Holland & Knight LLP

In February of 2018, a United States District Court in the Central District of California dismissed only half of the claims in a qui tam case against United Health Group, Inc. (UHG), a Medicare Advantage plan provider. United States ex rel. Benjamin Poehling v. Unitedhealth Group, Inc et al., Case No. CV 16-08697 (USDC, CD CA). The government intervened in the case in May 2017 and filed an Amended Complaint-in-Intervention in November alleging violations of the False Claims act as well as common law claims for unjust enrichment and payment by mistake. In addressing the defendants' Motion to Dismiss, the court analyzed the False Claim Act's "materiality" requirement and dismissed three of the six claims (with leave to amend) and allowed one False Claims Act claim and common law claims to proceed.

The details of the 166-page amended complaint relate to allegations that the UHG defendants: 1) knowingly failed to comply with their obligation to delete invalid diagnoses from CMS's Risk Adjustment Processing System (RAPS) and to return overpayments they received based on the invalid diagnosis codes that were submitted; and (2) knowingly submitted false annual Risk Adjustment Attestations to the Medicare program that were used to make risk adjustment payments.

The Applicability of Escobar's Materiality Requirement

The court relied on the Supreme Courts decision in Universal Health Servs. Inc. v. United States ex rel. Escobar , 136 S. Ct. 1989 (2016) (Escobar) in dismissing the government's three False Claims Act claims related to submission of the false Attestations. Specifically, that the government must plead that the Attestations are material to the "government's payment decision." Escobar, 136 S.Ct. at 2001. Applying that standard, the court held that the government failed to allege that CMS would have refused to make risk adjustment payments if it had known the Attestations were false. The decision recognizes that the allegations regarding the diagnostic data itself appears to be material under the False Claims Act, but the allegations concerning the Attestations "do not suggest they are likely to influence the payment of money." The court's order gives the government until Feb. 26, 2018, to file a second amended complaint to try to adequately plead the materiality of the Attestations.

Conversely, the court did find the government pled facts sufficient to show that UHG knowingly avoided obligations to repay CMS by failing to delete invalid diagnosis codes, and that such failure was material. As a result, the government's claim pursuant to the "reverse false claim" provision was not dismissed. Because the common law claims in the amended complaint related to the invalid diagnosis codes, and not the Attestations, they too survived the motion to dismiss.

In addressing whether continued payment by the government despite its generalized knowledge of UHG's conduct changes the materiality analysis, the court notes that, since Escobar, the Ninth Circuit has rejected reading too much into an agency's continued payment. The court found that while the government may have had "general suspicions" about whether defendants were complying with requirements and being truthful, the defendants' allegedly fraudulent representations kept the government from knowing the truth.

Lessons from the Case

As courts continue to interpret and apply Escobar's materiality requirement, there is still much uncertainty and the results are very fact-specific. The regulatory scheme for Medicare Advantage Plans, and throughout the industry, is so complex that any given fact pattern may present multiple False Claims Act theories for a whistleblower and/or the government to purse.

The facts in this case demonstrate that the government will aggressively pursue and intervene in qui tam cases alleging a failure to return identified overpayments. These "reverse false claims" cases may seem less egregious than flat-out fraud, but present the same significant financial exposure and reputational risk. If your compliance programs, internal audits, and other integrity controls reveal overpayments, they should be addressed in a timely manner and not ignored.