U.S. Ex Rel. Anita Silingo v. Wellpoint, Inc. , 895 F.3d 619 ( 2018 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES EX REL. ANITA No. 16-56400
SILINGO,
Plaintiff-Appellant, D.C. No.
8:13-cv-01348-
v. FMO-JC
WELLPOINT, INC., an Indiana
corporation; ANTHEM BLUE CROSS, OPINION
business entity, form unknown;
HEALTH NET, INC.; HEALTH NET OF
CALIFORNIA, INC., a California
corporation; HEALTH NET LIFE
INSURANCE COMPANY, a California
corporation; VISITING NURSE
SERVICE CHOICE; MOLINA
HEALTHCARE, INC., a Delaware
corporation; MOLINA HEALTHCARE
OF CALIFORNIA, a California
corporation; MOLINA HEALTHCARE
OF CALIFORNIA PARTNER PLAN, INC.,
a California corporation; ALAMEDA
ALLIANCE FOR HEALTH, a business
organization, form unknown;
ANTHEM BLUE CROSS LIFE AND
HEALTH INSURANCE COMPANY, a
California corporation; BLUE CROSS
OF CALIFORNIA, a California
corporation,
Defendants-Appellees.
2 UNITED STATES EX REL. SILINGO V. WELLPOINT
Appeal from the United States District Court
for the Central District of California
Fernando M. Olguin, District Judge, Presiding
Argued and Submitted March 8, 2018
Pasadena, California
Filed July 9, 2018
Before: Ronald M. Gould and Mary H. Murguia, Circuit
Judges, and Jack Zouhary, * District Judge.
Opinion by Judge Gould
SUMMARY **
False Claims Act
The panel affirmed in part and reversed in part the
district court’s dismissal of a False Claims Act suit against
several Medicare Advantage organizations.
Under Medicare Advantage’s “capitation” system,
private health insurance organizations provide Medicare
benefits in exchange for a fixed monthly fee per person
enrolled in the program. These organizations pocket for
themselves or pay out to their enrollees’ providers the
*
The Honorable Jack Zouhary, United States District Judge for the
Northern District of Ohio, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
UNITED STATES EX REL.SILINGO V. WELLPOINT 3
difference between their capitation revenue and their
enrollees’ medical expenses. The Centers for Medicare and
Medicaid Services sets capitation rates based on risk
adjustment data, including enrollees’ medical diagnoses,
reported by Medicare Advantage health insurance
organizations. The plaintiff alleged that the defendant
Medicare Advantage organizations retained Mobile Medical
Examination Services, Inc. (MedXM) to fraudulently
increase, or at least maintain, their capitation payments for
enrollees whose risk scores were set to expire and revert to
the unadjusted Medicare beneficiary average.
The panel held that the district court erred in dismissing
charges of factually false claims, express false certifications,
and false records based on the plaintiff’s use of group
allegations. The panel concluded that the plaintiff satisfied
Federal Rule of Civil Procedure 9(b), which requires that the
circumstances constituting fraud be stated with particularity,
by pleading a wheel conspiracy-like fraud in which MedXM
was the “hub” and the defendant Medicare Advantage
organizations were “spokes” that largely engaged in the
same conduct.
The panel rejected the defendants’ argument that it
should affirm the dismissal of the third amended complaint
on the grounds that (1) the complaint failed to allege a
sufficient factual basis to link MedXM’s misconduct to
defendants’ actual submissions of claims or certifications to
the Centers for Medicare and Medicaid Services; or (2) the
complaint’s allegations about the Medicare Advantage
organizations’ knowledge of the alleged fraud did not satisfy
Rule 8.
The panel affirmed the dismissal of a reverse false claim
count that the plaintiff did not defend in response to
4 UNITED STATES EX REL. SILINGO V. WELLPOINT
defendants’ motions to dismiss. The panel reversed the
dismissal on the pleadings of other counts and remanded for
further proceedings on the plaintiff’s causes of action for
factually false claims, express false certifications, and false
records.
COUNSEL
Abram Jay Zinberg (argued), The Zinberg Law Firm A.P.C.,
Huntington Beach, California; William K. Hanagami, The
Hanagami Law Firm A.P.C., Woodland Hills, California; for
Plaintiff-Appellant.
David Jeffrey Leviss (argued) and Amanda M. Santella,
O’Melveny & Myers LLP, Washington, D.C.; Elizabeth M.
Bock, Sabrina Strong, and David Deaton, O’Melveny &
Myers LLP, Los Angeles, California; Poopak Nourafchan
and Michael M. Maddigan, Hogan Lovells LLP, Los
Angeles, California; David J. Schindler, Latham & Watkins
LLP, Los Angeles, California; Anne W. Robinson, Latham
& Watkins LLP, Washington, D.C.; Paul C. Burkholder and
David Jacobs, Epstein Becker & Green PC, Los Angeles,
California; Pamela A. Stone and Michael J. Daponde,
Daponde Szabo Rowe PC, Sacramento, California; for
Defendants-Appellees.
