismissed a complaint-in-intervention filed by the U.S. Department of Justice (DOJ) in U.S. ex rel. Swoben v. Secure Horizons. As previously reported, in this significant test case, DOJ filed its complaint on May 1, 2017, as to the UnitedHealth Group parties (collectively, UnitedHealth), marking the first time that DOJ joined a whistleblower suit alleging FCA violations regarding Medicare Advantage. The complaint alleged that the “risk adjustment” payments, which account for the severity of patient conditions as compared to an average Medicare fee-for-service beneficiary, were boosted by ignoring questionable diagnoses.

The Government’s Allegations Against UnitedHealth

Government payments to Medicare Advantage plans are adjusted based upon a risk score, a value determined by the diagnostic codes assigned by healthcare providers. In the complaint, DOJ asserted that UnitedHealth was on notice that a provider group retained to conduct internal chart reviews, Healthcare Partners, found insufficient medical documentation to support patient diagnoses contributing to the patient’s risk score. According to DOJ, Healthcare Partners’ findings indicated that UnitedHealth billed the government for unsubstantiated diagnoses. DOJ alleged that UnitedHealth failed to pursue validation efforts to confirm that medical documentation in fact supported diagnostic codes, resulting in false certifications by UnitedHealth under 42 C.F.R. § 422.504(l), a regulation requiring that the risk adjustment data submitted be certified as accurate, complete and truthful.

Reasons Why the Government’s Complaint Was Dismissed

The district court dismissed the government’s complaint on several grounds (see list below), but granted the government leave to amend and cure certain deficiencies.

  1. Failure to Plead Scienter. The district court found that the complaint failed to plead the requisite knowledge under the FCA. To that end, the complaint failed to identify any corporate officers who signed the allegedly false attestations or allege that any of those individuals knew or should have known that the submitted data was faulty, as required under the FCA.
  2. Failure to Plead Materiality. The district court determined that the complaint failed to sufficiently plead that UnitedHealth’s alleged misrepresentations were material to the government’s payment. Citing Escobar, the district court concluded that the complaint failed to allege that Medicare “would have refused to make risk adjustment payments to [UnitedHealth] if it had known the facts about [UnitedHealth’s] alleged involvement with the Healthcare Partners’ chart review process.”
  3. Failure to Plead with Particularity. The district court explained that the complaint failed to clearly state each defendant’s role in the alleged fraud sufficient to satisfy Rule 9(b). The district court stated that the government’s complaint was a “classic ‘shotgun pleading’ that wholly fails to state ‘clearly how each and every defendant is alleged to have violated plaintiff’s legal rights.’”

With respect to the government’s reverse false claims theory, the district court found that the relator failed to appeal its prior dismissal of the reverse false claims theory sufficient to warrant reconsideration. The district court also found that all claims submitted before May 1, 2007, were barred under the FCA’s 10-year statute of repose. Accordingly, both claims were dismissed with prejudice.

What’s Next for Managed Care Plans?

The district court’s opinion represents a significant blow to the government’s foray into FCA claims targeting Medicare Advantage fraud. However, given the significant settlements earlier this year with Freedom Health and Optimum HealthCare and the tandem suit pending in the same district, there is no question that the government’s enforcement efforts with respect to Medicare Advantage plans will continue.