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United States v. United Healthcare Ins. Co.

United States Court of Appeals for the Ninth Circuit

December 9, 2015, Argued and Submitted, Pasadena, California; December 16, 2016, Amended

No. 13-56746

Opinion

 [*1166]  AMENDED OPINION

FISHER, Circuit Judge:

The Centers for Medicare & Medicaid Services (CMS), administrator of the federal Medicare program, pays Medicare Advantage organizations fixed monthly amounts for each enrollee. CMS calculates the payment for each enrollee based on various "risk adjustment data," such as an enrollee's demographic profile and the enrollee's health status, as reflected in the medical diagnosis codes [**5]  associated with healthcare the enrollee receives. These diagnosis codes (also known as encounter data) are reported by Medicare Advantage organizations to CMS. Because Medicare Advantage organizations have a financial incentive to exaggerate an enrollee's health risks by reporting diagnosis codes that may not be supported by the enrollee's medical records, Medicare regulations require a Medicare Advantage organization, as an express condition of receiving payment, to "certify (based on best knowledge, information, and belief) that the [risk adjustment] data it submits . . . are accurate, complete, and truthful." 42 C.F.R. § 422.504(l), (l)(2).

Qui tam relator James Swoben alleges Medicare Advantage organizations United Healthcare, Aetna, WellPoint and Health Net, and physician group HealthCare Partners, submitted false certifications under this provision, in violation of the False Claims Act, by conducting retrospective reviews of medical records designed to identify and report only under-reported diagnosis codes (diagnosis codes erroneously not submitted to CMS despite adequate support in an enrollee's medical records), not over-reported codes (codes erroneously submitted to CMS despite the absence of [**6]  adequate record support). The district court denied Swoben leave to file a proposed fourth amended complaint, citing futility of amendment and undue delay. We hold the district court abused its discretion.

First, the court erred by concluding amendment would be futile. Swoben's proposed fourth amended complaint asserts a cognizable legal theory. CMS has long made clear that, ] under § 422.504(l), Medicare Advantage organizations have "an obligation to undertake 'due diligence' to ensure the accuracy, completeness,  [*1167]  and truthfulness" of the risk adjustment data they submit to CMS and "will be held responsible for making good faith efforts to certify the accuracy, completeness, and truthfulness" of these data. Medicare+Choice Program, 65 Fed. Reg. 40,170, 40,268 (June 29, 2000). When, as alleged here, Medicare Advantage organizations design retrospective reviews of enrollees' medical records deliberately to avoid identifying erroneously submitted diagnosis codes that might otherwise have been identified with reasonable diligence, they can no longer certify, based on best knowledge, information and belief, the accuracy, completeness and truthfulness of the data submitted to CMS. This is especially true when, as alleged here, they were on notice — based on [**7]  audits conducted by CMS — that their data likely included a significant number of erroneously reported diagnosis codes. The allegations in Swoben's proposed fourth amended complaint also partly satisfy Rules 8 and 9(b) of the Federal Rules of Civil Procedure. With respect to defendants United Healthcare and HealthCare Partners, the allegations adequately identify "the who, what, when, where, and how of the misconduct charged," Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010) (quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)) (internal quotation marks omitted), and afford each defendant notice of its alleged role in a fraudulent scheme. With respect to defendants Aetna, WellPoint and Health Net, the allegations lack sufficient detail to satisfy Rule 9(b), but Swoben should be afforded leave to amend to cure this deficiency.

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848 F.3d 1161 *; 2016 U.S. App. LEXIS 22368 **

UNITED STATES OF AMERICA, Plaintiff, and JAMES M. SWOBEN, Qui Tam Relator, Plaintiff-Appellant, v. UNITED HEALTHCARE INSURANCE COMPANY, a Connecticut corporation; UNITED HEALTHCARE SERVICES, INC., Minnesota corporation; UHIC; UNITEDHEALTH GROUP; UNITEDHEALTHCARE; UNITEDHEALTH; PACIFICARE HEALTH PLAN ADMINISTRATORS, INC.; UHC OF CALIFORNIA, FKA PacifiCare of California; PACIFICARE LIFE & HEALTH INSURANCE CO.; PACIFICARE HEALTH SYSTEMS; HEALTH NET; WELLPOINT; AETNA; HEALTHCARE PARTNERS, LLC; HEALTHCARE PARTNERS MEDICAL GROUP, INC.; HEALTHCARE PARTNERS INDEPENDENT PHYSICIAN ASSOCIATION, Defendants-Appellees.

Subsequent History: Dismissed by, in part, Dismissed without prejudice by, in part United States v. Scan Health Plan, 2017 U.S. Dist. LEXIS 174308 (C.D. Cal., Oct. 5, 2017)

Dismissed by, in part United States v. Scan Health Plan, 2017 U.S. Dist. LEXIS 174311 (C.D. Cal., Oct. 5, 2017)

Prior History:  [**1] Appeal from the United States District Court for the Central District of California. D.C. No. 2:09-cv-05013-JFW-JEM. John F. Walter, District Judge, Presiding.

United States v. United Healthcare Ins. Co., 832 F.3d 1084, 2016 U.S. App. LEXIS 14687 (9th Cir. Cal., Aug. 10, 2016)

CORE TERMS

codes, allegations, diagnosis, organizations, retrospective, HealthCare, false claim, medical record, enrollee's, accuracy, encounter, medical chart, defendants', certify, amended complaint, certification, best knowledge, district court, over-reporting, unsupported, amend, legal theory, undue delay, deliberate, diagnoses, patients, details, false certificate, due diligence, good faith

Public Health & Welfare Law, Medicare, Providers, Reimbursement, Governments, Federal Government, Claims By & Against, Civil Procedure, Appeals, Standards of Review, Abuse of Discretion, De Novo Review, Pleadings, Amendment of Pleadings, Leave of Court, Social Security, Judicial Review, Administrative Law, Judicial Review, Rule Interpretation, Complaints, Requirements for Complaint, Heightened Pleading Requirements, Fraud Claims