UNITED STATES EX REL.SILINGO V. WELLPOINT 5
OPINION
GOULD, Circuit Judge:
Qui tam relator Anita Silingo appeals the dismissal of her
False Claims Act suit against several Medicare Advantage
organizations. We reverse in part, affirm in part, and
remand.
I
Medicare Advantage is a modern adaptation of the
momentous 1960s-era program. Traditional Medicare uses
a fee-for-service payment model, whereby the more services
physicians perform, the more money they earn. After
Medicare was enacted, however, experts came to realize that
this payment structure encourages healthcare providers to
order more tests and procedures than medically necessary.
See Thomas L. Greaney, Medicare Advantage, Accountable
Care Organizations, and Traditional Medicare:
Synchronization or Collision?, 15 Yale J. Health Pol’y, L. &
Ethics 37, 38, 41 (2015).
Medicare Advantage seeks to improve the quality of care
while safeguarding the public fisc by employing a
“capitation” payment system. Capitation means an amount
is paid per person. Capitation, Black’s Law Dictionary
(10th ed. 2014). Under Medicare Advantage’s capitation
system, private health insurance organizations provide
Medicare benefits in exchange for a fixed monthly fee per
person enrolled in the program—regardless of actual
healthcare usage. These organizations pocket for themselves
or pay out to their enrollees’ providers the difference
between their capitation revenue and their enrollees’ medical
expenses, creating an incentive for the organizations to rein
in costs. See Patricia A. Davis et al., Cong. Research Serv.,
6 UNITED STATES EX REL. SILINGO V. WELLPOINT
R40425, Medicare Primer 20 (2017), https://fas.org/sgp/crs/
misc/R40425.pdf.
Unfortunately, human nature being what it is, Medicare
Advantage organizations also have some incentive to
improperly inflate their enrollees’ capitation rates, if these
organizations fall prey to greed. By design, Medicare
Advantage is supposed to compensate these organizations
for expected healthcare costs, paying “less for healthier
enrollees and more for less healthy enrollees.”
Establishment of the Medicare Advantage Program, 70 Fed.
Reg. 4588, 4657 (Jan. 28, 2005). So capitation rates are
based largely on an individual’s “risk adjustment data,”
which reflect several factors that can affect healthcare costs.
See 42 U.S.C. § 1395w-23(a)(1)(C)(i); 42 C.F.R.
§ 422.308(c). Chief among these data are individuals’
medical diagnoses. See Policy and Technical Changes to the
Medicare Advantage and the Medicare Prescription Drug
Benefit Programs, 74 Fed. Reg. 54,634, 54,673 (Oct. 22,
2009). Medicare Advantage organizations obtain diagnosis
codes from healthcare providers after these providers have
had medical visits with plan enrollees. See CMS, Pub. No.
100-16, Medicare Managed Care Manual, ch. 7, § 40
(2014), https://www.cms.gov/Regulations-and-Guidance/
Guidance/Manuals/downloads/mc86c07.pdf. In turn,
Medicare Advantage organizations report the diagnosis
codes that they receive to the Centers for Medicare and
Medicaid Services (“CMS”) for use in the risk adjustment
model that is the key to calculation of capitation rates. Id.
The risk adjustment model deems a Medicare Advantage
enrollee to be as healthy as the average Medicare beneficiary
unless CMS receives updated diagnosis codes for the
enrollee every year. See id. §§ 20, 70, 70.2.5, 120.2.4.
UNITED STATES EX REL.SILINGO V. WELLPOINT 7
With data for millions of people being submitted each
year, CMS is unable to confirm diagnoses before calculating
capitation rates. Instead, the agency accepts the diagnoses
as submitted, and then audits some of the self-reported data
a few years later to ensure that they are adequately supported
by medical documentation. See 42 C.F.R. §§ 422.310(e),
422.311; Contract Year 2015 Policy and Technical Changes
to the Medicare Advantage and the Medicare Prescription
Drug Benefit Programs, 79 Fed. Reg. 1918, 2001 (Jan. 10,
2014). These audits have revealed excess payments for
unsupported diagnoses steadily increasing over the last
decade, reaching an estimated $16.2 billion—nearly ten
cents of every dollar paid to Medicare Advantage
organizations—in 2016 alone. See James Cosgrove, U.S.
Gov’t Accountability Office, GAO-17-761T, Medicare
Advantage Program Integrity: CMS’s Efforts to Ensure
Proper Payments and Identify and Recover Improper
Payments 1 (2017), https://www.gao.gov/assets/690/
685934.pdf; James Cosgrove, U.S. Gov’t Accountability
Office, GAO-13-206, Medicare Advantage: Substantial
Excess Payments Underscore Need for CMS to Improve
Accuracy of Risk Score Adjustments 9–10 (2013),
https://www.gao.gov/assets/660/651712.pdf.
