Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-56746/USCOURTS-ca9-13-56746-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

---

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF

AMERICA,

Plaintiff,

and

JAMES M. SWOBEN, Qui

Tam Relator,

Plaintiff-Appellant,

v.

UNITED HEALTHCARE

INSURANCE COMPANY, a

Connecticut corporation;

UNITED HEALTHCARE

SERVICES, INC., Minnesota

corporation; UHIC;

UNITEDHEALTH GROUP;

UNITEDHEALTHCARE;

UNITEDHEALTH;

PACIFICARE HEALTH PLAN

ADMINISTRATORS, INC.;

UHC OF CALIFORNIA, FKA

PacifiCare of California;

PACIFICARE LIFE &

HEALTH INSURANCE CO.;

PACIFICARE HEALTH

SYSTEMS; HEALTH NET;

No. 13-56746

D.C. No.

2:09-cv-05013-JFW-JEM

OPINION

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 1 of 39
2 SWOBEN V. UNITED HEALTHCARE

WELLPOINT; AETNA;

HEALTHCARE PARTNERS,

LLC; HEALTHCARE

PARTNERS MEDICAL

GROUP, INC.; HEALTHCARE

PARTNERS INDEPENDENT

PHYSICIAN ASSOCIATION,

Defendants-Appellees.

Appeal from the United States District Court

for the Central District of California

John F. Walter, District Judge, Presiding

Argued and Submitted December 9, 2015

Pasadena, California

Filed August 10, 2016

Before: Stephen Reinhardt, Raymond C. Fisher

and Jacqueline H. Nguyen, Circuit Judges.

Opinion by Judge Fisher

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 2 of 39
SWOBEN V. UNITED HEALTHCARE 3

SUMMARY*

Medicare

The panel vacatedthe district court’s judgment dismissing

without leave to amend qui tam relator James Swoben’s third

amended complaint, which alleged that defendant Medicare

Advantage organizations submitted false certifications in

violation of the False Claims Act, and remanded with

instructions to afford Swoben leave to file a proposed fourth

amended complaint.

The Centers for Medicare & Medicaid Services (“CMS”)

pays Medicare Advantage organizations fixed monthly

amounts for each enrollee, and CMS calculates the payment

for each enrollee based on various “risk adjustment data” as

reflected in submitted diagnoses codes. Medicare regulations

require a Medicare Advantage organization to certify that the

data it submits are “accurate, complete, and truthful.”

42 C.F.R. § 422.504(l), (l)(2). Swoben alleged that the

defendant organizations submitted false certifications by

performing biased retrospective medical record reviews

designed not to identify erroneously reported diagnosis codes.

The panel held that the district court abused its discretion

by denying leave to amend on the ground of futility of

amendment. The panel held that the theory alleged here – that

the defendants designed their retrospective reviewprocedures

to not reveal erroneously reported diagnosis codes –

adequately alleged that the defendants’ § 422.504(l)

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 3 of 39
4 SWOBEN V. UNITED HEALTHCARE

certifications were false and stated a cognizable legal theory

under the False Claims Act. The panel also held that the

proposed fourth amended complaint alleged sufficient factual

matter to satisfy Fed. R. Civ. P. 8, 9(b) and 12(b)(6).

The panel held that the district court also abused its

discretion by denying leave to amend based on undue delay. 

The panel held that leave to amend was proper in this case

where the litigation against the defendants was at an early

stage, Swoben did not seek to assert a new legal theory, and

this was Swoben’s first attempt to cure deficiencies in his

pleadings.

COUNSEL

William K. Hanagami (argued), The Hanagami Law Firm,

A.P.C., Woodland Hills, California; Abram J. Zinberg, The

Zinberg Law Firm, A.P.C., Huntington Beach, California; for

Plaintiff-Appellant James M. Swoben.

David J. Schindler (argued), Latham & Watkins LLP, Los

Angeles, California; Roger S. Goldman, Daniel Meron,

Jonathan Y. Ellis, and Matthew J. Glover, Latham & Watkins

LLP, Washington, D.C.; for Defendants-Appellees

UnitedHealthcare Insurance Company, UnitedHealthCare

Services Inc., UHIC,UnitedHealthGroup, UnitedHealthCare,

UnitedHealth, Pacificare Health Plan Administrators,UHCof

California (FKA PacifiCare of California), PacifiCare Life

and Health Insurance Company, PacifiCare Health Systems,

and Health Net.

David W. Skaar, Hogan Lovells US LLP, Los Angeles,

California; Michael C. Theis, Hogan Lovells US LLP,

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 4 of 39
SWOBEN V. UNITED HEALTHCARE 5

Denver, Colorado; for Defendants-Appellees HealthCare

Partners LLC, HealthCare Partners Medical Group, Inc. and

HealthCare Partners Independent Physician Association.

Geoffrey M. Sigler, and Thomas M. Johnson, Jr., Gibson,

Dunn & Crutcher LLP; Washington, D.C.; Richard J. Doren,

Gibson, Dunn & Crutcher LLP, Los Angeles, California, for

Appellee Aetna.

David Deaton, O’Melveny & Myers LLP, Newport Beach,

California; David J. Leviss, O’Melveny & Myers LLP,

Washington, D.C.; Stephen Sullivan, O’Melveny & Myers

LLP, Los Angeles, California; for Appellee WellPoint, Inc.

Charles W. Scarborough and Karen Schoen, Attorneys,

Appellate Staff; Eileen M. Decker, United States Attorney;

Benjamin C. Mizer, Principal Deputy Assistant Attorney

General; Civil Division, United States Department of Justice,

Washington, D.C.; for Amicus Curiae United States.

OPINION

FISHER, Circuit Judge:

The Centers for Medicare & Medicaid Services (CMS),

administrator of the federal Medicare program, pays

Medicare Advantage organizations fixed monthly amounts

for each enrollee. CMS calculates the payment for each

enrollee based on various “risk adjustment data,” such as an

enrollee’s demographic profile and the enrollee’s health

status, as reflected in the medical diagnosis codes associated

with healthcare the enrollee receives. These diagnosis codes

are reported by Medicare Advantage organizations to CMS. 

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 5 of 39
6 SWOBEN V. UNITED HEALTHCARE

Because Medicare Advantage organizations have a financial

incentive to exaggerate an enrollee’s health risks by reporting

diagnosis codes that may not be supported by the enrollee’s

medical records, Medicare regulations require a Medicare

Advantage organization, as an express condition of receiving

payment, to “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),

(l)(2).

Qui tam relator James Swoben alleges Medicare

Advantage organizations United Healthcare, Aetna,

WellPoint and Health Net, and physician group HealthCare

Partners, submitted false certifications under this provision,

in violation of the False Claims Act, by conducting

retrospective reviews of medical records designed to identify

and report only under-reported diagnosis codes (diagnosis

codes erroneously not submitted to CMS despite adequate

support in an enrollee’s medical records), not over-reported

codes (codes erroneously submitted to CMS absent adequate

record support). The district court denied Swoben leave to

file a proposed fourth amended complaint, citing futility of

amendment and undue delay. We hold the district court

abused its discretion.

First, the court erred by concluding amendment would be

futile. Swoben’s proposed fourth amended complaint asserts

a cognizable legal theory. CMS has long made clear that,

under § 422.504(l), Medicare Advantage organizations have

“an obligation to undertake ‘due diligence’ to ensure the

accuracy, completeness, and truthfulness” of the risk

adjustment data they submit to CMS and “will be held

responsible for making good faith efforts to certify the

accuracy, completeness, and truthfulness” of these data. 

