Fifth Circuit Decision In Health Care Fraud Case Highlights Importance Of Careful Drafting In Civil RICO Complaints

• Published date: 12 March 2026
• Subject Matter: Food, Drugs, Healthcare, Life Sciences, Criminal Law, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Crowell & Moring LLP
• Author: Joshua Robbins and Jeffrey Gleason

What You Need to Know

• Key takeaway#1

Insurers and other health care payors often use RICO to pursue claims against providers or others for fraudulent billing.

• Key takeaway#2

Pleading a RICO claim requires describing a racketeering "enterprise." While the U.S. Supreme Court has created a flexible standard for this requirement, a complaint that fails to define the "enterprise" or describe its basic inner workings can fall short, as did the insurer's complaint inFarmers v. 1st Choice.

• Key takeaway#3

Farmersillustrates the importance in RICO cases not only of careful pleading, but also of promptly addressing pleading deficiencies when flagged by a court. The Fifth Circuit held that the insurer was not entitled to amend its complaint to add the missing allegations, in part because it had received notice of the complaint's shortcomings over a year before the final ruling.

A recent decision by the United States Court of Appeals for the Fifth Circuit, Farmers Texas County Mutual Insurance Co. v. 1st Choice Accident & Injury, LLC, No. 24-20275 (5th Cir. Feb. 24, 2026), offers important lessons for health care payors and other potential plaintiffs considering civil claims under the federal Racketeer Influenced and Corrupt Organizations Act (RICO). Although the Fifth Circuit's decision focused on a procedural issue, the underlying case turned on a fundamental pleading failure: the plaintiff insurers did not adequately describe the fraudulent network they were suing as a RICO "enterprise." The result was dismissal of a $14 million fraud case.

This alert explains what RICO requires, where the Farmers plaintiffs fell short, and what health care payors or other RICO plaintiffs ' and their counsel ' should do to avoid the same outcome.

RICO and Health Care Fraud

Congress enacted RICO in 1970 primarily to combat organized crime, but civil RICO has become a powerful tool for health care payors'insurers, managed care organizations, and self-funded plan administrators'seeking to recover losses caused by coordinated provider fraud. Civil RICO claims have been attractive for several reasons. A successful plaintiff is entitled to treble damages (three times actual losses) plus attorney's fees and costs. RICO also allows a payor to aggregate what might otherwise appear to be a series of individual billing disputes into a single, unified fraud claim, which is often exactly how sophisticated fraud schemes operate.

The type of fraud most commonly targeted by payor RICO claims involves networks of providers (e.g., clinics, physicians, diagnostic facilities, and sometimes attorneys) allegedly working together to submit inflated, fabricated, or medically unnecessary bills. These schemes typically involve coordinated referral patterns, standardized fraudulent documentation, and organized financial arrangements designed to maximize illegitimate payments from insurers.

The Farmers case is a textbook example. Thirteen affiliated Farmers insurer entities sued 23 medical providers in the Houston, Texas, area, alleging a scheme in which chiropractic providers owned by the defendant, the Huynh brothers, referred patients to affiliated pain management companies, which in turn referred patients to affiliated radiology facilities, generating inflated and fraudulent bills that were submitted to Farmers to support personal injury settlements. Plaintiffs alleged more than $14 million in losses from settling claims...