To combat the “incentive for [Medicare Advantage]
organizations to potentially over-report diagnoses,”
Medicare regulations require risk adjustment data to be
produced according to certain best practices. Contract Year
2015 Policy and Technical Changes to the Medicare
Advantage and the Medicare Prescription Drug Benefit
Programs, 79 Fed. Reg. 1918, 2001 (Jan. 10, 2014). Every
diagnosis code submitted to CMS must be based on a “face-
to-face” visit that is documented in the medical record.
Medicare Managed Care Manual, ch. 7, §§ 40, 120.1.1.
Medical records must be validated by qualifying
8 UNITED STATES EX REL. SILINGO V. WELLPOINT
“physician/practitioner signatures and credentials.” Policy
and Technical Changes to the Medicare Advantage and the
Medicare Prescription Drug Benefit Programs, 75 Fed. Reg.
19,678, 19,743 (Apr. 15, 2010). Further, electronic medical
records must meet special signature requirements and use
software that is “protected against modification.” CMS,
Pub. No. 100-08, Medicare Program Integrity Manual, ch.
3, § 3.3.2.4 (2018), https://www.cms.gov/Regulations-and-
Guidance/Guidance/Manuals/downloads/PIM83c03.pdf. 1
Medicare regulations also establish several data
certification requirements. Most important here, it is an
express condition of payment that a Medicare Advantage
organization “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)(2). We have explained that a certification is
thus false “when the Medicare Advantage organization has
actual knowledge of the falsity of the risk adjustment data or
demonstrates either ‘reckless disregard’ or ‘deliberate
ignorance’ of the truth or falsity of the data.” United States
ex rel. Swoben v. United Healthcare Ins. Co., 848 F.3d 1161,
1169 (9th Cir. 2016) (citing Medicare+Choice Program,
65 Fed. Reg. 40,170, 40,268 (June 29, 2000)). The
organization also is required to “[a]dopt and implement
an effective compliance program, which must include
measures that prevent, detect, and correct non-compliance
with CMS’ program requirements,” such as written
standards of conduct, the designation of a compliance
1
Though this chapter was recently updated, the relevant section has
existed in the same form for several years. See, e.g., CMS, Pub. No. 100-
08, Medicare Program Integrity Manual, ch. 3, § 3.3.2.4 (2012),
https://web.archive.org/web/20120410201053/https://www.cms.gov/Re
gulations-and-Guidance/Guidance/Manuals/downloads/PIM83c03.pdf.
UNITED STATES EX REL.SILINGO V. WELLPOINT 9
officer, and other listed minimum requirements. 42 C.F.R.
§ 422.503(b)(4)(vi). The importance of accurate data
certifications and effective compliance programs is obvious:
if enrollee diagnoses are overstated, then the capitation
payments to Medicare Advantage organizations will be
improperly inflated.
The Medicare Advantage capitation payment system is
subject to the False Claims Act. Originally enacted during
the Civil War, the False Claims Act was intended to
“forfend[] widespread fraud by government contractors.”
United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1265
(9th Cir. 1996). The Act’s qui tam provisions allow a
person—called a “relator”—to bring suit on the federal
government’s behalf, and then share the recovered damages
and civil penalties with the government. See United States
ex rel. Kelly v. Boeing Co., 9 F.3d 743, 745–47 (9th Cir.
1993). Liability attaches upon proof that a false claim for
payment was made, regardless of whether the government
suffered actual damage. United States ex rel. Aflatooni v.
Kitsap Physicians Serv., 314 F.3d 995, 1002 (9th Cir. 2002).
II
Anita Silingo is a former Compliance Officer and
Director of Provider Relations for Mobile Medical
Examination Services, Inc. (“MedXM”). MedXM employs
physicians, nurse practitioners, and physician assistants to
conduct in-home health assessments of Medicare
beneficiaries. Silingo alleges that from 2010 to 2014,
MedXM contracted with the defendant Medicare Advantage
organizations to provide up-to-date diagnosis codes and
medical documentation for enrollees who otherwise may not
have had an eligible medical encounter during a calendar
year.
10 UNITED STATES EX REL. SILINGO V. WELLPOINT
In August 2013, Silingo filed an initial complaint against
MedXM and the defendant Medicare Advantage
organizations under the False Claims Act. In May 2014,
Silingo filed her first amended complaint. The United States
then declined to intervene, and in January 2015 Silingo filed
a second amended complaint.
The crux of the complaint is that the defendant Medicare
Advantage organizations retained MedXM to fraudulently
increase, or at least maintain, their capitation payments for
enrollees whose risk scores were set to expire and revert to
the unadjusted Medicare beneficiary average.
