United States Ex Rel. Willard v. Humana Health Plan of Texas Inc.
336 F. 3d 375, 56 Fed. R. Serv. 3d 458, 2003 U.S. App. LEXIS 12933 (2003)
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Rule of Law:
A claim under the False Claims Act (FCA) requires the submission of a factually false claim for payment. Allegations of regulatory non-compliance do not state a claim under theories of implied certification or fraud in the inducement unless compliance is an express condition of payment and the fraud is pled with the particularity required by Federal Rule of Civil Procedure 9(b).
Facts:
- Humana, Inc., through a subsidiary, entered into contracts with the Health Care Financing Administration (HCFA) to provide health care services to Medicare beneficiaries as a Health Maintenance Organization (HMO).
- The government paid Humana a fixed, pre-determined 'capitation rate' for each enrollee, with rates calculated on a county-by-county basis.
- Irvin Willard worked as a sales representative for Humana from 1995 to 1998, selling its Medicare HMO products.
- Humana's service area included the metropolitan Harris County and several more rural, outlying counties.
- Willard alleged that Humana supervisors told him the company only wanted to insure healthy people and would lose money on sick people or those living far from established providers.
- Willard alleged Humana adopted a scheme to discourage enrollment of less healthy individuals and those living in the outlying counties.
- Willard claimed that Humana only agreed to serve the outlying counties to gain access to the more lucrative Houston market, with no intention of actually enrolling participants there.
- After Willard persisted in enrolling people from the outlying counties against his supervisors' warnings, Humana terminated his employment.
Procedural Posture:
- Irvin Willard filed a qui tam complaint under the False Claims Act against Humana in federal district court.
- The United States Government declined to intervene in the action.
- Willard filed a First Amended Complaint, which Humana moved to dismiss under Rules 12(b)(6) and 9(b).
- The district court granted Willard leave to amend his complaint to plead fraud with more specificity.
- Willard filed a Second Amended Complaint.
- Humana filed a renewed motion to dismiss the Second Amended Complaint.
- The district court granted Humana's motion to dismiss the case for failure to state a claim and failure to plead fraud with particularity.
- Willard, as appellant, appealed the dismissal to the U.S. Court of Appeals for the Fifth Circuit. Humana is the appellee.
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Issue:
Does a relator state a claim for relief under the False Claims Act by alleging that a Medicare HMO engaged in a 'cherry-picking' scheme to avoid enrolling less healthy beneficiaries, without specifically alleging that the HMO submitted factually false claims for payment or that compliance with anti-discrimination rules was an express condition of payment?
Opinions:
Majority - Garwood, J.
No. The complaint fails to state a valid claim for relief under the False Claims Act. Willard's theories of liability are insufficient because he did not allege the submission of a factually false claim or plead his fraud allegations with the required particularity. The court rejected all three of Willard's theories. The 'overcharging' theory failed because capitation rates were set on a county-by-county basis, meaning Humana gained no undue benefit by enrolling more people in one county than another. The 'implied certification' theory failed because, even if adopted, compliance with the anti-discrimination regulations was not an express condition of payment under the contract; violation would trigger other penalties, not non-payment. Finally, the 'fraud in the inducement' theory failed because the complaint lacked the specificity required by Rule 9(b), failing to allege the 'who, what, when, where, and how' of the purported fraud, and also failed to allege that Humana actually engaged in substantial non-performance of its contractual obligations.
Analysis:
This decision significantly clarifies the scope of the False Claims Act, particularly the 'implied certification' and 'fraud in the inducement' theories of liability within the Fifth Circuit. By emphasizing that regulatory compliance must be an express condition of payment to support an implied certification claim, the court narrows the path for FCA liability based on regulatory violations alone. This holding reinforces the high bar for pleading fraud under Rule 9(b) in FCA cases, requiring relators to provide specific factual details of the alleged scheme rather than general conclusory allegations. The decision protects government contractors from FCA liability for what may amount to breaches of contract or regulatory infractions, distinguishing such conduct from the submission of factually false claims that directly defraud the U.S. Treasury.
