336 F.3d 375 (5th Cir. 2003), 02-40285, U.S. ex rel. Willard v. Humana Health Plan of Texas Inc.

Docket Nº:02-40285
Citation:336 F.3d 375
Party Name:U.S. ex rel. Willard v. Humana Health Plan of Texas Inc.
Case Date:June 26, 2003
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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336 F.3d 375 (5th Cir. 2003)

UNITED STATES of America, ex rel. Irvin WILLARD, Plaintiff-Appellant,



Humana Health Plan of Texas Inc.; Humana Inc., Defendants-Appellees.

No. 02-40285.

United States Court of Appeals, Fifth Circuit

June 26, 2003

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Gerald M. Birnberg (argued), Matt E. Rubin, Williams, Birnberg & Andersen, John E. O'Neill (argued), Clements, O'Neill, Pierce, Wilson & Fulkerson, Patrick Andrew Zummo, Zummo, Mitchell & Perry, Houston, TX, for Plaintiff-Appellant.

Frederick L. Robinson, Fulbright & Jaworski, Washington, DC, for Defendants-Appellees.

William Joseph Boyce (argued), Fulbright & Jaworski, Houston, TX, for Humana Health Plan of Texas Inc.

Appeal from the United States District Court for the Southern District of Texas.

Before GARWOOD, JONES and STEWART, Circuit Judges.

GARWOOD, Circuit Judge:

In this qui tam action, the United States of America, through its relator Irvin Willard (Willard), appeals from the judgment of the district court, pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b), dismissing the second amended complaint filed against Humana Health Plan of Texas, Inc. and Humana, Inc. (Humana) alleging Humana violated the False Claims Act, 31 U.S.C. § 3729, et seq. (FCA). We affirm.

Facts and Proceedings Below

Humana, Inc., through its subsidiary Humana Health Plan of Texas, Inc., operates health maintenance organizations in various counties in Texas. Humana entered into contracts with the Health Care Financing Administration (HCFA) of the United States Department of Health and Human Services to provide health care services to Medicare beneficiaries. Humana is paid a fixed rate for each enrollee, determined annually, based on the average anticipated Medicare expenses of all Medicare-eligible individuals in a given geographic area, generally on a county-by-county basis. These rates are referred to as capitation rates.

Willard worked as a sales representative for Humana from 1995 through 1998, selling Humana's Medicare HMO products. During this time, Humana operated an HMO for Medicare beneficiaries in a Houston service area comprised of Harris, Austin, Colorado, Fayette, and Waller counties. Harris County encompasses the metropolitan Houston area, while the other counties are comprised of more rural areas.

An HMO under contract with the HCFA may not discriminate in enrollment on the basis of health, or on any other basis used as a proxy for health. See 42 U.S.C. § 1395mm(i)(6)(a)(iv); 42 C.F.R. § 417.428(b)(1). Willard contends that, fairly read, its Second Amended Complaint alleges that Humana engaged in a "cherrypicking" scheme "whereby less healthy potential program participants and those living in counties outside Humana's favored geographic area were methodically discouraged from joining Humana's HMO." Willard alleged in his complaint that Humana adopted a variety of techniques to prevent eligible participants from learning they can join Humana's HMOs. Willard further alleged that he was "told that Humana only wanted to insure healthy people, and would lose money if it enrolled sick people or people who lived

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too far from Humana's established providers." Willard asserts that when he persisted in soliciting and enrolling people from the outlying counties, he was warned not to do so, and was ultimately fired.

Willard contends that in order for Humana to gain entry into the lucrative Houston market, HCFA required that Humana serve the outlying counties. In his complaint, Willard alleged that "[w]ithout revealing its intentions to either relators or HCFA, Humana Texas entered [into] contracts to serve those counties with no intention of actually enrolling Medicare participants there."

In May 1999 Willard filed a qui tam complaint under the FCA against Humana and other HMOs. The Government elected not to intervene. Thereafter, in May 2000 Willard filed his First Amended Complaint and Humana filed a motion to dismiss Willard's First Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), and challenged the constitutionality of the FCA's qui tam provision. On August 10, 2000, Judge Kent stayed the case pending this court's en banc decision in Riley v. St. Luke's Episcopal Hospital, 252 F.3d 749 (5th Cir. 2001) (en banc), in which this court upheld the constitutionality of the FCA's qui tam provision. At a July 2001 status conference following the Riley decision, Humana reasserted its request for Willard to plead fraud with specificity. Judge Kent granted Willard leave to amend his complaint and allowed Humana to reassert its non-constitutional grounds for dismissal. Willard filed his Second Amended Complaint later in July 2001.