First, Silingo claims that MedXM used inappropriate
software so that it could edit health records to exaggerate
medical diagnoses. Silingo alleges that MedXM’s in-home
health assessment reports were prepared in Microsoft Word
templates that are not “protected against modification,” and
were signed by merely typing in the medical examiner’s
name, which is not an acceptable electronic signature.
Medicare Program Integrity Manual, ch. 3, § 3.3.2.4. Once
in the hands of MedXM’s coders, these reports were
allegedly modified to delete information showing little risk
and insert new information to support diagnoses with higher
risk scores. According to Silingo, MedXM then saved these
reports as PDF files and submitted them to Medicare
Advantage organizations as support for inflated risk
adjustment data. Silingo asserts that all of MedXM’s health
assessment reports violated CMS’s requirements for
electronic medical records, and that more than half of them
had been tampered with in this manner.
Next, Silingo claims that MedXM’s fleet of mostly nurse
practitioners and physician assistants were not legally
authorized to make conclusive medical diagnoses, so their
UNITED STATES EX REL.SILINGO V. WELLPOINT 11
examinations could not support the risk adjustment data that
was submitted. Before 2012, MedXM allegedly contracted
directly with these healthcare providers without ensuring
that they practiced under the supervision of licensed
physicians. From 2012 to 2014, MedXM allegedly had
contract physicians fraudulently sign standard care
agreements with these non-physician providers without
properly supervising their work.
Silingo also claims MedXM systematically fabricated
complex diagnoses that its medical examiners could not have
possibly confirmed during an in-home assessment. The
complaint identifies a variety of ailments—such as chronic
obstructive pulmonary disease, hepatitis, and inflammatory
bowel disease—that allegedly cannot be diagnosed without
a spirometry test, biopsy, follow-up blood test, or other
invasive procedure that MedXM’s examiners were
unequipped and unauthorized to perform in a person’s home.
Instead, Silingo alleges, MedXM’s medical examiners and
coders simply recycled prior diagnoses and medical histories
in the updated health assessment reports.
Further, Silingo claims that MedXM regularly produced
diagnostic information that was not the result of face-to-face
medical encounters. By her estimation, in-home health
assessments took about 45 minutes plus travel time and
could be performed only within an 11-hour window, so
MedXM’s medical examiners realistically could not perform
more than 13 in-home health assessments per day. But
Silingo alleges that many examiners consistently reported
more than 15 assessments per day, with some reporting as
many as 25. Silingo contends that these examiners boosted
their assessment numbers by sometimes submitting identical
vital statistics (age, weight, sex, and so on) for hundreds of
enrollees, and only “correcting” these suspicious data entries
12 UNITED STATES EX REL. SILINGO V. WELLPOINT
when requested by Medicare Advantage organizations, by
collecting information over the phone or having MedXM’s
coders forge new data.
A company offering in-home health assessment services
has no intrinsic reason to overstate its findings. Rather, as
Silingo alleges, MedXM went to the trouble of editing and
forging medical records to provide its clients with more
lucrative diagnosis codes—earning the Medicare Advantage
organizations higher than warranted capitation payments.
Silingo contends that the defendant Medicare Advantage
organizations made false claims for payment by submitting
MedXM’s risk adjustment data to CMS for several years,
either with actual knowledge that the data were invalid or
with reckless disregard or deliberate ignorance as to their
validity. In doing so, the organizations allegedly violated the
certification requirements of 42 C.F.R. § 422.504(l)(2),
which is an express condition of payment. And Silingo
contends that the failure to catch MedXM’s widespread
fraud is evidence that these organizations did not have the
effective compliance programs required by 42 C.F.R.
§ 422.503(b)(4)(vi), which is not an express condition of
payment.
Silingo advanced six theories of liability under the False
Claims Act. She first charged that defendants violated
31 U.S.C. § 3729(a)(1)(A) by making, or causing to be
made, a claim for payment that is “factually false.” Mikes v.
Straus, 274 F.3d 687, 697 (2d Cir. 2001), abrogated on other
grounds by Universal Health Servs., Inc. v. United States ex
rel. Escobar, 136 S. Ct. 1989 (2016). A factually false claim
is one in which “the claim for payment is itself literally false
or fraudulent,” United States ex rel. Hendow v. Univ. of
Phoenix, 461 F.3d 1166, 1170 (9th Cir. 2006), such as when
UNITED STATES EX REL.SILINGO V. WELLPOINT 13
the claim “involves an incorrect description of goods or
services provided or a request for reimbursement for goods
or services never provided,” Mikes, 274 F.3d at 697.
In addition, Silingo contended that defendants violated
§ 3729(a)(1)(A) by making claims that were “legally false.”
Id. There are two cognizable theories of liability for legally
false claims: express false certification and implied false
certification. Express false certification involves an entity’s
representation of compliance with the law as part of the
process for submitting a claim when it is actually not
compliant. United States ex rel. Ebeid v. Lungwitz, 616 F.3d
993, 998 (9th Cir. 2010). By contrast, “[i]mplied false
certification occurs when an entity has previously
undertaken to expressly comply with a law, rule, or
regulation, and that obligation is implicated by submitting a
claim for payment even though a certification of compliance
is not required in the process of submitting the claim.” Id.;
see also Escobar, 136 S. Ct. 1989 (validating the implied
false certification theory).
