Court Confirms That Materiality Is a Required Element Under the “Avoids” Prong of Reverse False Claims Theories
Last week, a Special Master, tasked with making a report and recommendation on summary judgment in the Government’s FCA case against United HealthGroup, Inc. (“United”) in the Central District of California, confirmed that the “avoids” prong of the FCA’s reverse false claims provision has a materiality requirement. U.S. ex rel. Poehling v. UnitedHealth Group, Inc., No. CV 16-08697-FMO-PVCx (C.D. Cal. Mar. 3, 2025). That prong imposes liability on a person who knowingly and improperly avoids an obligation to pay the Government. 31 U.S.C. § 3729(a)(1)(G). Although the “avoids” prong does not explicitly refer to materiality, the Special Master held that it incorporates the elements of common law fraud—including materiality. The holding is consistent with broader guidance in recent years from the Supreme Court that the FCA should be interpreted consistent with common law principles—which can result in courts imposing constraints on novel theories of liability.
The relator and DOJ alleged that United improperly retained Medicare Advantage (“MA”) payments that it was required to repay to the Government. United received the alleged overpayments as a result of submitting allegedly invalid diagnosis codes. The Government’s payments to an MA plan are based in part on the health status of the plan’s members. To determine members’ health statuses, the Centers for Medicare and Medicaid Services (“CMS”) assesses the diagnosis codes that doctors submit via claims forms. MA plans can also review patients’ medical records to identify and submit codes that the treating physicians did not include. This process is known as “chart review.” United’s chart review process was conducted “blind”—United’s coders did not know the diagnosis codes submitted to United by the treating physicians. The Government argued that if United’s coders did not identify a particular diagnosis code that was identified by the treating physician, then that code was insufficiently supported and therefore invalid. Disagreeing, the Special Master recommended granting United’s motion for summary judgment, because DOJ never presented evidence that a patient’s medical record did not support a submitted diagnosis code. Indeed, DOJ could have compared, but did not, the diagnosis codes to the underlying medical records. Having failed to bring forth evidence regarding the inaccuracy of a single diagnosis code, DOJ could not offer adequate evidence of alleged overpayments.
Separately, DOJ filed a motion for partial summary judgment. DOJ asked the Court to rule that materiality is not required for liability under the “avoids” prong of the reverse false claims provision. That provision does not expressly refer to materiality, unlike the reverse false claims prong imposing liability for false statements “material to an obligation to pay.”
The Special Master recommended denying DOJ’s motion and confirmed that the “avoids” prong does contain a materiality requirement. While the Supreme Court’s seminal Escobar decision on FCA materiality did not explicitly address reverse false claims, the Special Master observed that Escobar and Ninth Circuit precedent make clear that the FCA as whole—including the reverse false claims provision—incorporates the elements of common law fraud. So a materiality requirement must apply, “because of the inconceivability of fraud absent a materiality element.” Indeed, DOJ provided “no reason” to read the “avoids” prong “as omitting the materiality element of common law fraud.”
The Special Master noted that a contrary ruling would have adverse practical consequences. For example, if materiality were not required for reverse false claims liability, the Government could potentially bring an action even if it had been fully aware of the alleged misconduct but chose not to deny claims on that basis. “[F]raud must be part of a reverse false claim.” Indeed, per the statute, liability attaches only if the defendant’s avoidance is done “knowingly and improperly.” Yet if the Government knows about the supposed misconduct, the Government cannot be fraudulently “duped.” And if the Government knows about the supposed misconduct and continues to pay, that is “very strong evidence,” under Escobar, of immateriality. Applying this logic to the present case, the Special Master observed that “United was open with the government about United’s chart review procedures, and the government knew of those procedures and nevertheless paid the claims for years.” As a result, “the government’s conduct would be hard to reconcile with the concept that the government believed United to be making a material false claim.”
A copy of the decision can be found here. DOJ has indicated it intends to file an objection to the Special Master’s report and recommendation. We will continue to monitor the Court’s rulings on these motions for summary judgment.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
