This post examines the recent DOJ settlement, analyzes the trend towards enforcement of provider-owned managed care plans, and offers a prediction on what might be coming on the enforcement side.

The Black-and-White Issue: Unsupported Diagnosis Codes

Medicare compensates Medicare Advantage plans based, in part, on diagnosis codes, in an effort to pay more money for insuring sick patients than for less-sick patients. In response to this, some managed care plans have endeavored to find ways to add diagnosis codes because more diagnosis codes in general means more money.

The clear black-and-white line some managed care providers cross is when they add diagnosis codes that are plainly unsupported from a patient’s underlying medical records. Settlements based on that issue have been steadily announced by DOJ over the past several years, with the latest announcement coming on July 31, 2023.

That settlement involved one of Maine’s largest provider groups, Martin’s Pointe Health Care, which like many providers had created its own managed care plan years back, and found itself in the Justice Department’s crosshairs when its manager of “Medicare Risk Adjustment Operations” filed a qui tam in 2018 alleging wrongful chart review.[1] After an investigation, the Justice Department settled with Martin’s Point based on the managed care plan’s purported reporting of diagnosis codes to Medicare “that were unsupported, unsubstantiated, and invalid based on the underlying medical records.”[2] Because of that conduct, Martin’s Point agreed to settle for over $22 million, with the whistleblower receiving $3.8 million for her share.[3]

While the Justice Department settled with Martin’s Point on the issue of submitting flatly unsupported diagnoses, there was an additional allegation in the Martin’s Point whistleblower’s qui tam that providers with a managed care plan should be aware of: conducting “one-way chart review.”[4]

The Gray-Area Issue: One-Way Chart Review

While chart review typically involves a search for diagnoses not currently reported to Medicare, the undertaking of chart review introduces a conundrum of interest to the Justice Department: that it could also reveal diagnosis codes that were incorrectly reported to Medicare and for which the managed care plan has received and continues to receive improper funds through erroneously reported risk adjustment calculations. The question here is: if chart review identifies missing diagnosis codes, wouldn’t it also necessarily see inappropriately reported codes too? That is the one-way chart review issue: managed care plans undertaking efforts to find additional diagnosis codes but turning a blind eye to inappropriate ones.

The Justice Department has attempted to enforce its one-way chart review theory with mixed results, as some courts have been less than receptive of the legal theory[5] while others have embraced it.[6] The result is a currently muddled legal landscape, but the upshot for providers with managed care plans is this: the Justice Department is looking closely at plans for facts that fit the requirements of a False Claims Act case, and plans should be ready to defend themselves if accused of fraud by the government. This is especially relevant given today’s False Claims Act trend of whistleblower action following major Justice Department results in an area, such as when the Martin’s Point whistleblower filed her qui tam in the months following DOJ’s first large managed care plan settlement with Freedom Health. The whistleblower bar is sure to take note of the allegations in the Martin’s Point settlement and find whistleblowers within other provider-owned managed care plans to bring similar qui tams.

[1] See United States ex rel. Wilbur v. Martin’s Point Health Care, Inc., 2:18-cv-254, Doc. 1 (D. Me.) (whistleblower’s complaint); see also id., ¶ 21 (stating whistleblower’s role with Martin’s Point).

[2] Settlement Agreement Between United States and Martin’s Point, available at https://www.justice.gov/media/1308116/dl?inline.

[3] Id.

[4] Wilbur, Doc. 1, ¶¶ 22, 97–106, 110.

[5] See, e.g., United States v. Scan Health Plan et al., 09-cv-5013, Doc. 340, 2017 WL 4564722 (C.D. Cal. Nov. 5, 2017) (dismissing one-way chart review theory as insufficiently pled with respect to materiality, but allowing only eight days for the United States to amend its complaint to sufficiently plead materiality). The government opted against amending its complaint and dismissed its case on the day amended pleadings were due. See id., Doc. 341 (United States’ notice of dismissal).

[6] See, e.g., United States ex rel. Ormsby v. Sutter Health, et al., 444 F.Supp.3d 1010 (N.D. Cal. 2020) (order denying motion to dismiss complaint premised on one-way review theory).

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