Silingo next raised a false records claim under the
following subparagraph, § 3729(a)(1)(B). Such a claim
imposes liability where a party “knowingly makes, uses, or
causes to be made or used, a false record or statement
material to a false or fraudulent claim.” 31 U.S.C.
§ 3729(a)(1)(B).
Silingo also alleged a violation of the False Claims Act’s
“reverse false claim” provision, § 3729(a)(1)(G). That
provision “is designed to cover Government money or
property that is knowingly retained by a person even though
they have no right to it.” S. Rep. No. 111-10, at 13–14
(2009), reprinted in 2009 U.S.C.C.A.N. 430, 441.
14 UNITED STATES EX REL. SILINGO V. WELLPOINT
Finally, Silingo accused defendants of conspiring to
violate the False Claims Act. See 31 U.S.C. § 3729(a)(1)(C).
In February 2015, defendants separately moved to
dismiss Silingo’s claims. Silingo opposed defendants’
motions, but did not defend her count for reverse false
claims. The district court held that the factually false claim
cause of action against MedXM was well-pleaded under
Federal Rules of Civil Procedure 8 and 9(b) because Silingo
sufficiently alleged that MedXM caused false claims to be
submitted to CMS. But the court dismissed Silingo’s
abandoned reverse false claim count and conspiracy claim
with prejudice, and dismissed her four remaining claims
against the defendant Medicare Advantage organizations
without prejudice. In the district court’s view, the latter
claims were defective for using an impermissible “group-
pleading.”
Silingo filed a third amended complaint in October 2015.
This time, Silingo separately pleaded her allegations against
the Medicare Advantage organizations seriatim. Defendants
promptly moved to dismiss the new complaint, and while
these motions were pending, MedXM settled out of the case.
The district court then dismissed Silingo’s claims against the
Medicare Advantage organizations with prejudice on the
ground that the allegations “remain undifferentiated.”
Silingo timely appealed the dismissal of her causes of action
for factually false claims, express false certifications, false
records, and reverse false claims.
III
We review de novo a district court’s dismissal of a
complaint under Federal Rule of Civil Procedure 12(b)(6),
“accepting as true all well-pleaded allegations of fact in the
complaint and construing them in the light most favorable to
UNITED STATES EX REL.SILINGO V. WELLPOINT 15
the Relator[].” United States v. Corinthian Colleges,
655 F.3d 984, 991 (9th Cir. 2011) (citation and alterations
omitted). We review for abuse of discretion a district court’s
denial of leave to amend a complaint. Id. at 995.
In the usual case involving dismissal of a complaint, we
must evaluate whether the factual allegations, together with
all reasonable inferences, state a plausible claim to relief.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Rule 9(b), however, requires that “[i]n alleging fraud or
mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ.
P. 9(b). To satisfy this requirement, a pleading must identify
“the who, what, when, where, and how of the misconduct
charged,” as well as “what is false or misleading about [the
purportedly fraudulent] statement, and why it is false.”
United States ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc.,
637 F.3d 1047, 1055 (9th Cir. 2011) (quoting Ebeid,
616 F.3d at 998). This heightened pleading standard serves
two main purposes. First, allegations of fraud “must be
specific enough to give defendants notice of the particular
misconduct which is alleged to constitute the fraud charged
so that they can defend against the charge and not just deny
that they have done anything wrong.” Bly-Magee v.
California, 236 F.3d 1014, 1019 (9th Cir. 2001) (quotation
marks and citation omitted). Second, the rule serves “to
deter the filing of complaints as a pretext for the discovery
of unknown wrongs, to protect [defendants] from the harm
that comes from being subject to fraud charges, and to
prohibit plaintiffs from unilaterally imposing upon the court,
the parties and society enormous social and economic costs
absent some factual basis.” Id. at 1018 (quotation marks and
citation omitted).
16 UNITED STATES EX REL. SILINGO V. WELLPOINT
IV
To satisfy Rule 9(b), a fraud suit against differently
situated defendants must “identify the role of each defendant
in the alleged fraudulent scheme.” Swartz v. KPMG LLP,
476 F.3d 756, 765 (9th Cir. 2007) (citation and alterations
omitted). In other words, when defendants engage in
different wrongful conduct, plaintiffs must likewise
“differentiate their allegations.” Id. at 764 (citation omitted).