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 6 of 39
SWOBEN V. UNITED HEALTHCARE 7

Medicare+Choice Program, 65 Fed. Reg. 40,170, 40,268

(June 29, 2000). When, as alleged here, Medicare Advantage

organizations design retrospective reviews of enrollees’

medical records deliberately to avoid identifying erroneously

submitted diagnosis codes that might otherwise have been

identified with reasonable diligence, they can no longer

certify, based on best knowledge, information and belief, the

accuracy, completeness and truthfulness of the data submitted

to CMS. This is especially true when, as alleged here, they

were on notice – based on audits conducted by CMS – that

their data likely included a significant number of erroneously

reported diagnosis codes. The allegations in Swoben’s

proposed fourth amended complaint also satisfy Rules 8 and

9(b) of the Federal Rules of Civil Procedure. Although the

allegations are not as detailed as they might be, they

adequately identify “the who, what, when, where, and how of

the misconduct charged,” Ebeid ex rel. United States v.

Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010) (quoting Vess v.

Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003))

(internal quotation marks omitted), and afford each defendant

notice of its alleged role in a fraudulent scheme.

Second, the district court abused its discretion by denying

leave to amend based on undue delay. Undue delay by itself

is insufficient to justify denying leave to amend, and the

record here does not support any additional ground – such as

prejudice or bad faith – that would justify the denial. See

Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708,

712–13 (9th Cir. 2001). On the contrary, leave to amend is

proper here given the litigation against these defendants is at

an early stage, Swoben does not seek to assert a new legal

theory and this is Swoben’s first attempt to cure deficiencies

in his pleadings.

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 7 of 39
8 SWOBEN V. UNITED HEALTHCARE

BACKGROUND

I. The Medicare Advantage Program

Medicare beneficiaries have the option of receiving

benefits through private health plans as an alternative to the

traditional fee-for-service Medicare program. Under this

option, known as Medicare Advantage or Medicare Part C,

the government pays Medicare Advantage organizations a

capitated (per enrollee) amount to provide medical benefits. 

The capitated amount is a fixed monthly payment regardless

of the volume of services an enrollee uses.

The government adjusts the monthly payments to

Medicare Advantage organizations to reflect the health status

of their enrollees. See 42 U.S.C. § 1395w-23(a)(1)(C)(i),

(a)(3); 42 C.F.R. § 422.308(c)(2). This ensures Medicare

Advantage “organizations are paid appropriately for their

plan enrollees (that is, less for healthier enrollees and more

for less healthy enrollees).” Establishment of the Medicare

Advantage Program, 70 Fed. Reg. 4588, 4657 (Jan. 28, 2005). 

The risk adjustment methodology relies on enrollee

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). Physicians and other health care providers submit

diagnosis codes to the Medicare Advantage organizations,

which in turn submit them to CMS. See id. at 54,674. These

diagnosis codes contribute to an enrollee’s risk score, which

is used to adjust a base payment rate. See id. Each diagnosis

code submitted must be supported by a properly documented

medical record. See 42 U.S.C. §§ 1395l(e), 1395y(a)(1)(A);

42 C.F.R. § 422.310(d); Contract Year 2015 Policy and

Technical Changes to the Medicare Advantage and the

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 8 of 39
SWOBEN V. UNITED HEALTHCARE 9

Medicare Prescription Drug Benefit Programs, 79 Fed. Reg.

29,844, 29,923 (May 23, 2014) (“CMS has required for many

years that diagnoses that [Medicare Advantage] organizations

submit for payment be supported by medical record

documentation.”).

“Since there is an incentive for [Medicare Advantage]

organizations to potentially over-report diagnoses so that they

can increase their payment, [CMS] audits plan-submitted

diagnosis data a few years later to ensure they are supported

by medical record documentation.” 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 risk

adjustment data validation (RADV) audits review selected

medical records to determine whether they support the

diagnoses reported by Medicare Advantage organizations. 

See id.1

As a further bulwark against fraud, Medicare Advantage

organizations must certify the accuracy, completeness and

truthfulness of the data they provide to CMS, including risk

adjustment data, as a condition to receiving payment:

1

Initially, when conducting RADV audits, CMS recouped overpayments

solely with respect to the sampled beneficiaries. More recently, CMS has

implemented a procedure through which the payment error rate calculated

for the sampled beneficiaries in the audits is extrapolated to the contract

population as a whole. See CMS, Medicare Advantage Risk Adjustment

Data Validation Audits Fact Sheet 1, 3 (updated Dec. 11, 2015),

https://www.cms.gov/Medicare/Medicare-Advantage/PlanPayment/Downloads/MA_RADV_Audit_Fact_Sheet.pdf;see also 74Fed.

Reg. at 54,673–74.

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 9 of 39
10 SWOBEN V. UNITED HEALTHCARE

As a condition for receiving a monthly

payment under subpart G of this part, the

[Medicare Advantage] organization agrees

that its chief executive officer (CEO), chief

financial officer (CFO), or an individual

delegated the authority to sign on behalf of

one of these officers, and who reports directly

to such officer, must request payment under

the contract on a document that certifies

(based on best knowledge, information, and

belief) the accuracy, completeness, and

truthfulness of relevant data that CMS

requests. Such data include specified

enrollment information, encounter data and

other information that CMS may specify.

42 C.F.R. § 422.504(l) (emphasis added).2 Specifically, a

Medicare Advantage organization “must certify (based on

best knowledge, information, and belief) that the [risk

adjustment] data it submits under § 422.310 are accurate,

complete, and truthful.” Id. § 422.504(l)(2).

A Medicare Advantage organization is also 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.” 

42 C.F.R. § 422.503(b)(4)(vi).3

In addition, although

2 This regulation has been in force, in substantially the same form, since

2000. See 42 C.F.R. § 422.502(l) (2000).

3 This requirement has been on the books, in similar form, since 2005. 

See 42 C.F.R. § 422.503(b)(4)(vi)(F), (G) (2005); 42 C.F.R.

§ 422.503(b)(4)(vi) (2010).

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 10 of 39
SWOBEN V. UNITED HEALTHCARE 11

Medicare Advantage organizations generally submit data to

CMS shortly after services are provided, the regulations also

allow for data submissions after the payment year. See

42 C.F.R. § 422.310(g). CMS uses these data to

“recalculate[] the risk factors for affected individuals to

determine if adjustments to payments are necessary.” Id.

§ 422.310(g)(2)

In light of these provisions, Medicare Advantage

organizations may, but are not required to, conduct

retrospective reviews of their enrollees’ medical records to

ensure the accuracy of the diagnosis codes they have

provided to CMS. See CMS, 2008 Risk Adjustment Data

TechnicalAssistance For Medicare Advantage Organizations

Participant Guide § 7.7.

Certification under § 422.504(l) has always required due

diligence and good faith. When CMS adopted the “best

knowledge, information, and belief” standard in 2000, it

explained in the preamble to the regulation that Medicare

Advantage organizations “cannot reasonably be expected to

know that every piece of data is correct,” so “simple mistakes

will not result in sanctions.” Medicare+Choice Program,

65 Fed. Reg. 40,170, 40,268 (June 29, 2000). But

§ 422.504(l) does not require actual knowledge that the data

supplied to CMS are false. Rather, as under the False Claims

Act, a certification is false under § 422.504(l) 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. Id. Thus, Medicare Advantage

organizations “have an obligation to undertake ‘due

diligence’ to ensure the accuracy, completeness, and

truthfulness of encounter data submitted to [CMS]” and “will

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 11 of 39
12 SWOBEN V. UNITED HEALTHCARE

be held responsible for making good faith efforts to certify

the accuracy, completeness, and truthfulness of encounter

data submitted.” Id.

