(CN) - An Arizona behavioral health center told the 10th Circuit Wednesday that United Healthcare colluded with New Mexico to defraud the federal government out of $1.6 billion, asking an appeals panel to revive its lawsuit against the insurance giant. 

La Frontera, which was asked to take over multiple New Mexico behavioral health facilities after United accused 90% of the state's providers of fraud, argued in a Denver courtroom that United entered into a contract with New Mexico to process all behavioral health claims via federal Medicaid dollars knowing it wasn't able to deliver.

"We put forth several pieces of postcontractual evidence from which the district court erred in not inferring on summary judgment that United never had the knowledge, capacity or technology that it claimed it did," La Frontera attorney Bob Neel told a three-judge panel. 

That evidence included system failures like claims payment and scheduling errors, and internal United communications in which employees decried their inability to perform under the contract obligations. 

In August 2025, a federal judge dismissed one count of fraudulent inducement under the Federal Claims Act for exceeding the statute of limitations and granted summary judgment to United on the remaining counts, including another fraudulent inducement claim under New Mexico's Fraud Against Taxpayers Act.

Neel said the judge analyzed the wrong statute to find fraud.

"There could be fraudulent inducement of the federal government, but because there was collusion between the state and United, there would not be fraudulent inducement based on the facts analyzed by the district court because it only analyzed the FATA and not the FCA."

Nevertheless, United says the appeals court can't arrive at any other outcome because no evidence of fraud exists. However, the judges weren't so sure.

"When you look at the very poor execution of the project later, couldn't the very fact that the start and the execution was so bad mean that no reasonable executive could have believed that they were capable of handling this project?" U.S. Circuit Judge Joel Carson asked United Healthcare attorney Jessica Ellsworth. 

"Breach of contract and fraudulent inducement are different," she replied. 

Ellsworth said most of the issues regarding claims payouts came on the side of providers adjusting to a new system. 

United first contracted with New Mexico to process behavioral health claims in 2009, promising new claims processing, data and fraud detection systems. Having lost money over the course of the contract, which ended in 2013, La Frontera accused United in a 2015 lawsuit of colluding with the state to cover up its failings by accusing 15 providers of noncompliance and fraud. 

United kept up to 40% of the state funds recouped from the terminated providers, according to La Frontera.

The insurance giant then contracted with La Frontera and other Arizona providers to replace the providers it eliminated. Frontera says United lied about having a framework in place to process La Frontera's claims and failed to pay more than 30,000 separate claims, retaining nearly $4 million for itself. La Frontera pulled out of New Mexico in 2015. 

Though the contract was signed solely with the state government, Neel said Wednesday that La Frontera's federal fraudulent inducement claim should still stand because it dealt with federal dollars.

The trial judge dismissed that claim because the lawsuit came more than six years after the contract was signed. Neel argued the statute of limitations doesn't begin at the first fraudulent act, but rather the last. He said United continued to falsely adjudicate claims and illegally retain overpayments throughout the course of the contract. 

Carson, a Donald Trump appointee, reminded Neel he still needs to show the contract was fraudulently induced from the start. 

Ellsworth said La Frontera can't do so. She noted La Frontera's own CEO said in a deposition that he believed United's promises were honorable and that it did its best to abide by the contract. 

"Are good intentions enough?" asked U.S. Circuit Judge Jerome Holmes, a George W. Bush appointee. He said a party still commits fraud if it attempts to follow a contract it knows it objectively cannot abide by. 

Ellsworth said that would be considered reckless disregard, which is subject to a different analysis than fraudulent inducement. 

The panel, rounded out by U.S. Circuit Judge Carolyn McHugh, a Barack Obama appointee, did not indicate when it would rule.

Source: Courthouse News Service