This rule is illustrated by Destfino v. Reiswig, 630 F.3d
952 (9th Cir. 2011). There, plaintiffs alleged that
29 individuals, 10 businesses, and a church formed an
intricate tax avoidance scheme, but the complaint did not
“set out which of the defendants made which of the
fraudulent statements/conduct.” Id. at 954, 958. We
explained that in a situation like that in Destfino, with
different actors playing different parts, it is not enough to
“lump” together the dissimilar defendants and assert that
“everyone did everything.” Id. at 958 (quoting Swartz,
476 F.3d at 764–65). More is required to plead the
circumstances of a fraud with particularity.
On the other hand, a complaint need not distinguish
between defendants that had the exact same role in a fraud.
We recently addressed this issue in United States ex rel.
Swoben v. United Healthcare Ins. Co., 848 F.3d 1161 (9th
Cir. 2016), which we decided a few months after the district
court dismissed Silingo’s complaint. Swoben involved
allegations of Medicare Advantage organizations—
including several of the defendant organizations here—
submitting false certifications of the accuracy,
completeness, and truthfulness of the risk adjustment data
they provided to CMS. Id. at 1166–67. In a bit of deja vu,
these Medicare Advantage organizations faulted the
UNITED STATES EX REL.SILINGO V. WELLPOINT 17
complaint there for using “collective allegations to refer to
the defendants rather than differentiating among them.” Id.
at 1184. We dispensed with this argument, holding: “There
is no flaw in a pleading . . . where collective allegations are
used to describe the actions of multiple defendants who are
alleged to have engaged in precisely the same conduct.” Id.
A good claim against one defendant did not become
inadequate simply because a co-defendant was alleged to
have committed the same wrongful acts.
To better understand Swoben’s ruling, consider an
analogy. In the taxonomy of conspiracy theories, a “chain
conspiracy” is one in which “each person is responsible for
a distinct act within the overall plan,” while a “wheel
conspiracy” involves “a single member or group (the ‘hub’)
separately agree[ing] with two or more other members or
groups (the ‘spokes’).” Conspiracy, Black’s Law Dictionary
(10th ed. 2014). Broadly speaking, if a fraudulent scheme
resembles a chain conspiracy, then a complaint must
separately identify which defendant was responsible for
what distinct part of the plan. By contrast, if a fraudulent
scheme resembles a wheel conspiracy, then any parallel
actions of the “spokes” can be addressed by collective
allegations.
Applying Swoben here in light of these related
principles, we observe that Silingo has pleaded a wheel
conspiracy-like fraud in which MedXM was the “hub” and
the defendant Medicare Advantage organizations were the
“spokes.” Each of the defendant organizations allegedly had
separate contracts with MedXM, and each of them allegedly
passed on MedXM’s inflated diagnosis information in the
same way. These organizations thus miss the mark when
they implore us to consider that they are “unrelated,
dissimilar defendants with no relevant business connections
18 UNITED STATES EX REL. SILINGO V. WELLPOINT
to one another and that [they] differ in size, geography, and
member populations.” Because the Medicare Advantage
organizations are largely “alleged to have engaged in
precisely the same conduct,” there was no reason (and no
way) for Silingo to differentiate among those allegations that
are common to the group. Swoben, 848 F.3d at 1184.
Silingo’s charges of factually false claims, express false
certifications, and false records should not have been
dismissed due to her use of group allegations.
V
The defendant Medicare Advantage organizations
contend that we should nevertheless affirm the dismissal of
the third amended complaint based on arguments that the
district court did not reach. We may affirm the dismissal on
any ground supported by the record, even if the district court
did not rely on that ground. Corinthian Colleges, 655 F.3d
at 992. The defendant organizations offer two such grounds:
(1) that the complaint did not allege a sufficient factual basis
to link MedXM’s misconduct to their actual submission of
claims or certifications to CMS; and (2) that Silingo’s
allegations about their knowledge of the fraud did not satisfy
Rule 8. 2 We address these points in turn.
2
The defendant Medicare Advantage organizations also argue that
as to the implied false certification claim, Silingo did not plead facts with
the requisite particularity to show that the organizations lacked the
compliance programs required by 42 C.F.R. § 422.503(b)(4)(vi). We
need not address this argument, however, because Silingo has abandoned
this claim on appeal by not challenging its dismissal “clearly and
distinctly in the opening brief.” McKay v. Ingleson, 558 F.3d 888, 891
n.5 (9th Cir. 2009).
UNITED STATES EX REL.SILINGO V. WELLPOINT 19
A
The defendant Medicare Advantage organizations first
contend that the complaint provides inadequate detail of
their submission of false claims. When alleging a scheme to
submit false claims, a plaintiff must provide “reliable indicia
that lead to a strong inference that claims were actually
submitted.” Ebeid, 616 F.3d at 998–99 (quoting United
States ex rel. Grubbs v. Ravikumar Kanneganti, 565 F.3d
180, 190 (5th Cir. 2009)). We do not require the complaint
to identify representative examples of actual false claims,
though that is one way to satisfy the heightened pleading
requirement. Id.