In 2014, CMS considered but ultimately decided not to

finalize a proposed rule that would have altogether prohibited

Medicare Advantage organizations from performing onesided retrospective reviews. Under the proposed regulation:

medical record reviews conducted by [a

Medicare Advantage] organization cannot be

designed only to identify diagnoses that would

trigger additional payments by CMS to the . . .

organization; and medical record review

methodologies must be designed to identify

errors in diagnoses submitted to CMS as risk

adjustment data, regardless of whether the

data errors would result in positive or negative

payment adjustments.

79 Fed. Reg. at 2000. Although CMS decided not to finalize

the proposed rule, see id. at 29,926, it reiterated that it has

“always expected that [a Medicare Advantage] organization

. . . implement, during the routine course of business,

appropriate payment evaluation procedures in order to meet

the requirement of certifying the data they submit to CMS for

purposes of payment,” id. at 29,923. CMS explained:

[Medicare Advantage] organizations . . . are

responsible for ensuring that payment data

they submit to CMS are accurate, truthful, and

complete (based on best knowledge,

information, and belief), and are expected to

have effective and appropriate payment

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 12 of 39
SWOBEN V. UNITED HEALTHCARE 13

evaluation procedures and effective

compliance programs as a way to avoid

receiving or retaining overpayments. Thus, at

a minimum, reasonable diligence would

include proactive compliance activities

conducted in good faith by qualified

individuals to monitor for the receipt of

overpayments.

Id. CMS added, “[i]f the requirement to report and return

overpayments applied only to situations where the [Medicare

Advantage] organization . . . has actual knowledge of the

existence of an overpayment, then these entities could easily

avoid returning improperly received payments.” Id. at

29,924.4 Although these 2014 events postdate the allegations

in Swoben’s pleadings, which cover the years between 2005

and 2012, they are consistent with the regulatory

requirements that have existed since 2000.

II. Procedural History

Swoben filed an initial complaint in this action in 2009. 

His first amended complaint added claims against United

Healthcare. He filed a second amended complaint in 2010. 

4 Also in 2014, CMS adopted a regulation stating that a Medicare

Advantage organization “has identified an overpayment when [it] has

determined, or should have determined through the exercise of reasonable

diligence, that [it] has received an overpayment,” 42 C.F.R. § 422.326(c),

and for this purpose an “overpayment” includes a previously submitted

medical diagnosis code that is not properly supported by a medical record,

see 79 Fed. Reg. at 29,921 (stating “a risk adjustment diagnosis that has

been submitted for payment but is found to be invalid because it does not

have supporting medical record documentation would result in an

overpayment”).

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 13 of 39
14 SWOBEN V. UNITED HEALTHCARE

In 2011, he filed a third amended complaint, adding claims

against HealthCare Partners, Aetna, WellPoint and Health

Net. In accordance with the False Claims Act, Swoben filed

each of these pleadings under seal. See 31 U.S.C.

§ 3730(b)(2).

The gist of Swoben’s complaint is that the defendants –

Medicare Advantage organizations United Healthcare,Aetna,

WellPoint and Health Net, and HealthCare Partners, a

physician group providing health care services to the

organizations’ enrollees in exchange for a percentage of the

organizations’ capitated payments – performed biased

retrospective medical record reviews. According to Swoben,

retrospective reviews by Medicare Advantage organizations

typically should identify (and report to CMS) two types of

errors in the risk adjustment data previously submitted:

(1) diagnosis codes supported by an enrollee’s medical

records but not previously submitted to CMS (underreporting errors); and (2) diagnosis codes previously

submitted to CMS but not supported by the enrollee’s

medical records (over-reporting errors). Identifying and

reporting the first type of error is favorable to the Medicare

Advantage organization; identifying and reporting the second

type of error is unfavorable. Swoben alleges the defendants

conducted one-sided retrospective reviews designed to

identify (and report to CMS) solely the first type of error. He

alleges these reviews were designed to exaggerate enrollees’

health risks and cause CMS to make inflated capitated

payments to the defendants. These actions, Swoben alleges,

rendered the defendants’ periodic certifications under

§ 422.504(l) false, in violation of the False Claims Act,

31 U.S.C. § 3729(a)(1).

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 14 of 39
SWOBEN V. UNITED HEALTHCARE 15

Specifically, Swoben alleges the defendants’ retrospective

reviews were biased in three respects. First, he alleges each

of the defendants retained coding companies or purchased

specialized software to perform retrospective reviews of the

medical charts of tens of thousands of their patients with

severe illnesses but “concealed from the coders the diagnosis

codes that had been previously submitted to the

Government.” Fourth Am. Compl. ¶¶ 12, 16–17. As a

consequence, “the results of the coders’ reviews did not

identify the diagnosis codes unsupported by proper

documentation of the reviewed medical charts that had been

previously submitted to the Government.” Fourth Am.

Compl. ¶¶ 13, 17. Swoben alleges the defendants engaged in

these activities beginning in 2005. Fourth Am. Compl. ¶¶ 12,

16.

Second, Swoben alleges United Healthcare instructed its

medical providers, including Healthcare Partners, to review

the medical charts of selected patients to determine whether

those charts supported specific diagnoses that had not

previously been reported to CMS. Fourth Am. Compl. ¶ 14. 

The medical providers reported the additional diagnosis codes

supported by the records “but made no attempt to determine

or report those previously reported diagnosis codes that were

unsupported by properly documented medical charts that

were reviewed.” Fourth Am. Compl. ¶ 14. Swoben alleges

United Healthcare and Healthcare Partners engaged in this

activity from approximately 2005 to 2007. Fourth Am.

Compl. ¶ 14.

Third, Swoben alleges the defendants used a template to

report the results of their retrospective reviews to CMS that

allowed coders to enter any additional diagnosis codes

identified by the reviews but “did not permit the entry of

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 15 of 39
16 SWOBEN V. UNITED HEALTHCARE

information indicating what previously submitted [diagnosis]

codes should be withdrawn.” Fourth Am. Compl. ¶ 23. 

Swoben alleges the defendants used the faulty template from

approximately 2006 to 2012. Fourth Am. Compl. ¶ 24. He

further alleges the defendants were involved in the

development of the template and were aware of its

shortcomings. Fourth Am. Compl. ¶¶ 22, 27.

Swoben also alleges CMS conducted annual RADV

audits of sample medical charts for United Healthcare, Aetna,

WellPoint and Health Net. Fourth Am. Compl. ¶ 25. He

alleges that each of these Medicare Advantage organizations

“had RADV audit error rates well in excess of 20%,

reflecting that more than 20% of [their] diagnosis codes

submitted to CMS were not supported by properly

documented medical charts.” Fourth Am. Compl. ¶ 25.5

Swoben alleges the over-reporting error rate found in these

audits of representative medical records placed the defendants

on notice that the risk adjustment data they more broadly

submitted to CMS also contained significant over-reporting

errors. Fourth Am. Compl. ¶ 25.

Swoben alleges the defendants’ practices rendered their

§ 422.504(l) certifications false and fraudulent. He alleges

they submitted false claims by attesting to the accuracy of

their risk adjustment data even though they knowingly

designed and performed retrospective reviews to conceal and

not withdraw previously submitted diagnosis codes that were

unsupported by retrospectively reviewed medical records. 

