Government Enforcement and Review of Managed Medicare Programs: A Glimpse of Historical Practice and Forthcoming Trends

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When President Biden announced in December 2020 that he intended to nominate California Attorney General Xavier Becerra to head the Department of Health and Human Services (HHS), the appointment raised eyebrows in certain policy circles. Becerra does not fit the typical administrative profile of past HHS heads. In fact, he has no actual experience in health care or public health policy. Rather, his background is primarily rooted in law enforcement. He is best known for being an aggressive litigator who, as Attorney General of California, sought to crack down on public fraud and expand the scope of California’s False Claims Act (FCA).

The Biden administration has suggested that Becerra will be expected to bring this prosecutorial outlook to HHS, and work closely with the Department of Justice to “boost health fraud enforcement efforts” (Wheeler, 2020). Whatever the administrative impact of Becerra’s nomination may be, it serves as a clear signal that the continued crackdown on health-care fraud remains one of the few policy areas still enjoying bipartisan support in Washington.

Perhaps no area of federal health care is likely to attract more scrutiny or enforcement activity during Becerra’s tenure than Medicare Part C or Medicare Advantage plans. These plans, which pay private health insurers based on a capitated monthly rate per patient, have traditionally been considered less of a fraud risk than their typical fee-for-service counterparts. However, this view seems to be changing, as regulators and private whistleblowers continue to uncover significant fraud within managed-care plans. For instance, in December 2020, Deputy Assistant Attorney General Michael Granston referred to Medicare Part C fraud as an “important priority” for the Department of Justice as it moves forward under a new administration (U.S. Department of Justice, 2020b). Notably, Medicare Advantage fraud was one of only two specific enforcement areas (along with opioid prescription schemes) that Granston singled out in his speech.

This article traces the historical oversight of government enforcement in the Medicare Advantage space, and contrasts it with the type of scrutiny typically afforded to more traditional federal health-care programs. The article describes historical enforcement actions brought by the government and outlines some likely trends moving forward.

Federal Scrutiny of Health-Care Programs Generally

Even casual observers of the Department of Justice know that federal health-care scrutiny and oversight has increased dramatically in the past few decades. Since the re-emergence of the FCA (discussed more below) in 1986—in which Congress strengthened the act by providing financial incentives for whistleblowers to bring cases—the federal government has placed a steady emphasis on health-care fraud cases.

The latest statistics from the Department of Justice have showed a continued focus on health-care activities (U.S. Department of Justice, 2021). Since 1986, when the FCA was amended, recoveries under the act have exceeded $64 billion—with most of the money coming from the health-care industry. In 2020, more than 672 whistleblower suits were filed, with the vast majority being in the health-care space. Indeed, last year marked the fifteenth straight year in which the government recovered more than a billion dollars in civil FCA recoveries.

There is good reason to believe that this sustained focus on health-care enforcement will continue. These enforcement activities are generally considered bipartisan, and aggressive anti-fraud measures have historically transcended presidential administrations. Indeed, under the Obama administration, Congress strengthened the legislative health-care fraud arsenal by relaxing the requirements for whistleblowers to bring suit and by somewhat lowering the bar for prosecutors to pursue these cases. (The Office of the Inspector General [OIG] at the U.S. Department of Health and Human Services notes that the FCA was amended by the Fraud Enforcement and Recovery Act of 2009, the Patient Protection and Affordable Care Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The OIG further notes that these “three acts, among other things, amended bases for liability in the FCA and expanded certain rights of qui tam relators.” See https://oig.hhs.gov/fraud/state-false-claims-act-reviews/.) Similarly, under the Trump administration, focus on health care remained a priority, with the administration pledging to hire nearly 100 prosecutors specifically to focus on civil health-care cases (U.S. Department of Justice, 2018a).

As noted above, the linchpin of the government’s focus on health-care fraud has historically been the False Claims Act. Sometimes referred to as the “Lincoln Law,” the False Claims Act is a Civil War–era statute passed to combat fraudulent sales of substandard equipment to the Union Army by war profiteers. For decades, the statute was used to force government contractors to repay treble the amount of damages they caused to the United States by their fraudulent sales. Amendments to the law over the years, aggressive application of the law by the Department of Justice, and a proliferation of whistleblower lawsuits referred to as qui tam actions have transformed the act into a devastating weapon to penalize companies the government believes to have cheated its health-care programs.

If a company is found to have violated that False Claims Act—that is, to have knowingly submitted a false claim to the United States—it is liable for three times the amount the government paid the company, plus penalties of approximately $11,000 to $22,000 per claim. Many times, though, health-care providers resolve these cases for a fraction of the potential theoretical damages. A claim can be considered false for a wide variety of reasons, including lack of a medical necessity or failing to comply with any one of the vast number of regulations in the government health program systems.