We agree with the district court, in its analysis of the
claims against MedXM, that Silingo has carried her burden
here. The complaint asserts that the defendant Medicare
Advantage organizations contracted with MedXM to
provide health assessment reports and diagnosis codes for at
least four years. Silingo details “first-hand experience of the
scheme unfolding,” describing MedXM’s in-home
assessments targeting Medicare Advantage enrollees who
would otherwise lack risk adjustment data for a given year.
Grubbs, 565 F.3d at 192. For this population, the Medicare
Advantage organizations would face lower capitation
payments if they did not procure and submit updated data.
See Medicare Managed Care Manual, ch. 7, §§ 20, 70,
70.2.5. Conversely, if they submitted data that overstated
health problems in the diagnosis codes given, that would
result in higher capitated payments to them. And as part of
their requests for payment, Medicare Advantage
organizations must certify that the data they submit are
“accurate, complete, and truthful.” 42 C.F.R.
§ 422.504(l)(2). Taking Silingo’s allegations as true, as we
must, we see ample circumstantial evidence from which to
20 UNITED STATES EX REL. SILINGO V. WELLPOINT
infer that the defendant organizations submitted MedXM’s
risk adjustment data and certified the data’s validity to CMS.
Indeed, “[i]t would stretch the imagination to infer the
inverse.” Grubbs, 565 F.3d at 192. Perhaps it would be
possible that some Medicare Advantage organization, after
paying for MedXM’s services, might have discovered the
fraud and then cut ties with the company and thrown out its
data. But the organizations here are alleged to have had
multi-year relationships with MedXM, apparently
encompassing thousands of examinations. There is no
reason to believe that these companies consistently paid
MedXM for data that they desperately needed but, time after
time, did not actually use.
The defendant Medicare Advantage organizations
counter that Silingo did not sufficiently plead the “who,
what, when, where, why” of their false claims, omitting
allegations about their “claims filtering, verification, or
submission processes or outcomes.” But these omissions do
not justify dismissing the complaint for inadequate pleading.
Rule 9(b) does not require a plaintiff to explain why a
defendant committed fraud; the complaint simply must
allege “the who, what, when, where, and how of the
misconduct charged.” Cafasso, 637 F.3d at 1055 (quoting
Ebeid, 616 F.3d at 998) (emphasis added). Whatever their
internal processes, Silingo alleges, the defendant
organizations ultimately did submit false claims and
certifications.
B
The next argument of the defendant Medicare Advantage
organizations is that Silingo’s allegations about their
knowledge of the alleged fraud are not plausible under
Rule 8.
UNITED STATES EX REL.SILINGO V. WELLPOINT 21
To plead the element of knowledge under the False
Claims Act, a relator must allege that a defendant knew a
claim for payment was false, or that it acted with reckless
disregard or deliberate indifference as to the truth or falsity
of the claim. Corinthian Colleges, 655 F.3d at 996; see also
31 U.S.C. § 3729(b)(1) (defining the terms “knowing” and
“knowingly”). Although the circumstances of a fraud must
be pleaded with particularity, knowledge may be pleaded
generally. Fed. R. Civ. P. 9(b); see also Corinthian
Colleges, 655 F.3d at 996. A complaint therefore must set
out sufficient factual matter from which a defendant’s
knowledge of a fraud might reasonably be inferred. See
Iqbal, 556 U.S. at 678.
Here, Silingo plausibly pleads that the defendant
Medicare Advantage organizations submitted false claims
and certifications and used false records with actual
knowledge, reckless disregard, or deliberate ignorance of
their falsity. The complaint details a variety of ways in
which the defendant organizations knew, or reasonably
should have known, that MedXM’s risk adjustment data
were invalid.
For one thing, Silingo claims that every health
assessment report contained a typewritten signature only,
violating the requirements for medical records underlying
risk adjustment data. See Medicare Program Integrity
Manual, ch. 3, § 3.3.2.4 (describing requirements for
handwritten and electronic signatures); see also Policy and
Technical Changes, 75 Fed. Reg. at 19,742 (“Medical
records with missing signatures or credentials are scored as
errors under [risk adjustment data validation] audit
procedures.”). Similarly, Silingo contends that these errant
signatures should have tipped off the defendant
22 UNITED STATES EX REL. SILINGO V. WELLPOINT
organizations that MedXM was editing its examiners’
unsecured reports.
For another, Silingo alleges that other parts of MedXM’s
health assessment reports provided additional reasons for
suspicion. According to the complaint, MedXM’s frequent
use of nurse practitioners and physician assistants as
examiners was a “serious red flag” because these
practitioners are commonly known to be limited by law in
their ability to make diagnoses. MedXM’s diagnosis codes
themselves could have revealed the fraud because, as Silingo
alleges, many complex diagnoses cannot be confirmed
during brief and non-invasive in-home assessments. And
Silingo claims that duplicative patient data were sometimes
sent to the defendant organizations before being “corrected,”
which would suggest that something was amiss.