Fourth Am. Compl. ¶ 27. He alleges, moreover, that the

5 Swoben alleges the RADV audits showed a high percentage of overreporting errors. His allegations do not address whether the RADV audits

also identified under-reporting errors.

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 16 of 39
SWOBEN V. UNITED HEALTHCARE 17

defendants knew their certifications were false because they

(1) helped develop the reporting template and knew the

template would not capture over-reporting errors identified by

retrospective reviews; (2) had RADV audit over-reporting

error rates in excess of 20 percent, placing them on notice that

“a similar percentage of medical charts that were

retrospectively reviewed should have resulted in [diagnosis]

codes being withdrawn as unsupported by the medical

charts”; and (3) designed their retrospective reviews to avoid

identifying or reporting unsupported diagnosis codes that

should have been withdrawn. Fourth Am. Compl. ¶ 27.

In 2012, the United States intervened in the action as to

Swoben’s claims against certain defendants not relevant here. 

In January 2013, the United States declined to intervene as to

the defendants who are parties to this appeal (collectively,

“the defendants”). The district court ordered the complaints

unsealed and served on the defendants. In June 2013, after

the district court issued an initial scheduling and case

management order, the newly served defendants moved to

dismiss Swoben’s claims, arguing his third amended

complaint failed to satisfy Rules 8, 9(b) and 12(b)(6) of the

Federal Rules of Civil Procedure.

In his opposition to the defendants’ motions, Swoben did

not defend the third amended complaint. Instead, he advised

the court he would voluntarily dismiss his claims under state

law and would seek leave to amend his complaint with

respect to his claims under the False Claims Act. The district

court ordered Swoben to file a declaration describing “in

detail the proposed Fourth Amended Complaint andwhy such

an amendment would not be futile or denied due to evidence

of a lack of diligence or undue delay.” As directed, Swoben

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 17 of 39
18 SWOBEN V. UNITED HEALTHCARE

filed a declaration of counsel setting out the additional

allegations he would include in a fourth amended complaint.

In a July 2013 order, the district court dismissed the third

amended complaint with prejudice, concluding Swoben failed

to allege a claim under the False Claims Act with

particularity as required by Rule 9(b). The court denied leave

to amend, citing both futility of amendment and undue delay. 

The court entered final judgment, and Swoben timely

appealed. He does not challenge dismissal of the third

amended complaint but contends the district court abused its

discretion by denying leave to amend.

After hearing oral argument, we asked the parties to

submit supplemental briefing to address when conducting

retrospective medical record reviews designed to identify

only diagnoses that would trigger additional payments by

CMS, not errors that would result in negative payment

adjustments, would cause a certification to be false for

purposes of § 422.504(l) and the False Claims Act. The

parties filed briefs addressing this question, and the

Department of Justice, representing the United States as

amicus curiae, filed a brief supporting Swoben.

STANDARD OF REVIEW

We review the denial of leave to amend for an abuse of

discretion, see United States ex rel. Lee v. Corinthian Colls.,

655 F.3d 984, 995 (9th Cir. 2011), but we review the question

of futility of amendment de novo, see Carvalho v. Equifax

Info. Servs., LLC, 629 F.3d 876, 893 (9th Cir. 2010).

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 18 of 39
SWOBEN V. UNITED HEALTHCARE 19

DISCUSSION

The district court denied leave to amend on two

independent grounds – futility of amendment and undue

delay. We address these in turn.

I. Amendment Would Not Be Futile

The district court denied leave to amend in part on the

ground that amendment would have been futile. Accordingly,

we address whether Swoben’s proposed fourth amended

complaint would have been adequate to survive a motion to

dismiss.

A. The Proposed Fourth Amended Complaint

Adequately States a Cognizable Legal Theory

The parties dispute whether Swoben’s proposed fourth

amended complaint alleges a cognizable legal theory.

1. The False Claims Act imposes liability in part on “any

person who . . . knowingly presents, or causes to be

presented, a false or fraudulent claim for payment or

approval,” 31 U.S.C. § 3729(a)(1)(A), or “knowingly makes,

uses, or causes to be made or used, a false record or statement

material to a false or fraudulent claim,” id. § 3729(a)(1)(B).6

“In an archetypal qui tam False Claims action, such as where

a private company overcharges under a government contract,

6

In addition to these False Claims Act provisions, the United States, as

amicus curiae, argues the defendants’ conduct violates § 3729(a)(1)(G),

known as the “reverse false claims” provision. Swoben, however, did not

rely on that provision in his opening and reply briefs. We therefore do not

address it here.

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 19 of 39
20 SWOBEN V. UNITED HEALTHCARE

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). As relevant here, however, “a

claim under the False Claims Act can be false where a party

merely falsely certifies compliance with a statute or

regulation as a condition to government payment.” Id. at

1171. Under a false certification theory, “it is the false

certification of compliance which creates liability when

certification is a prerequisite to obtaining a government

benefit.” Id. (alteration omitted) (quoting United States ex

rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996)). 

The essential elements of a false certification claim are: “(1) a

false statement or fraudulent course of conduct, (2) made with

scienter, (3) that was material, causing (4) the government to

pay out money or forfeit moneys due.” Id. at 1174.7 Proof of

damage to the government is not required. See Bly-Magee v.

California, 236 F.3d 1014, 1017 (9th Cir. 2001); United

States ex rel. Hagood v. Sonoma Cty. Water Agency, 929 F.2d

1416, 1421 (9th Cir. 1991); Claire M. Sylvia, The False

Claims Act: Fraud Against the Government §§ 4:2, 4:3

(2015).

The defendants challenge Swoben’s theory that the

manner in which they designed and conducted their

retrospective reviews rendered their certifications under

§ 422.504(l) false. They contend:

During the time period alleged in the

complaint, no statute, regulation, or guidance

7 The defendants’ briefing challenges only the first and second of these

elements here. Accordingly, for purposes of our analysis, we assume

Swoben’s proposed fourth amended complaint satisfies the third and

fourth elements.

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 20 of 39
SWOBEN V. UNITED HEALTHCARE 21

from CMS indicated that a certification could

only be “accurate, complete, and truthful” if

[a Medicare Advantage] plan validated for

itself that the millions of diagnosis codes

submitted to it by third-party providers were

supported by the underlying medical charts –

i.e., that the plan was required to attest to the

accuracy of someone else’s work. Nor did

any authority indicate that a plan was obliged

to undertake affirmative steps to unearth

potentially unsupported codes before it could

certify the third-party risk adjustment data

based on its “best knowledge, information,

and belief.”

Joint Suppl. Br. 1. These arguments are unpersuasive for two

distinct reasons.

First, the defendants mischaracterize Swoben’s theory of

the case. Swoben does not allege the defendants’

certifications are false merely because they passively

forwarded to CMS unsupported diagnosis codes they received

from their medical providers. That type of conduct would not

necessarily result in false § 422.504(l) certifications. As

CMS made clear in the 2000 preamble, Medicare Advantage

organizations “cannot reasonably be expected to know that

every piece of data is correct, nor is that the standard that

[CMS and the Department of Justice] believe is reasonable to

enforce.” 65 Fed. Reg. at 40,268. “[S]imple mistakes will

not result in sanctions.” Id. Instead, Swoben alleges the

defendants took affirmative steps to generate and report

skewed data. Even in the face of “RADV audit error rates

well in excess of 20%” (Fourth Am. Compl. ¶ 25), they

“conceived, planned and conducted the retrospective reviews

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 21 of 39
22 SWOBEN V. UNITED HEALTHCARE

by not causing the previously submitted diagnosis codes that

were unsupported by the retrospective reviews to be corrected

and withdrawn from the Government,” doing so “with the

knowledge and intent that the retrospective reviews would

only increase, and not decrease, the number of diagnoses, and

thus their respective risk scores in order to increase capitated

payments paid by the Government” (Fourth Am. Compl.