Additionally, the False Claims Act can be layered over violations of other antifraud statutes, such as the Anti-Kickback Statute and the Stark Law, and paired with other regulatory regimes, such as the Food, Drug, and Cosmetics Act. The government has successfully argued that violation of one of those statutes results in false claims because the claims are, in effect, tainted by the violation of the other statute. Some of the world’s largest pharmaceutical companies have paid the United States billions in False Claims Act settlements to resolve allegations of such activity, although the vast majority of companies have settled in advance of a trial to avoid negative exposure and the potential of even heftier fines.

Large companies, however, are not the only targets of False Claims Act suits. Even a single-practitioner office may submit thousands of claims to Medicare and Medicaid in just 1 year, leading to potentially ruinous liability for False Claims Act violations. Damages and penalties under the False Claims Act can reach mind-boggling proportions, routinely exceeding $100 million dollars in the largest cases.

In addition to the onerous liability provisions in the False Claims Act, two other key components of the act make it a particularly ominous statute for would-be wrongdoers. First, liability can be based on a “reckless disregard” standard. This means that if the government determines that the company submitted claims with “reckless disregard” for the truth or falsity of the claims, then the company is liable. In practical effect, if the government determines a practice was simply not careful enough, the practice could potentially be on the hook for millions in damages. Often, whistleblowers and the government take the position that health-care companies are responsible for familiarity with thousands of rules in the byzantine regulations that govern Medicare, Medicaid, and other programs. Violation of any number of these rules may be a basis for False Claims Act liability.

The whistleblower provisions comprise another particularly vexing part of the False Claims Act for health-care companies. Under the False Claims Act, a whistleblower—referred to as a “relator” under the statute—may file a complaint in court on behalf of the United States. The relator, often an employee or former employee of the company, very often accuses the company of violating the False Claims Act in the complaint. The government is then statutorily required to investigate the relator’s allegations. If the government pursues the case and recovers money from the company, the relator can receive up to 25% of the government’s recovery. Perhaps most disturbingly for health-care defendants, however, is that even if the government decides not to pursue the case after investigating the allegations, the relator can still sue the defendants on his or her own and obtain an even greater share of the recovery. Whistleblowers are, therefore, powerfully incentivized to bring forth possible cases of fraud.

Oversight of Medicare Advantage Plans

Increasingly, both whistleblowers and government regulators are turning their attention to the Medicare Advantage and managed Medicare space. And with good reason. Medicare Advantage plan enrollment has exploded over the past 20 years. In 2003, only 13% of Medicare enrollees choose Part C plans, a rate so low that the program had to be amended and rebranded to “Medicare Advantage.” Since that time, and for a number of reasons, enrollment in Medicare Advantage plans has nearly quadrupled. This year, the Center for Medicare and Medicaid Services (CMS) estimates that over 26 million Americans will be enrolled in Medicare Advantage plans. This would account for over 44% of all beneficiaries and over $335 billion in total spending (U.S. Department of Health and Human Services, 2021).

Unsurprisingly, as the federal subsidies paid out under Medicare Advantage plans have grown, so has the associated risk of fraud. For practitioners, this risk centers primarily around diagnosis codes that are reported to CMS as part of their billing contracts. For each Medicare Advantage patient, plans receive a capitated fee from the government that is calculated using a risk score, which is baselined off the patient’s demographic data. However, this fee can be increased through a process called “risk adjustment,” which increases the federal contribution premium for patients with more serious or complex medical conditions. The sometimes subjective nature of diagnoses that ultimately affect risk adjustments—along with the myriad attendant documentation requirements—can create significant legal exposure for practitioners and insurers. In the past 3 years, numerous False Claims Act whistleblower lawsuits have been filed against providers, alleging fraudulent inflation of Medicare Advantage patient diagnoses and risk adjustment scores.

Another significant area of risk arises from reporting around CMS’s “loss ratio” requirements, which are administrative rules designed to ensure sufficient health-care service coverage for members and prevent excessive profits for insurers. CMS requires that all Medicare Advantage insurers spend at least 85% of their annual budget on actual health-care services to members. If the insurer fails to meet this ratio, it must refund a certain amount of its premiums back to the federal government. The threat of this claw back has led some bad actors to falsify loss ratio data in order to preserve profits and/or avoid spending the minimum ratio on patient care.

Against this backdrop, three specific recent cases are relevant, as they offer useful guideposts for likely future enforcement actions.