Taking all reasonable inferences in Silingo’s favor, see
Iqbal, 566 U.S. at 678, there are still further grounds for
concluding that the allegations of the defendant
organizations’ knowledge, reckless disregard, or deliberate
ignorance of the fraud is plausible. Even without the
concrete signs detailed above, one would expect that a
sophisticated company would notice when its contractor’s
work is too good to be true. MedXM was allegedly
obtaining worse-than-average diagnostic information from
enrollees who did not otherwise visit a healthcare provider
during a calendar year, and thus would not seem to be in such
dire health. The defendant organizations’ materials show
that the use of in-home assessments is controversial, with
CMS repeatedly expressing interest in forbidding their use
on the ground that they “contribute[] to increased risk scores
and differences in coding patterns” between Medicare
UNITED STATES EX REL.SILINGO V. WELLPOINT 23
Advantage and traditional Medicare. 3 And all of these
organizations had an incentive to pass along fraudulent data
because, by overstating diagnoses, they could yield more
revenue and profit under the capitated payment system—and
it was not certain that they would get caught. That may not
have been what was going on here, but the third amended
complaint certainly states a plausible claim for knowingly
participating in fraud, even as to the well-respected
companies who are defending here.
It is no defense that Silingo’s core allegations against the
defendant Medicare Advantage organizations are all alike.
If a group pleading against similarly situated defendants can
satisfy Rule 9(b), then it can also satisfy the lesser notice
pleading standard of Rule 8. See Swoben, 848 F.3d at 1184.
Silingo simply claims that all of the defendant organizations
were equally put on notice by the warning signs that
allegedly infected MedXM’s health assessment reports.
These allegations, if true, give rise to the reasonable
inference that the defendant organizations knowingly
submitted false claims and used false records, or else acted
3
CMS, Advance Notice of Methodological Changes for Calendar
Year (CY) 2015 for Medicare Advantage (MA) Capitation Rates, Part C
and Part D Payment Policies and 2015 Call Letter 20 (Feb. 21, 2014),
https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRate
Stats/downloads/Advance2015.pdf; see also CMS, Advance Notice of
Methodological Changes for Calendar Year (CY) 2014 for Medicare
Advantage (MA) Capitation Rates, Part C and Part D Payment
Policies and 2014 Call Letter 22–23 (Feb. 15, 2013),
https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRate
Stats/Downloads/Advance2014.pdf; CMS, Announcement of Calendar
Year (CY) 2016 Medicare Advantage Capitation Rates and Medicare
Advantage and Part D Payment Policies and Final Call Letter 144–45
(Apr. 6, 2015), https://www.cms.gov/Medicare/Health-Plans/
MedicareAdvtgSpecRateStats/Downloads/Announcement2016.pdf.
24 UNITED STATES EX REL. SILINGO V. WELLPOINT
with reckless disregard or deliberate indifference of the
falsity of these claims and records. See Corinthian Colleges,
655 F.3d at 996. Because each Medicare Advantage
organization must certify the validity of its data “based on
best knowledge, information, and belief,” these same
allegations also support Silingo’s express false certification
claim. 42 C.F.R. § 422.504(l)(2); Swoben, 848 F.3d at 1169.
VI
Silingo also appeals the dismissal of her second amended
complaint’s count for a reverse false claim. But she did not
defend this claim in response to the motions to dismiss, so
she may not revive it on appeal. See Carvalho v. Equifax
Info. Servs., LLC, 629 F.3d 876, 888 (9th Cir. 2010). And
the district court did not abuse its discretion in denying leave
to amend here because amendment could not have revived
this abandoned claim. See Corinthian Colleges, 655 F.3d at
995.
VII
For the reasons set forth above, we conclude that this
case was mistakenly dismissed on the pleadings. Our
decision rests on Silingo’s group pleadings, the primary
focus of the district court decision and the parties’ appellate
briefing and oral arguments. Although the defendant
organizations also challenge Silingo’s additional allegations
that are specific to each defendant, we see nothing to
undermine our conclusion that the group pleadings alone are
adequate. 4
4
At most, the defendant organizations contend that the allegations
specific to Molina Healthcare, Inc. “contradicted [Silingo’s] more
UNITED STATES EX REL.SILINGO V. WELLPOINT 25
Some discovery appears to have already taken place, but
Silingo is entitled to continue taking discovery before her
claims are resolved on summary judgment or at trial. We
assuredly do not hold now that Silingo showed enough to get
to trial, but rather only that her complaint is adequate to
proceed to discovery. Accordingly, we REVERSE in part,
AFFIRM in part, and REMAND for further proceedings on
Silingo’s causes of action for factually false claims, express
false certifications, and false records.
general allegations elsewhere . . . for lack of oversight.” But the alleged
contradiction concerns Silingo’s implied false certification claim, which
is not at issue on appeal. See supra, note 2.