¶ 19). The defendants’ attempts to portray themselves as the

passive victims of their providers’ errors wholly misstates

Swoben’s theory of the case, which focuses on the

defendants’ own conduct in allegedly conceiving, directing

and conducting retrospective reviews designed to identify

only favorable reporting errors.

Second, the defendants’ contention that, during the

relevant time period between 2005 and 2012, there was no

“authority [to] indicate that a [Medicare Advantage] plan was

obliged to undertake affirmative steps to unearth potentially

unsupported codes before it could certify the third-party risk

adjustment data based on its ‘best knowledge, information,

and belief’” is unpersuasive. When it adopted the “best

knowledge, information, and belief” standard in 2000, CMS

made clear this was the same standard as the one establishing

liability under the False Claims Act – i.e., that it encompasses

not only actual knowledge of falsity but also reckless

disregard and deliberate ignorance. See 65 Fed. Reg. at

40,268; see also 31 U.S.C. § 3729(b)(1)(A) (False Claims

Act). As we have explained in describing this standard under

the False Claims Act:

In defining knowingly, Congress attempted

“to reach what has become known as the

‘ostrich’ type situation where an individual

has ‘buried his head in the sand’ and failed to

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 22 of 39
SWOBEN V. UNITED HEALTHCARE 23

make simple inquiries which would alert him

that false claims are being submitted.” S.

Rep. No. 99-345, at 21 (1986), as reprinted in

1986 U.S.C.C.A.N. 5266, 5286. Congress

adopted “the concept that individuals and

contractors receiving public funds have some

duty to make a limited inquiry so as to be

reasonably certain they are entitled to the

money they seek.” Id. at 20; see also id. at 7

(discussing the importance of individual

responsibility because the government has

limited resources to police fraud). “While the

Committee intends that at least some inquiry

be made, the inquiry need only be ‘reasonable

and prudent under the circumstances.’” Id. at

21.

United States v. Bourseau, 531 F.3d 1159, 1168 (9th Cir.

2008); see also Universal Health Servs., Inc. v. U.S. ex rel.

Escobar, 136 S. Ct. 1989, 2000 (2016) (holding “half-truths

– representations that state the truth only so far as it goes,

while omitting critical qualifying information – can be

actionable misrepresentations” under the False Claims Act).

Thus, as CMS made clear, Medicare Advantage

organizations have always had “an obligation to take steps to

ensure the accuracy, completeness, and truthfulness of the

encounter data” and “an obligation to undertake ‘due

diligence’ to ensure the accuracy, completeness, and

truthfulness of encounter data submitted to [CMS].” 65 Fed.

Reg. at 40,268. CMS made perfectly clear that Medicare

Advantage organizations would be “held responsible for

making good faith efforts to certify the accuracy,

completeness, and truthfulness of encounter data submitted.” 

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 23 of 39
24 SWOBEN V. UNITED HEALTHCARE

Id. Indeed, CMS expressly rejected the argument that

Medicare Advantage organizations “should not be required to

certify the accuracy of the encounter data they receive from

third parties.” Id. The defendants’ contention that they were

under no obligation to take affirmative steps to address errors

also ignores § 422.503, which since 2005 has required

Medicare Advantage organizations to have effective

compliance programs in place, including “[p]rocedures for

internal monitoring and auditing” and for “ensuring

prompt response to detected offenses.” 42 C.F.R.

§ 422.503(b)(4)(vi), (vi)(F), (vi)(G) (2005).

In light of these authorities, we hold that when, as alleged

here, Medicare Advantage organizations design retrospective

reviews of enrollees’ medical records deliberately to avoid

identifying erroneously submitted diagnosis codes that might

otherwise have been identified with reasonable diligence,

they can no longer certify, based on best knowledge,

information and belief, the accuracy, completeness and

truthfulness of the data submitted to CMS. This is especially

true, when, as alleged here, they were on notice that their data

included a significant number of erroneously reported

diagnosis codes. We do not see how a Medicare Advantage

contractor who has engaged in such conduct can in good faith

certify that it believes the resulting risk adjustment data

reported to CMS are accurate, complete and truthful. As the

government argues in its amicus brief, when a Medicare

Advantage plan “has implemented record-review procedures

specifically designed not to reveal unsupported diagnosis

codes – the plan’s certification under § 422.504(l) is ‘false or

fraudulent’ under 31 U.S.C. § 3729(a)(1)(A) & (B).” Br.

United States as Amicus Curiae 4.

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 24 of 39
SWOBEN V. UNITED HEALTHCARE 25

By holding that one-sided retrospective reviews can result

in false certifications under § 422.504(l), we do not suggest

that they necessarily always do. The “best knowledge,

information, and belief” standard under § 422.504(l) prohibits

only a “reckless disregard” or “deliberate ignorance” of the

truth or falsity of the risk adjustment data submitted to CMS. 

We do not in this opinion attempt to define the parameters of

these requirements. We hold only that the theory alleged here

– that the defendants designed their retrospective review

procedures to not reveal unsupported diagnosis codes,

allegedly for no other reason than to avoid reporting that

information to the government – states a cognizable legal

theory under the False Claims Act. That the defendants

allegedly did so in spite of RADV audit errors rates of 20

percent or more only strengthens Swoben’s claims.

We also do not intend to suggest that the practice of

concealing previously submitted diagnosis codes fromcoders

conducting retrospective reviews is necessarily a suspect

practice. On the contrary, blind coding may help ensure the

integrity of a retrospective review: if reviewers are told in

advance which codes were submitted to CMS, they may have

an especially strong incentive to find support for those codes

in the records under review.

But blind coding cannot be squared with the good faith

required by § 422.504(l) when it is employed as a means of

avoiding or concealing over-reporting errors. If Medicare

Advantage organizations acquire the codes identified by

retrospective coders, compare them to the codes previously

submitted to CMS, identifying both under- and over-reporting

errors, but withhold information about the over-reporting

errors from CMS, this would result in a false certification. 

The same is true when a Medicare Advantage organization

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 25 of 39
26 SWOBEN V. UNITED HEALTHCARE

undertakes comprehensive blind coding but then runs a

unidirectional comparison with the previously submitted

codes to reveal only under-reporting errors. As the

government explains, the use of blind coding cannot excuse

failing to “check whether diagnosis codes previously

submitted to CMS were included on the list of diagnoses

found by the reviewers to be supported by the medical

records.” Br. United States as Amicus Curiae 15. In the first

example, in which a Medicare Advantage organization

withholds known over-reporting errors from CMS, the

organization has actual knowledge that the data are false. In

the second example, where the organization turns a blind eye

to the over-reporting errors, it exhibits reckless disregard and

deliberate ignorance toward the truth or falsity of the data

submitted to CMS. Both examples show a lack of diligence

and an absence of good faith. On the other hand, if through

reasonable diligence the comparison between the codes

identified by the retrospective reviewers and the codes

previously submitted to CMS is capable of identifying only

under-reporting errors, we assume this would not result in

false certifications under current CMS regulations. The due

diligence standard requires only reasonable efforts.

