The Medicare Advantage program has been in the False Claims Act (“FCA”) spotlight recently, with courts beginning to weigh in on the viability of claims against providers for allegedly submitting false diagnosis information in order to increase their risk adjustment reimbursements. The first significant case ended quietly in October 2017 when the Government filed a notice of dismissal after its complaint-in-intervention was rejected for pleading deficiencies in United States ex rel. Swoben v. Scan Health Plan, No. 09-5013-JFW (JEMx), 2017 WL 4564722 (C.D. Cal. Oct. 5, 2017). But, just a few months later, in United States ex rel. Poehling v. Unitedhealth Group, Inc., No. 16-08697-MWF (SSx), slip op. (C.D. Cal. Feb. 12, 2018), the Government fared better when a district court allowed the Government to move forward on a reverse false claims theory, even as it dismissed other FCA claims. These early decisions suggest that (1) the Supreme Court's rigorous materiality and scienter standards from Escobar will limit the scope of some Medicare Advantage liability, but (2) the door may be open for relators and the Government to circumvent those limits by pursuing reverse – rather than affirmative – false claims theories.

Background of Swoben & Poehling

The Swoben case, filed in the U.S. District Court for the Central District of California, began in July 2009 as a qui tam complaint and ultimately named multiple defendants, including various Senior Care Action Network (SCAN) defendants and United Healthcare defendants. In 2012, the SCAN defendants settled for $322 million. In January 2013, the Government declined to intervene as to the remaining defendants. The Poehling qui tam case was filed against United Healthcare and various other defendants in the U.S. District Court for the Western District of New York in March 2011, but later was transferred to the Central District of California in anticipation of consolidation with Swoben.

The allegations in Swoben and Poehling arise from Medicare’s “risk adjustment” process under Medicare Part C – the Medicare Advantage program. That risk adjustment process enables privately run Medicare Advantage (“MA”) Plans to be reimbursed by Medicare, on a per-member-per-month basis, in accordance with the health status and demographics of their beneficiaries. MA Plans submit diagnosis codes received from providers to the Centers for Medicare & Medicaid Services (“CMS”) in order to make these risk adjustments. In addition, MA Plans routinely retain coding companies to conduct retrospective reviews of patient medical records and identify additional diagnosis codes that may have been missed during the original transmittal. Generally speaking, to the extent that additional diagnosis codes demonstrate that a member has increased medical needs, the reimbursement adjustment typically is increased. The Swoben and Poehling complaints alleged that audit error rates put the United Healthcare defendants on notice that they also needed to “look the other way” in their reviews to identify inaccurate codes submitted to CMS and that this awareness rendered false the United Healthcare defendants’ attestations that the data submitted from providers was accurate to the best of their “knowledge, information, and belief,” as required by Medicare regulations. 

Following dismissal by the district court for failure to plead with particularity and a determination that any amendment would be futile, the Swoben relator appealed. In August 2016, the Ninth Circuit vacated the dismissal after finding that the relator’s proposed fourth amended complaint could state an FCA claim by alleging that the United Healthcare defendants used “one-sided” medical record reviews. Consistent with the reasoning advanced by the Government in an amicus brief, the Ninth Circuit held that the deliberate avoidance of identifying certain erroneous coding is a “cognizable legal theory” under the FCA because MA Plans are obligated by Medicare regulations to undertake “due diligence” to ensure the accuracy of diagnostic codes, and FCA liability can be established by a defendant’s deliberate ignorance. See United States v. United Healthcare Ins. Co., 848 F.3d 1161, 1172-79 (9th Cir. 2016).

In March 2017, the Government filed a complaint-in-partial-intervention in Swoben against the United Healthcare defendants only. Around the same time – in February 2017 – the Government filed notice of its partial intervention in the Poehling case against the United Healthcare defendants.

The Swoben Dismissal and the Government’s Decision to Drop the Case

In Swoben, the United Healthcare defendants sought dismissal of the revived action on a number of separate grounds, including that the Government failed to (1) allege that the individuals who signed the United Healthcare defendants’ risk adjustment attestations knew them to be false; (2) allege that the attestations were material to the Government’s payment decision; and (3) identify the acts of each of the seven distinct corporate entities who made up the United Healthcare defendants. On October 5, 2017, the court granted United Healthcare’s motion to dismiss, with leave to amend.

First, acknowledging Escobar’s admonition that the FCA’s scienter requirement is “rigorous” and “strict[ly] enforce[d]” and reaffirming that the Ninth Circuit does not recognize collective scienter for corporations, the court found that the complaint failed to identify the particular corporate officers who signed the attestations or to allege that those individuals knew or should have known that the attestations were false. While the Government argued that the defendants could be liable for actions that shielded the signatories from knowing about the fraud, the court – without addressing the merits of this theory – found no allegations that anyone at United Healthcare undertook such actions and that the Government failed to identify anyone at United Healthcare other than the signatories who had the requisite knowledge. 2017 WL 4564722, at *7. With respect to materiality, the court found that the Government’s allegations were merely conclusory. In particular, the bare allegation that CMS would have refused to make risk adjustment payments if it had known the facts about the “one-sided” records review process did not meet the heightened materiality standard mandated by the Supreme Court in Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). 2017 WL 4564722, at *5-6.

