/>iThe litigator’s adage “it’s easy to plead, it’s hard to prove” once again came true in the long-running False Claims Act (FCA) case targeting Medicare Advantage (“MA”) plans operated by UnitedHealth (United). Eight years after the complaint was filed, a Special Master recommended granting United’s motion for summary judgment. U.S. ex rel. Poehling v. UnitedHealth Group, Inc., 2025 U.S. Dist. LEXIS 40921 (CD CA). Both the litigation and the Special Master’s report contain valuable insights for all FCA defendants, and especially for those matters involving allegations related to diagnosis coding.
The government alleged that United violated the FCA’s “reverse false claim” provision by failing to return overpayments related to the submission of allegedly invalid diagnosis codes in connection with the MA program. The Special Master recommended summary judgment in United’s favor due to the government’s inability to prove both that United was actually overpaid, and that it improperly avoided an obligation to repay the government. In doing so, the ruling highlights the government’s burden to prove that 1) a diagnosis code is false; and 2) that a defendant “deceived” the government in “improperly” withholding an overpayment. It also confirms that materiality is an essential element of a “reverse” FCA violation.
Lesson #1: The Government Must Prove Its Case
The Special Master found that the government did not prove the diagnosis codes were unsupported by medical records because the government did not actually review the medical records. Instead, the government identified nearly 28 million diagnosis codes that it argued were invalid, but “did not compare the diagnosis codes submitted by United’s doctors against the underlying medical records to identify unsupported diagnosis codes.” Rather, “if United’s coders did not identify a diagnosis code during chart review as supported by a medical record, the government assume[d] the diagnosis code was, in fact, not supported.” (Emphasis in original). The Special Master found that assumption woefully insufficient.
The Special Master also found it compelling that CMS’s own RADV audits “found support in medical records for diagnosis codes that the government has alleged were unsupported based solely on such codes not having been coded during United’s chart review. These findings undercut the government’s theory that any diagnosis code submitted by United to CMS but not identified by coders in chart review is presumptively invalid.”
The Special Master further pointed out that “the government has repeatedly attempted to shift the burden to United to disprove the government’s allegations. Rather than review medical records itself, the government served discovery asking United to identify which of the approximately 28 million diagnosis codes, if any, United contends were supported by medical records and to produce the medical records providing such support.” (Emphases in original). United properly objected to this as “‘an improper contention interrogatory that impermissibly seeks to shift the burden of proving an essential element of the government’s False Claims Act case on to UnitedHealth . . .’” but offered to produce the 21 million underlying medical records in order to resolve the discovery dispute. The government rejected that offer, apparently, due to the volume of documents. The Special Master wryly noted that “the government was responsible for placing that volume of records in dispute.” Defendants should push back on government attempts to force them to prove their innocence, and to take on the government’s own investigatory and evidentiary obligations.
Lesson #2: The FCA Is A Fraud Statute
At base, the False Claims Act is a “fraud statute.” See e.g., United States ex rel. Schutte v. SuperValu, Inc., 598 U.S. 739, 750-51 (2023). As such, the Special Master appropriately focused on the government’s position that “mere avoidance of an obligation to repay money to the government is enough to create liability under the FCA, without the need to prove any deceptive conduct” and found that this position obviates the nature of a fraud statute. The Special Master ruled that “the impropriety of a defendant’s retention of an overpayment cannot be grounded in the mere fact of the defendant having received the overpayment, or even of being obligated to return it. Otherwise, the requirement of ‘improper’ conduct would introduce circularity and surplusage into a statute where Congress clearly intended nothing of the kind.” Quite simply, “a reverse FCA claim requires proof that the defendant engaged in conduct that deceived the government about an obligation to repay funds.”
Here, the government did not allege “any sort of deception.” Even if United had retained an overpayment, “[t]he mere retention of overpayments may deprive the government of funds it is owed, but that is not fraud.” While the failure to allege deception was fatal by itself, here there was also evidence that “the government knew of the very chart review practices of which it now claims United prevented it from learning, and thus the government cannot have been duped into relying on any action or inaction by United in determining whether it had been the victim of overpayments.”
The bar for both pleading and proving fraud is high. Fed. R. Civ. Pro. 9(b). Here, the Special Master correctly recognized that “[i]n relying upon only the ‘knowing and improper avoidance’ formulation of reverse FCA liability, the government must establish that United knew it had received overpayments and acted in a way that kept the government from learning of the overpayment.” Defendants should hold the government to those requirements. Quite simply, fraud and breach of contract are radically different, and proving fraud is, and should be, hard.
Lesson #3: Materiality Matters
In the eight years since the publication of Universal Health Services v. United States ex rel. Escobar, 579 U.S. 176 (2016), this blog has written extensively about materiality. More than 1,100 court decisions cite to Escobar. Escobar’s impact is significant and pervasive. Here, the government argued that “materiality is not a required element of establishing liability under the second prong of the reverse false claim provision.” The Special Master disagreed:
Escobar and subsequent Ninth Circuit cases recognize that, like the FCA as a whole, its reverse false claims provision incorporates the elements of common law fraud (although the provision expands the notion of what constitutes a “false claim” under the statute). Accordingly, a materiality element must apply to that provision, regardless of which of its two prongs is the basis for the government’s claim in a given case, because of the inconceivability of fraud absent a materiality element.
(Emphasis added, citations omitted). FCA defendants should continue to hold the government to its burden to prove materiality as well.
Conclusion
While the threat of treble damages, per claim penalties, and a variety of administrative remedies (including, but not limited to, suspension and debarment) are intimidating, FCA defendants should take comfort in this decision, which underscores the value of investing in a good defense and litigation strategy. Courts will hold the government’s feet to the fire and require it to meet its burden to prove fraud which, as here, it often simply cannot do.