In sum, Swoben has alleged a cognizable legal theory.

2. The defendants’ arguments to the contrary are not

persuasive.

The defendants argue their certifications cannot have been

false because they did not know of any specific unsupported

diagnosis codes in the data they submitted to CMS. Joint

Suppl. Br. 4. As explained, however, neither the “best

knowledge, information, and belief” standard under

§ 422.504(l) nor the scienter element of the False Claims Act

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 26 of 39
SWOBEN V. UNITED HEALTHCARE 27

requires actual knowledge of falsity. Under the False Claims

Act,

the terms “knowing” and “knowingly” –

(A) mean that a person, with respect to

information – (i) has actual knowledge of the

information; (ii) acts in deliberate ignorance

of the truth or falsity of the information; or

(iii) acts in reckless disregard of the truth or

falsity of the information; and (B) require no

proof of specific intent to defraud.

31 U.S.C. § 3729(b)(1). Section 422.504(l) adopts precisely

the same standard. See 65 Fed. Reg. at 40,268. And this

standard reaches “what has become known as the ostrich type

situation where an individual has buried his head in the sand

and failed to make simple inquiries which would alert him

that false claims are being submitted.” Bourseau, 531 F.3d

at 1168 (quoting S. Rep. No. 99-345, at 21) (internal

quotation marks omitted). Although the False Claims Act’s

scienter requirement is “rigorous,” Universal Health Servs.,

136 S. Ct. at 2002, Swoben’s allegations satisfy it here.

The defendants also suggest they could not have

conducted their retrospective reviews in bad faith because

retrospective reviews of a portion of an enrollee’s medical

records are not a plausible means of identifying overreporting errors. They point out that “CMS regulations deem

a diagnosis code proper if it is supported by a single medical

record by a single provider.” Joint Answering Br. 36. 

“Accordingly, the absence of documentation for a diagnosis

code in a single retrospective review of a single provider’s

charts does not establish that the submission of that code to

CMS was improper: the code may simply be located in charts

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 27 of 39
28 SWOBEN V. UNITED HEALTHCARE

not encompassed by the retrospective review.” Id. We are

not persuaded. First, if the retrospective reviews were

designed in bad faith, then it is no defense that the reviews, as

designed, could not readily identify over-reporting errors. 

Second, the record at this early stage does not tell us how

easy or difficult it would have been for the defendants to

identify over-reporting errors, and Swoben alleges only that

the defendants intentionally prevented coders from doing so. 

Whether the defendants had a good-faith reason to design the

reviews as they did is not a matter to decide at this stage of

the proceedings, particularly where the defendants’ factual

assertions are less than obvious. For instance, because CMS

requires medical diagnosis codes to be supported by a

medical record, it may be that each diagnosis code reported

to CMS is linked to a specifically identified supporting

medical record. In that event, if a reviewer finds a previously

reported diagnosis code is not supported by the very medical

record used to document the diagnosis code in the first place,

then the diagnosis code was reported in error, even if it is

possible that some other, unidentified record might support

the same diagnosis.

8 As the government points out, “[e]ven

if it turns out that the diagnosis is supported by other medical

records, the failure of [the] plan to investigate to make that

determination – after it has been put on notice that the

diagnosis may not be supported – makes its broad

certification regarding the accuracy, completeness, and

8

In other words, if a Medicare Advantage organization relied on

medical record X to justify submitting a particular diagnosis code to CMS

initially, and the retrospective reviewer concludes X does not support that

diagnosis, then the code should be withdrawn. If it turns out the code can

be substantiated by a different medical record, then the code can be left in

place or resubmitted. But the Medicare Advantage organization cannot

simply ignore the reporting error because it speculates that some other

medical record might support the same diagnosis code.

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 28 of 39
SWOBEN V. UNITED HEALTHCARE 29

truthfulness of submitted data false.” Br. United States as

Amicus Curiae 17.

The defendants also argue the statements by CMS in 2000

regarding due diligence and good faith should not be given

weight because, at the time, risk adjustment was based

primarily on demographic factors rather than patient

encounter data. Joint Resp. to Amicus Br. 9–10 & n.3. We

disagree. First, the statements by CMS are authoritative not

because of what they say about encounter data or diagnosis

codes but because they provided clear guidance to Medicare

Advantage organizations (then known as Medicare+Choice

organizations) regarding their obligations under § 422.504(l)

(then codified at § 422.502(l)), including their obligations

under the “best knowledge, information, and belief” standard. 

Second, the defendants’ representations to the contrary

notwithstanding, it is quite clear that the risk adjustment

methodology in place in 2000 focused on patient encounter

data, just as it does today. See 65 Fed. Reg. 40,246–51. The

defendants point out that at the time CMS collected encounter

data only for inpatient care. Joint Resp. to Amicus Br. at 9

n.3. But, as CMS made clear at the time, it was already

“developing a more comprehensive risk-adjustment

methodology that uses diagnosis data fromphysician services

and hospital outpatient department encounters” as well. 

65 Fed. Reg. at 40,247–48. Thus, when CMS emphasized the

importance of due diligence and good faith in reporting

patient encounter data in 2000, it clearly had within its

contemplation the regime that was then in development and

which was in place at the time the allegedly false claims were

submitted in this case. Third, even if the defendants were

correct that the focus of the risk adjustment methodology in

2000 was on demographic factors rather than encounter data,

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 29 of 39
30 SWOBEN V. UNITED HEALTHCARE

there is no question that CMS’ statements about due diligence

and good faith were focused on the latter:

M+C organizations have an obligation to take

steps to ensure the accuracy, completeness,

and truthfulness of the encounter data. We

acknowledge that encounter data come into

M+C organizations in great volume and from

a number of sources, presenting significant

verification challenges for the organizations. 

However, we believe that M+C organizations

have an obligation to undertake “due

diligence” to ensure the accuracy,

completeness, and truthfulness of encounter

data submitted to [CMS]. Therefore, they

will be held to a “best knowledge,

information, and belief” standard. Therefore,

M+C organizations will be held responsible

for making good faith efforts to certify the

accuracy, completeness, and truthfulness of

encounter data submitted.

Id. at 40,268 (emphasis added).9

9 The statements CMS made in the preamble to the certification

regulation merit deference. See, e.g., Christopher v. SmithKline Beecham

Corp., 132 S. Ct. 2156, 2163 (2012); Fid. Fed. Sav. & Loan Ass’n v. de la

Cuesta, 458 U.S. 141, 158 n.13 (1982) (“[W]e look to the preamble . . . for

the administrative construction of the regulation, to which ‘deference is

. . . clearly in order.’” (third alteration in original) (quoting Udall v.

Tallman, 380 U.S. 1, 16 (1965))). CMS’ statements regarding the

meaning of the “best knowledge, information, and belief” standard are

entitled to deference because they represent the agency’s interpretation of

its own regulation. The interpretation is also entitled to deference because

it represents the agency’s considered judgment after notice and comment,

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 30 of 39
SWOBEN V. UNITED HEALTHCARE 31

The defendants also contend their certifications could not

have been knowingly false because their conduct between

2005 and 2012 represented at least an objectively reasonable

interpretation of their obligations under § 422.504(l). Joint

Suppl. Br. 12. See Safeco Ins. Co. of Am. v. Burr, 551 U.S.