First, in 2018, DaVita Medical Holdings agreed to pay $270 million to resolve allegations of upcoding at one of its subsidiaries (U.S. Department of Justice, 2018b). The California kidney-care provider voluntarily disclosed to the government that its physicians had been trained to use an improper diagnosis code for a particular spinal condition that led to risk adjustments and inflated premiums from CMS. Notably, despite a whistleblower initially filing suit, the government went to lengths to note that DaVita cooperated and voluntarily disclosed some of the inflated premiums. This case reflects the traditional risk adjustment theories that the Department of Justice has pursued.

In 2020, the Kaiser Foundation Health Plan (“Kaiser”) agreed to pay nearly $6.4 million to resolve allegations that it submitted invalid diagnoses to Medicare for Medicare Advantage members (U.S. Department of Justice, 2020a). The allegations centered around risk adjustments that were not supported by beneficiaries’ medical records. Similar to the DaVita case, the government contended that Kaiser inappropriately audited its patient files to determine whether any code could be applied, and that Kaiser applied the code even in the absence of a physician diagnosis. Notably, aspects of this case continue on to this day, with other providers still remaining in the government’s crosshairs.

Finally, UnitedHealth Group Inc. (UHG), the nation’s largest Medicare Advantage Organization, faces two separate False Claims Act complaints stemming from allegations of inflated risk adjustment scores (U.S. Department of Justice, 2017). The government has also alleged that UHG ignored information about invalid diagnoses from health-care providers with financial incentives to upcode their diagnoses. These cases are still pending in court at the time of publication.

As these cases suggest, the government historically has focused on coding and risk adjustment modifications. Nonetheless, there is reason to believe that the government is still refining its theories and will continue to develop its prosecutorial focus in the years to come. In particular, it seems likely that relators will push cases involving improper kickbacks and inducements in the Medicare Advantage space: a theory that, to date, has not been met with much government support. For example, a whistleblower recently secured a $12 million settlement against Humana for its alleged kickback/inducement to Roche Diagnostics (Globe Newswire, 2021). Notably, the government did not intervene or participate in that case.

Likely Trends Moving Forward

Because of the growing popularity of Medicare Advantage plans—and the corresponding increase of government money into these programs—there is very strong reason to believe that whistleblowers and prosecutors alike will continue to scrutinize these programs for potential allegations of fraud or wrongdoing.

In the short term, it seems likely that Medicare Advantage cases will continue to revolve around perceived manipulation of risk adjustment scores. The Department of Justice will likely continue to scrutinize how plans audit their own patient files for purposes of adding diagnosis codes. Where plans systematically mine patient files for purposes of adding diagnoses, the Department of Justice will likely expect that plans also remove diagnoses that do not comport with the patient’s actual conditions. Plans that fail to remove diagnoses that are no longer present proceed at their own peril, as this will very likely be the next source of Department of Justice prosecutorial focus.

More long term, the Department of Justice will likely become more sophisticated at unearthing Medicare Advantage alleged fraud schemes. We identify two trends, in particular, that might attract the attention of regulators.

First, it seems likely that the CMS and other regulators will likely scrutinize actual “encounter data”—or the data that reflect the services and care rendered at a specific encounter—more closely, and using more sophisticated means. Historically, the collection of these data had been incomplete and piecemeal, and had varied by Medicare Advantage plans. As more historical data are processed, allowing for more temporal comparisons, regulators will very likely scrutinize variances in these data across time periods, plans, and even patients. These variations will likely be fodder for future regulatory actions.

Second, it appears likely that whistleblowers and prosecutors will look into the financial incentives at play in the selection of vendors, pharmacies, formularies, and other products rendered. By applying traditional tools—like the Anti-Kickback Statute—future cases will likely apply well-established rules (e.g., not paying anything of value to confer federal health-care benefits) to new territory (Medicare Advantage plans). Those in the Medicare Advantage space would be well served by reviewing existing financial relationships to ensure that they comport with the strict mandates of the Anti-Kickback Statute.

Conclusion

The world of federal health care is complex, evolving, and regulated. While health-care executives are rightfully excited about the potential and promise of innovative Medicare Advantage plans, those same executives should tread carefully, as even technical mistakes can have costly consequences. As the old adage goes, an ounce of prevention is worth a pound of cure.

While health-care executives are rightfully excited about the potential and promise of innovative Medicare Advantage plans, those same executives should tread carefully, as even technical mistakes can have costly consequences.

Republished with permission. This article, "Government Enforcement and Review of Managed Medicare Programs: A Glimpse of Historical Practice and Forthcoming Trends," was originally published in Oxford Academic's Public Policy & Aging Report ® on April 23, 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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