On July 30, 2001, the case was transferred to Judge Lake. Humana filed a renewed motion to dismiss Willard's Second Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b) and Willard moved for partial summary judgment. Judge Lake granted the motion to dismiss and denied the motion for summary judgment as moot. Willard appeals the district court's grant of the motion to dismiss, as well as the district court's denial of leave to amend his complaint.


I. Standard of Review

We review a Rule 12(b)(6) motion de novo and accept all well-plead factual allegations as true. Abrams v. Baker Hughes, Inc., 292 F.3d 424, 430 (5th Cir. 2002). "[T]he central issue is whether, in the light most favorable to the plaintiff, the complaint states a valid claim for relief." Copeland v. Wasserstein, Perella & Co., Inc., 278 F.3d 472, 477 (5th Cir. 2002). "Under Rule 12(b)(6), a claim maybe dismissed when a plaintiff fails to allege any set of facts in support of his claim which would entitle him to relief" and "the court accepts as true the well-pled factual allegations in the complaint, and construes them in the light most favorable to the plaintiff." Taylor v. Books A Million, Inc., 296 F.3d 376, 378 (5th Cir. 2002). However, "conclusory allegations ... will not suffice to prevent a motion to dismiss," id., and neither will "unwarranted deductions of fact." Guidry v. Bank of LaPlace, 954 F.2d 278, 281 (5th Cir. 1992). In deciding a motion to dismiss the court may consider documents attached to or incorporated in the complaint and matters of which judicial notice may be taken. Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1017-18 (5th Cir. 1996).

We review the district court's denial of leave to amend the complaint for abuse of discretion. Hypes v. First Commerce Corp., 134 F.3d 721, 727-28 (5th Cir. 1998).

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II. Dismissal of Willard's Claims

Willard's Second Amended Complaint alleges that Humana violated 31 U.S.C. § 3729(a)(1) and (a)(2). Section 3729 states in relevant part:

"Any person who: (1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval; (2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government; ...

is liable to the United States Government for a civil penalty ..."

Willard contends that Humana engaged in a "cherrypicking" scheme which violates the FCA in three distinct ways. First, Willard argues that because Humana is paid based on the average expenses for all Medicare-eligible individuals, covering both healthy and sick beneficiaries, Humana effectively overcharged the Government for Medicare services by "cherrypicking" which beneficiaries it would target for enrollment. Secondly, Willard claims that by seeking payment under the Medicare program, Humana falsely represented (impliedly certified) compliance with all material terms, statutes, and regulations central to the Medicare HMO program. Finally, Willard argues that Humana procured its contract with the HCFA by fraud in the inducement because Humana never intended to provide services in the outlying counties.

III. Overcharging Theory of Liability

Willard argues that when Humana receives payment at the pre-established "capitation rate" for healthier enrollees, this rate includes compensation for providing services to those individuals, as well as a "premium" to offset anticipated costs it expects to incur from providing services to less healthy persons. Willard contends that by not providing services to less healthy persons under its "cherrypicking" scheme, Humana is effectively overcharging the Government in violation of the FCA.

Humana persuasively argues that any alleged discrimination by way of a "cherrypicking" scheme must occur within the population for which uniform rates have been set. Humana asserts, and Willard agrees, that the rates in this case are determined on a county-by-county basis. Therefore, Willard must allege discrimination based on health status within a single county, not discrepancies in enrollment patterns among different counties, in order to establish that Humana overcharged Medicare. As such, Willard's overcharging theory of liability must fail because Willard has not alleged discrimination based on health status within any particular county, i.e. rate area.

As Humana's capitation reimbursement rates were adjusted to each county, the district court properly concluded that Humana accrued no unwarranted benefit and the government no loss by virtue of Humana enrolling more beneficiaries in some counties than others. The district court also properly concluded that it was undisputed that all claims submitted by Humana were valid. Moreover, the district court found that...

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