47, 70 n.20 (2007) (“Where, as here, the statutory text and

relevant court and agency guidance allow for more than one

reasonable interpretation, it would defy history and current

thinking to treat a defendant who merely adopts one such

interpretation as a knowing or reckless violator.”); Hagood,

929 F.2d at 1421 (“To take advantage of a disputed legal

question . . . is to be neither deliberately ignorant nor

recklessly disregardful.”). We again disagree. CMS’ clear

statements in the 2000 preamble – “[Medicare Advantage]

organizations have an obligation to undertake ‘due diligence’

to ensure the accuracy, completeness, and truthfulness of

encounter data submitted to [CMS and] will be held

responsible for making good faith efforts to certify the

accuracy, completeness, and truthfulness of encounter data

submitted,” 65 Fed. Reg. at 40,268 – resolved any ambiguity

about the meaning of § 422.504(l). See Fid. Fed. Sav. &

industry input and interagency consultation. See Establishment of the

Medicare+Choice Program, 63 Fed. Reg. 34968, 35017 (June 26, 1998)

(interim final rule with comment period); 65 Fed. Reg. at 40,176, 40,268,

40,299 (final rule with comment period). Indeed, the good faith standard

about which the defendants now complain appears to have been suggested

by the industry. See 65 Fed. Reg. at 40,268, 40,299. Compare 63 Fed.

Reg. at 35103 (interim rule), with 65 Fed. Reg. at 40,327–28 (final rule). 

We also afford deference to CMS’ interpretation of the regulation because

it is consistent with the standard for liability under the False Claims Act,

and therefore presumably carries out congressional intent. Cf. Wyeth v.

Levine, 555 U.S. 555, 576–80 (2009) (declining to afford deference to

statements in an agency’s preamble where the agency failed to offer

interested parties notice or an opportunity for comment and the preamble

was at odds with evidence of Congress’ purposes).

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 31 of 39
32 SWOBEN V. UNITED HEALTHCARE

Loan Ass’n, 458 U.S. at 158 (“Any ambiguity in [the

regulation’s] language is dispelled by the preamble

accompanying and explaining the regulation.”). 

Consequently, ignoring the good faith and due diligence

requirements would not have been objectively reasonable.

The defendants also contend their § 422.504(l)

certifications could not have been false because they offered

only a qualified certification of their risk adjustment data,

“based on best knowledge, information, and belief.” Joint

Suppl. Br. 5–6. They rely on United States v. Ekelman &

Associates, Inc., 532 F.2d 545, 550 (6th Cir. 1976) (“In

certifying the truth of the information in the application ‘to

the best of its knowledge and belief’ Franklin did no more

than assert that it had no knowledge of, nor intention to make,

misrepresentations.”). Ekelman is distinguishable on a

number of grounds. First, § 422.504(l)’s “best knowledge,

information, and belief” standard is informed by the 2000

preamble, which makes clear the standard encompasses due

diligence, good faith, reckless disregard and deliberate

ignorance. See 65 Fed. Reg. at 40,268. In this sense,

§ 422.504(l)’s “best knowledge, information, and belief”

standard is similar to the “best of the person’s knowledge,

information, and belief” standard under Federal Rule of Civil

Procedure 11, under which an attorney’s “signature certifies

to the court that the signer has read the document, has

conducted a reasonable inquiry into the facts and the law and

is satisfied that the document is well grounded in both, and is

acting without any improper motive.” Bus. Guides, Inc. v.

Chromatic Commc’ns Enters.,Inc., 498 U.S. 533, 542 (1991). 

Second, in contrast to Ekelman, this is not a case in which it

is clear the defendants lacked any “intention to make[]

misrepresentations.” Ekelman, 532 F.2d at 550. Swoben’s

allegations support the inference that the defendants certified

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 32 of 39
SWOBEN V. UNITED HEALTHCARE 33

that they believed the risk adjustment data were complete and

accurate even though they did not believe that to be the case. 

Third, Ekelman was decided in 1976, a decade before

Congress amended the False Claims Act to include a

deliberate ignorance standard. See False Claims

Amendments Act of 1986, Pub. L. No. 99-562, § 2, 100 Stat.

3153 (1986) (codified as amended at 31 U.S.C. § 3729(b)(1)). 

The deliberate ignorance standard does not allow a contractor

to deliberately turn a blind eye to reporting errors and then

attest that, to its knowledge, they do not exist.

Finally, notwithstanding the certification and compliance

regulations discussed in this opinion, the defendants invoke

a separate regulation, 42 C.F.R. § 422.310(d), to argue they

reasonably believed they were not required to take any

affirmative steps to find unsupported diagnosis codes. Joint

Suppl. Br. 6–7. In relevant part, § 422.310(d) states that

Medicare Advantage “organizations must submit data that

conform to CMS’ requirements for data equivalent to

Medicare fee-for-service data, when appropriate, and to all

relevant national standards.” 42 C.F.R. § 422.310(d). 

According to the defendants, because CMS does not verify

diagnosis codes submitted to it by third-party medical

providers under the Medicare fee-for-service program, this

provision means Medicare Advantage organizations were not

required to verify diagnosis codes either. We reject the

defendants’ contention, again for multiple reasons. First,

because nothing in § 422.310(d) speaks to a Medicare

Advantage organization’s obligations to ensure the

accuracy of risk adjustment data, it does not modify a

Medicare Advantage organization’s obligations under

§§ 422.503(b)(4)(vi) and 422.504(l). Second, this is not a

case about whether Medicare Advantage organizations have

to take affirmative steps to verify risk adjustment data. The

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 33 of 39
34 SWOBEN V. UNITED HEALTHCARE

defendants indisputably took such steps by conducting

retrospective reviews. This is a case about whether such

organizations, having adopted affirmative verification

procedures, have to conduct them in good faith.

In sum, we conclude Swoben’s proposed fourth amended

complaint adequately pleads a cognizable legal theory.

B. The ProposedFourthAmendedComplaint Alleges

Sufficient Factual Matter to Satisfy Rules 8, 9(b)

and 12(b)(6)

The parties also dispute whether Swoben’s proposed

fourth amended complaint satisfies Rule 8 and 9(b).

1. Under Rule 8, we assume the veracity of a complaint’s

factual allegations and then determine whether they plausibly

give rise to an entitlement to relief. See Corinthian Colls.,

655 F.3d at 991. “A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw

the reasonable inference that the defendant is liable for the

misconduct alleged.” Id. (quoting Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009)). Under Rule 9(b), a plaintiff “must state

with particularity the circumstances constituting fraud.” Fed.

R. Civ. P. 9(b). This means the plaintiff must allege “the

who, what, when, where, and how of the misconduct

charged.” Ebeid ex rel. United States v. Lungwitz, 616 F.3d

993, 998 (9th Cir. 2010) (quoting Vess v. Ciba-Geigy Corp.

USA, 317 F.3d 1097, 1106 (9th Cir. 2003)). Knowledge,

however, may be pled generally. See Corinthian Colls.,

655 F.3d at 996.

Swoben’s proposed fourth amended complaint satisfies

these standards. He alleges that, beginning in approximately

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 34 of 39
SWOBEN V. UNITED HEALTHCARE 35

2005, each of the defendants employed coding companies to

perform retrospective reviews designed not to reveal overreporting errors. Fourth Am. Compl. ¶¶ 12–13. He alleges

that from approximately 2005 to 2007 United Healthcare and

HealthCare Partners used specialized software to identify

enrollees for retrospective reviews but, again, the reviews

were designed not to reveal over-reporting errors. Fourth

Am. Compl. ¶¶ 14–15. He alleges HealthCare Partners used

another software product, HCC Manager, to similar effect in

approximately June 2008. Fourth Am. Compl. ¶¶ 16–17. He

alleges that from approximately 2006 to 2012 each of the

defendants used the flawed template to report the results of

their retrospective reviews to CMS. Fourth Am. Compl.

