As the Dept. of Justice pursues two whistleblower lawsuits against UnitedHealth Group and investigates other insurers’ alleged “upcoding” practices that lead to higher-than-deserved Medicare Advantage payments, a recent $32.5 million settlement between a Florida-based MA plan operator and the federal government reflects the DOJ’s growing scrutiny over MA plans’ risk adjustment practices. But the settlement is also significant in that it resolves the alleged manipulation of requirements around provider network adequacy, which has become a focus of CMS in recent years.

The DOJ on May 30 said that Tampa-based Freedom Health Inc. and Optimum Healthcare, Inc., both subsidiaries of America’s 1st Choice Holdings of Florida LLC, had agreed to pay $31.7 million to resolve allegations that the plans violated the False Claims Act by “engaging in illegal schemes to maximize their payment from the government in connection with their” MA plans. Central to the alleged schemes were “unsupported diagnosis codes” that led to the defendants receiving “inflated reimbursements” between 2008 and 2013 from CMS. Law firm Constantine Cannon LLP, which represented the plaintiff along with attorneys from Phillips & Cohen LLP, said this is the largest whistleblower settlement involving health insurers’ manipulation of risk scores.

But the settlement also resolves allegations that the plans made “material misrepresentations” regarding the size and makeup of their provider networks when applying to CMS for service area expansions (SAEs) in the late 2000s. The plans agreed to pay $15 million for the alleged fraudulent expansion of their service areas, while the company’s chief operating officer will pay $750,000 for his alleged role in the network scheme.

The qui tam complaint (U.S. ex rel. Sewell v. Freedom Health, Inc. et al., Case No. 8:09-cv-1625), which was filed in 2009 by former Chief Medical Officer Darren Sewell, M.D., and unsealed on May 30, alleged that the plans did not have sufficient networks in place when they applied for service area expansions and instead listed in their applications to CMS a “rented network” of health care providers that they did not intend to use due to higher rates. Once the expansions were approved, they removed the network’s providers from the list of authorized providers available to their beneficiaries and took steps to ensure that members would not be referred to those providers by hiding existence of the contracts from low-level staff, alleges the complaint. Only upper management allegedly had access to the health service delivery tables submitted to CMS to demonstrate that the plans had complete provide networks in the requested expansion counties.

According to the complaint, Chief Operating Officer Siddhartha Pagidipati boasted that use of the rented network to gain service area expansion approval was the result of his “creative thinking.”

“The settlement for mischaracterizing the provider network is probably the biggest of its kind,” observes Michael Adelberg, principal at FaegreBD Consulting and a former top CMS MA official who had a leading role on network-adequacy issues there. “It is one more data point in the building narrative that plans need to be concerned about differentials, at least large ones, between their reported and actual provider networks.”

CMS last year beefed up its oversight of MA provider networks, including the addition of new reporting requirements on mid-year network changes and the review of entire networks of plans requesting SAEs. Also new for 2017 was the creation of a centralized team to review network exception requests and partial county justifications, whereas this process historically had been handled across 10 regional offices. CMS officials told attendees at a conference last fall that those exceptions should be rare and must be warranted (MAN 9/15/16, p. 1).

The Sewell lawsuit also alleged that Freedom and Optimum were “knowingly submitting incorrect and/or unsubstantiated risk adjustment data” in order to boost their risk adjusted capitation payments from the federal government. The fraudulent practices alleged in the complaint include: (a) deploying internal coding auditors to submit false risk adjustment data to CMS; (b) providing risk adjustment data to CMS without checking their validity and knowingly using an automated submission processing system that is incapable of filtering out invalid data; (c) conducting an internal audit that uncovered a significant percentage of risk adjustment data that did not qualify for CMS reimbursement, without refunding the overpayments or alerting CMS to the audit results; and (d) failing to in the normal course of business correct or notify CMS of risk adjustment data that was found to have been incorrect and improperly submitted.

Settlement Highlights Enforcement Risks

Meanwhile, the federal government recently filed two complaints-in-intervention against UnitedHealth Group that contain allegations of fraudulently inflating risk adjustment payments by claiming patients were sicker than they really were (MAN 5/25/17, p. 8), and has said it is investigating the risk adjustment practices of other large insurers named in the original whistleblower complaints (MAN 3/30/17, p. 1). While the two cases — U.S. ex rel. Swoben v. Secure Horizons, et al., 09-5013 and U.S. ex rel. Benjamin Poehling v. UnitedHealth Group, Inc., 16-08697 — focus on a failure to “look both ways” when conducting chart reviews to identify diagnosis codes that would lead to higher reimbursement, the recent settlement reflects that the “enforcement risks are real” and that the DOJ is focused on “MA plans of all sizes,” observes Steven Chananie, a partner in the Corporate Practice Group in the New York office of the law firm Sheppard, Mullin, Richter & Hampton LLP.

Moreover, the settlement highlights that “senior management at these plans have potential personal liability,” says Chananie. “There are certifications that are required by senior management on forms and applications that are submitted to CMS. There is certification that all the coding and data submission are accurate. And this creates personal liability potentially for senior management who are involved in that process or delegated it to someone if they’re not careful in ensuring that those certifications are accurate.” He recalls the 2015 release of the so-called “Yates memo” from then Deputy Attorney General Sally Yates outlining DOJ policy on federal prosecutions of individuals as an effective means to combat corporate misconduct.

Chananie says it’s also significant that when the Ninth Circuit Court of Appeals revived the Swoben case last year, it ruled that “biased retrospective reviews” (i.e., a failure to look both ways) do state a cause of action under the False Claims Act and that it is a legal matter, depending on what the facts are. “That Ninth Circuit decision was the first salvo that laid at least a little bit of groundwork to say [not] looking both ways…is potentially a basis for liability, and that’s now I think where the gray area comes in,” he remarks. “What is such egregious not looking both ways that you could be liable? I think that’s really a matter of interpretation…and there’s going to be a lot of contentious back and forth on those issues between United and the DOJ.”

CIA on Risk Adjustment Is First of Its Kind

The Freedom/Optimum settlements, which do not make any determination of liability, also required that the plans enter into a five-year Corporate Integrity Agreement (CIA) with the HHS Office of Inspector General to establish and maintain a robust compliance program. Chananie observes that while the majority of provisions in the agreement are pretty standard, the CIA is “the first that we’ve seen for an MA plan on these kinds of issues — the unsupported diagnoses and the misrepresentation of the size of the provider network.”

In a statement, Freedom/Optimum General Counsel Bijal Patel denied any wrongdoing. “Although Medicare managed care is a complex and constantly changing industry in which it is common to have differing interpretations of regulations, with this settlement, we have agreed to resolve disputed claims without any admission of liability in order to avoid delay and the expense of litigation, so that we can focus on providing quality care, member service and maintaining the highest Medicare Star Ratings,” said Patel.