Fifth Circuit Decision in Health Care Fraud Case Highlights Importance of Careful Drafting in Civil RICO Complaints

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 supported by fraudulent documentation.

Despite the scale and apparent sophistication of the alleged scheme, the case was dismissed — not because the underlying fraud was implausible, but because the complaint did not adequately plead a required element of every RICO claim: the enterprise.

The RICO Enterprise Requirement

To state a civil RICO claim under 18 U.S.C. § 1962(c), a plaintiff must plead four elements: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Mail fraud and wire fraud — the predicate acts most commonly alleged in health care fraud cases — qualify as racketeering activity.

The enterprise element is often where RICO complaints succeed or fail. RICO defines an enterprise broadly to include “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” In health care fraud cases, the enterprise is typically not a single legal entity but rather a network of providers, management companies, and individuals — what the law calls an “association-in-fact” enterprise.

The Association-in Fact Enterprise Under Boyle v. United States

The U.S. Supreme Court’s leading case on association-in-fact enterprises is Boyle v. United States, 556 U.S. 938 (2009). Under Boyle, an association-in-fact enterprise must have three features:

• • • A purpose
    • Relationships among those associated with the enterprise
    • Longevity sufficient to permit the associates to pursue the enterprise’s purpose

The court in Boyle was deliberate in setting a flexible standard. It held that an enterprise need not have a formal hierarchical structure, a chain of command, a name, or regular meetings. Decisions may be made on an ad hoc basis. Even a loosely organized group can constitute a RICO enterprise.

The Person/Enterprise Distinction

A separate but related requirement is that the RICO “person” — the defendant alleged to be conducting the enterprise’s affairs — must be distinct from the enterprise itself. A plaintiff cannot simply name the same entity as both the RICO defendant and the RICO enterprise. In health care fraud cases, this means the complaint must identify an enterprise that is structurally distinct from the individual defendants alleged to be running it.

What the Farmers Complaint Alleged

The Farmers complaint contained meaningful factual allegations about the structure of the alleged fraud network. The scheme allegedly centered on 1st Choice Accident & Injury, a chiropractic provider with 13 Houston-area locations owned by the Huynh brothers. The Huynh brothers also owned all or part of three pain management companies. The wife of one of the Huynh brothers owned a management company, through which another defendant physician participated in the scheme.

The complaint included a graphic depicting a pipeline of care flowing from chiropractic providers to pain management to radiology and pharmacy. It also alleged that contracted-out chiropractic providers authored reports under the 1st Choice letterhead, and that specific radiologists consistently recommended further MRI imaging in a way that served the scheme.

To support the fraud allegations themselves, the complaint identified unusual patterns and similarities among reports pertaining to 497 patients, regardless of age, gender, weight, past medical history, or current injuries — including repeated grammatical errors, creation of reports within seconds of each other, and uniformity of patient information, orthopedic testing, neurological findings, and treatment recommendations.

What the Court Found Was Missing

The defendants moved to dismiss the complaint, arguing that it failed to adequately describe the existence of a RICO enterprise. Both the magistrate judge and the district judge in the case agreed, finding that there were several critical holes in the complaint:

• • • The enterprise was never defined. The word “enterprise” appeared only once in the entire complaint, in a single sentence stating that “1st Choice Accident & Injury is a Texas professional association and a participant in an ‘enterprise,’ as that term is defined in 18 U.S.C. § 1961(4), that engages in, and the activities of which affect, interstate commerce.” This is a bare statutory recitation, not a factual description of an enterprise.
    • No allegations of communications or agreements. The complaint described the outputs of the alleged coordination — a consistent referral pipeline, shared letterhead, uniform billing patterns — but it never alleged how that coordination was established or maintained. There were no allegations of specific agreements between defendants, communications directing the scheme, or arrangements showing that the members of the network had actually agreed to work together in a coordinated way.
    • No allegation of coordination. The complaint’s only structural allegation was a brief statement that the scheme was “controlled by those most closely connected to the Huynh brothers.” This single, conclusory phrase was the entirety of the complaint’s effort to describe how the defendants were organized. As the court explained, there were “no allegations — cursory or otherwise — that Defendants worked together to advance the alleged racketeering operation.”  

The Fifth Circuit’s Decision

Rather than refiling a more carefully pleaded complaint, Farmers filed a post-judgment motion seeking leave to amend. The district court denied the motion, finding that Farmers had been on notice of its pleading deficiencies for over a year and had repeatedly insisted its complaint was sufficient. On appeal, the Fifth Circuit affirmed the denial of leave to amend on February 24, 2026, finding ample grounds to support the district court’s decision, including undue delay. Because Farmers appealed only the amendment issue—not the underlying merits of the dismissal—the Fifth Circuit never reached the question of what allegations would have been sufficient to plead the enterprise element, or whether the Fifth Circuit’s “consensual decisionmaking structure” requirement is still viable post-Boyle.

Takeaways for Health Care Payors and RICO Plaintiffs

Civil RICO remains a powerful tool for health care payors confronting coordinated provider fraud. But Farmers is a stark reminder that a RICO case can be lost at the pleading stage not because fraud did not occur, but because the complaint did not describe it with the right detail. The following principles should guide any payor considering a RICO action:

• • • Define the enterprise explicitly. Do not leave the enterprise implicit or defined only by reference to the statutory text. Name the enterprise, identify its members, and describe its purpose in a dedicated section of the complaint. Courts should not have to infer the enterprise from the fraud allegations; it should be stated clearly and independently.
    • Allege the mechanism of coordination, not just its outputs. A referral pipeline, shared letterhead, and uniform billing patterns are evidence of coordination, but they may not be sufficient allegations of coordination. At least in some jurisdictions, consider detailing how the defendants actually cooperated with each other to achieve illegal ends (e.g., what agreements they reached, how they communicated, and how the enterprise’s activities were coordinated in practice).
    • Maintain the person/enterprise distinction. Make sure the complaint clearly identifies the RICO persons (the defendants conducting the enterprise’s affairs) as distinct from the enterprise itself. Avoid framing in which the same entity is simultaneously the RICO person and the enterprise.
    • Conduct a thorough pre-suit investigation. The enterprise allegations that RICO demands — communications, agreements, organizational structure, and coordinated decisionmaking — require factual investigation before the complaint is filed. Document requests, data analysis, and interviews should focus not just on the fraudulent billing itself but also on the organizational architecture of the provider network.

The Farmers complaint alleged serious fraud, real losses, and specific evidence. But because it fell short on certain key elements, the case never got past the pleading stage. Health care payors and other RICO plaintiffs should take note to avoid the same outcome in future cases.

We strongly encourage all health care organizations interested in learning more about this decision and/or broad RICO litigation strategy to reach out to any author of this alert or a preferred Crowell & Moring Health Care lawyer.