¶¶ 23–24. The proposed complaint alleges that each of the

defendants (other than HealthCare Partners) had RADV audit

error rates exceeding 20 percent during the relevant time

period. Fourth Am. Compl. ¶ 25. It alleges that each of the

defendants (other than HealthCare Partners) submitted false

§ 422.504(l) certifications periodically, and at least annually,

during the relevant time period. Fourth Am. Compl. ¶ 27. 

We acknowledge that some of these allegations are not as

detailed as they might be. But the allegations, each of which

is fleshed out to some extent in the proposed pleading, are

adequate to satisfy Rule 9(b).

2. Again, the defendants’ arguments to the contrary are

not persuasive.

The defendants argue Swoben’s pleadings are insufficient

because they “do not describe any specific instances of

falsity, let alone any such instances with particularity by

identifying the time, place, and manner of the alleged falsity,

the person making the false representation, or what they

obtained thereby.” Joint Answering Br. 35; see also id. at

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 35 of 39
36 SWOBEN V. UNITED HEALTHCARE

40–41. Under our case law, however, the plaintiff need not

“identify representative examples of false claims to support

every allegation.” Ebeid, 616 F.3d at 998. “[I]t is sufficient

to allege ‘particular details of a scheme to submit false claims

paired with reliable indicia that lead to a strong inference that

claims were actually submitted.’” Id. at 998–99 (quoting

United States ex rel. Grubbs v. Ravikumar Kanneganti,

565 F.3d 180, 190 (5th Cir. 2009)). Swoben, therefore, need

not identify specific false § 422.504(l) certifications.

The defendants also argue Swoben’s pleadings “fail[] to

identify a single instance where previously submitted codes

were inconsistent with those identified during the

retrospective reviews, or to explain why any such

inconsistencies would necessarily lead to false claims.” Joint

Answering Br. 35. Under Swoben’s theory, however, the

false claims are the allegedly false § 422.504(l) certifications,

not the erroneously reported diagnosis codes. See Hendow,

461 F.3d at 1171 (explaining that it “is the false certification

of compliance which creates liability when certification is a

prerequisite to obtaining a government benefit”). Swoben

need not identify specific diagnosis codes that should have

been withdrawn.

The defendants next fault the proposed fourth amended

complaint for using (often, though not exclusively) collective

allegations to refer to the defendants rather than

differentiating among them. Joint Answering Br. 38. The

defendants are correct that “Rule 9(b) does not allow a

complaint to merely lump multiple defendants together but

requires plaintiffs to differentiate their allegations when suing

more than one defendant and inform each defendant

separately of the allegations surrounding his alleged

participation in the fraud.” Corinthian Colls., 655 F.3d at

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 36 of 39
SWOBEN V. UNITED HEALTHCARE 37

997–98 (quoting Swartz v.KPMG LLP, 476 F.3d 756, 764–65

(9th Cir. 2007)). A plaintiff must “identify the role of each

defendant in the alleged fraudulent scheme.” Id. (quoting

Swartz, 476 F.3d at 765). There is no flaw in a pleading,

however, where, as here, collective allegations are used to

describe the actions of multiple defendants who are alleged

to have engaged in precisely the same conduct. Under these

circumstances, Swoben’s allegations, although collective,

nonetheless afford each defendant ample notice of its alleged

role.

Finally, the defendants argue with respect to the RADV

audits that “Swoben fails to provide any of the particular

details required by Rule 9(b), . . . which would be necessary

for these allegations to have any relevance to the Defendants’

knowledge or intent.” Joint Answering Br. 42. As noted,

however, knowledge need not be pled with particularity. See

Fed. R. Civ. P. 9(b); Odom v. Microsoft Corp., 486 F.3d 541,

554 (9th Cir. 2007). The defendants’ argument therefore falls

short.

In sum, we hold the allegations in the proposed fourth

amended complaint are adequate to satisfy Rules 8 and 9(b)

and hence Rule 12(b)(6). Because the complaint alleges a

cognizable legal theory and satisfies Rules 8 and 9(b), we

hold that amendment would not be futile. The district court

erred by deeming amendment futile, and therefore abused its

discretion by denying leave to amend on this ground.

II. The District Court Abused its Discretion By Denying

Leave to Amend Based on Undue Delay

The district court alternatively denied leave to amend

“based on undue delay” because “Swoben was aware of the

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 37 of 39
38 SWOBEN V. UNITED HEALTHCARE

purportedly ‘new’ allegations he proposes to add to the

Fourth Amended Complaint since at least 2005.”

We conclude the district court abused its discretion by

relying on undue delay. Undue delay by itself is insufficient

to justify denying leave to amend, see Owens v. Kaiser

Found. Health Plan, Inc., 244 F.3d 708, 712–13 (9th Cir.

2001), and the record here does not support any additional

ground – such as prejudice or bad faith, see Johnson v.

Mammoth Recreations, Inc., 975 F.2d 604, 607 (9th Cir.

1992) – that would justify the denial of leave to amend in

combination with undue delay.

The defendants’ argument they would be prejudiced by

affording Swoben leave to amend is unpersuasive. They fault

Swoben for failing to announce his intention to seek leave to

amend during the meet-and-confer conferences preceding the

filing of their motions to dismiss. See C.D. Cal. R. 7-3. They

argue that, if Swoben had announced his intention to seek

amendment at that time, they could have avoided the expense

of preparing their motions to dismiss. In the absence of bad

faith, however, litigation expenses incurred before a motion

to amend is filed do not establish prejudice. See Owens,

244 F.3d at 712. More broadly, the defendants have not

shown prejudice here. The litigation against these defendants

is at a very early stage, Swoben does not seek to assert a new

legal theory and this is Swoben’s first attempt to cure

deficiencies in his complaint. The circumstances of this case

stand in stark contrast to those in the cases on which the

defendants rely. See AmerisourceBergen Corp. v. Dialysist

W., Inc., 465 F.3d 946, 953–54 (9th Cir. 2006) (the plaintiff

sought leave to amend a reply to a counterclaim to assert a

new legal theory, which “would have unfairly imposed

potentially high, additional litigation costs . . . that could have

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 38 of 39
SWOBEN V. UNITED HEALTHCARE 39

easily been avoided”); Ascon Props., Inc. v. Mobil Oil Co.,

866 F.2d 1149, 1160–61 (9th Cir. 1989) (the defendant had

filed several motions to dismiss over several years of active

litigation, the plaintiff had been given several opportunities

to cure the deficiencies in the complaint, the plaintiff had

prosecuted the action in a dilatory fashion and the plaintiff

sought to amend the complaint to assert a new legal theory).

CONCLUSION

The district court abused its discretion by dismissing

Swoben’s third amended complaint without leave to amend. 

Swoben’s proposed fourth amended complaint adequately

alleges a false certification claim under the False Claims Act,

so amendment would not have been futile. The district court

also abused its discretion by denying leave to amend on the

ground of undue delay. The judgment of the district court is

vacated and the case is remanded for further proceedings.

VACATED AND REMANDED. Costs on appeal are

awarded to Swoben.

 Case: 13-56746, 08/10/2016, ID: 10081761, DktEntry: 79-1, Page 39 of 39