Finally, the court found the Government’s failure to distinguish the individual roles of the multiple defendants to be “a classic ‘shotgun pleading’ that wholly fails to state ‘clearly how each and every defendant is alleged to have violated’” the FCA. As such, the complaint failed to satisfy the heightened pleading requirements of Rule 9(b). Id. at *7.

The court allowed the Government to file an amended complaint by October 13, 2017, i.e., in only eight days. Rather than do so, the Government filed a notice of voluntary dismissal, ending the Government’s first intervention in a Medicare Advantage FCA suit with a whimper.

The Poehling Partial Dismissal and the Government’s Surviving Reverse False Claims Allegations

Following the Swoben dismissal, the United Healthcare defendants moved to dismiss the very similar Poehling allegations on the same grounds. The Government, however, was first given the opportunity to file an amended complaint to address Swoben. Most significantly, the Government added a claim for reverse false claims liability – which was not alleged in Swoben – and argued that it was evidence of materiality for these reverse false claims that CMS would have automatically accepted repayments had the United Healthcare defendants affirmatively deleted invalid inaccurate diagnosis codes after conducting reviews. The Government also tried to address the materiality deficiencies of its affirmative false claims allegations.

The Poehling court, like the Swoben court, dismissed the affirmative FCA allegations for failure to plead materiality under Escobar. In particular, the court found that despite alleging that payments would be different if the United Healthcare defendants had submitted only valid diagnosis codes and deleted invalid diagnoses, the Government did not sufficiently allege that payments would be any different had CMS known that the United Healthcare defendants’ risk adjustment attestations about data accuracy and due diligence were false. Slip op. at 16. The court left open the possibility of the Government curing this materiality pleading deficiency by amending to make clear – if there is a factual basis to do so – that the attestations themselves are material, not merely that they are linked to the material diagnosis codes.

Despite this reaffirmation of the rigor of Escobar materiality and the outcome of Swoben, the Poehling decision represents something of a win for the Government because the case will proceed at least on the reverse false claims allegations. Whereas the affirmative false claims allegations were based on the submission of false attestations, the Government’s reverse false claims allegations are based on the United Healthcare defendants’ failure to delete invalid diagnosis codes. While it is well established that there cannot be affirmative and reverse false claims liability for the same act, see, e.g., United States ex rel. Scharber v. Golden Gate Nat’l Senior Care LLC, 135 F. Supp. 3d 944 (D. Minn. 2015); Pencheng Si v. Laogai Research Found., 71 F. Supp. 3d 73 (D.D.C. 2014), the Government nevertheless was permitted, for now, to transform what may be the same underlying conduct into reverse false claims allegations. Moreover, while the Poehling court found that the retention of payments for invalid diagnosis codes would be enough to satisfy Escobar materiality, it also observed that Escobar materiality may not even apply to reverse false claims, picking up the argument in the Government’s briefing that reverse false claims were not at issue in Escobar and materiality under the reverse false claims provision logically would focus on the impact to a defendant’s obligation. Cf. United States ex rel. Bishop v. Wells Fargo & Co., 870 F.3d 104 (2d Cir. 2017) (per curiam) (finding that the rationale for Escobar’s common-law materiality requirement extends beyond Escobar’s implied false certification context to an express false certification claim); United States ex rel. Spay v. CVS Caremark Corp., 875 F.3d 746 (3d Cir. 2017) (ruling that the FCA always included the common law understanding of materiality and that Escobar’s definition of materiality applies to more than just post-2009 § 3729(a)(1)(A) conduct).

It is unclear whether the Government will re-plead its affirmative false claims allegations and whether the reverse false claims allegations will stand up to further scrutiny and challenge as the case advances. In addition, United Healthcare continues to challenge the Government’s and relators’ pursuit of alleged fraud in the Medicare Advantage program on another front – through an Administrative Procedure Act suit asserting that CMS’s 2014 “Overpayment Rules” undermine the entire theory behind risk adjustment payments, violate statutory requirements, and should be set aside. See UnitedHealthCare Ins. Co. v. Price, 255 F. Supp. 3d 208 (D.D.C. 2017) (denying defendants’ motion for stay). Cross-motions for summary judgment in that action now are fully briefed, but the impact of any decision there on FCA cases remains to be seen. 


The Swoben and Poehling outcomes represent the still-shifting nature of the protections Escobar provides to FCA defendants. While the Government repeatedly has argued that Escobar is limited and toothless, those arguments have been knocked down by numerous courts, including the Swoben court and partially by the Poehling court. Indeed, it is significant that Swoben and Poehling dismissed government complaints-in-intervention, given district courts’ traditional reluctance to do so because courts often presume that the Government has had the necessary time and investigative tools at its disposal to ensure that any claims pleaded are not only plausible, but well supported by actual evidence. But the mixed Poehling outcome demonstrates that the Government’s press to carve out spaces free from the reach of Escobar may be gaining some traction. And this outcome is particularly troubling due to the relative ease with which the Government and relators can rebrand failed affirmative FCA allegations into reverse false claims allegations.