In a September 2022 filing in U.S. ex rel. Osinek v. Kaiser Permanente, the Kaiser Permanente consortium defendants (Kaiser) highlighted the distinction between clinically inaccurate diagnoses (factual falsity) and clinically accurate but incorrectly coded diagnoses (legal falsity) and its relevance in False Claims Act (FCA) actions.
This distinction can be instructive and useful from an FCA defense perspective for Medicare Advantage plans and providers. The court’s treatment of this argument will be interesting to follow in light of the Supreme Court’s denial of certiorari in UnitedHealthcare Ins. Co. v. Becerra in which UnitedHealthcare challenged the validity of the Medicare Part C Overpayment Rule and as Medicare Advantage plans analyze their obligations to report and return overpayments under the revived rule. UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867, 869 (D.C. Cir. 2021), cert. denied, 142 S. Ct. 2851 (2022).
Kaiser Case Background
On July 29, 2021, the United States intervened in six qui tam complaints alleging that Kaiser violated the FCA by submitting inaccurate diagnosis codes for its Medicare Advantage beneficiaries in order to receive higher reimbursements. The government intervened in part and on October 25, 2021, filed its complaint in intervention, consolidating the six individual qui tam lawsuits. United States ex rel. Osinek v. Kaiser Permanente, No. 3:13-cv-03891-EMC, Dkt. No. 110 (N.D. Cal. Oct. 25, 2021). The government’s complaint focuses on Kaiser’s alleged improper use of addenda in medical records and asserts that between 2009 and 2018, Kaiser added approximately 500,000 diagnoses via addenda that were unsupported in the medical record, resulting in alleged damages “in the range of $1 billion.”
The government contends that Kaiser improperly utilized medical record addenda by:
- Setting progressively higher risk score targets which were increasingly difficult to meet.
- Conducting “data mining” and one-way chart reviews of patient records.
- Using queries to add new diagnoses via addenda that had nothing to do with the original patient visit and requiring physicians to justify refusals to add diagnoses.
- Using financial incentives to pressure Kaiser physicians to create improper addenda, including through coding parties, which were known as the “dash for cash” by adding diagnoses that were not supported in the underlying medical record.
The government further alleges that Kaiser physicians submitting the addenda for these diagnoses “often did not tell their patients that they supposedly had the diagnoses for which the Kaiser Health Plans claimed payment.” The government contends that Kaiser had knowledge that these practices were improper and ignored red flags and internal complaints.
The parties have now fully briefed motions to dismiss in this matter. On May 5, 2022, the court granted in part and denied in part Kaiser’s motions to dismiss based on the first-to-file bar, dismissing the Arefi and Stein qui tams in their entirety and partially dismissing three other qui tams. Kaiser subsequently filed substantive motions to dismiss on June 21, 2022. In its motion to dismiss the government’s complaint-in-intervention, Kaiser argued that FCA liability cannot be sustained on alleged failure to satisfy non-binding, subregulatory coding guidance, including International Classification of Diseases (ICD) coding guidelines. Kaiser contended that the government failed to plead materiality because it provided no evidence that CMS would have refused or has previously refused to pay claims for failure to follow this subregulatory guidance. Kaiser also argued that the government failed to plead factual falsity with sufficient particularity regarding allegations that Kaiser submitted false diagnoses to CMS and did not adequately plead that Kaiser knew it submitted false diagnoses. Kaiser noted that every knowledge allegation in the complaint relates to legal, not factual, falsity. On September 6, 2022, Kaiser filed replies in support of its motions to dismiss the government’s complaint-in-intervention and three qui tams. Oral argument on the motions to dismiss is scheduled for October 13, 2022.
Clinically Inaccurate Diagnoses v. Clinically Accurate Diagnoses that Violate ICD Guidelines
In its September 6, 2022 reply, Kaiser argues that the government’s opposition to Kaiser’s motion to dismiss incorrectly conflates clinically inaccurate diagnoses (factual falsity) and clinically accurate diagnoses that violate ICD guidelines (legal falsity) as one scheme to violate one clause of the ICD guidelines. More specifically, Kaiser alleges that the government correctly pleaded this distinction in its complaint, but in its opposition deliberately conflates the two to avoid having to plead clinical falsity with particularity. Clinical inaccuracy depends on whether the diagnosis codes are factually false on their face (i.e. whether or not the patient really has the diagnosed condition). This is different from diagnoses that are factually accurate (i.e. the patient has the diagnosed condition), but allegedly violate a legal condition of payment (e.g., documentation of the condition in the medical record). In the government’s view, clinically accurate diagnoses that fail to meet certain nonbinding, subregulatory guidance, such as ICD coding guidelines, are false because they violate a legal condition of payment. Kaiser contends that the ICD guidelines are not relevant to the analysis of allegations that claims were clinically false.
Kaiser asserts that for the government to sufficiently plead allegations of all allegedly unsupported diagnoses, it must satisfy the particularity standards of Rule 9(b) of the Federal Rules of Civil Procedure. Stated differently, for allegedly clinically inaccurate diagnoses, Kaiser argues that the government must ultimately provide proof that each member at issue did not have the diagnosed conditions, that Kaiser knowingly submitted the false claims, that the false claims were material to payment, and that the false claims caused the government to pay money. Kaiser is entitled to discovery to rebut any such proof—discovery that would be expansive and burdensome, including millions of diagnosis codes, thousands of members, numerous providers, and expert analysis of individual records.
Conversely, the government suggests that it need not plead with particularity each instance of falsity, as Kaiser must comply with a specific clause of the ICD guidelines stating that medical conditions that “require or affect patient care, treatment or management” should be affirmatively coded. The government asserts Kaiser failed to comply with this provision and, as a consequence, related claims are rendered automatically false even if the diagnosis is clinically accurate (i.e. diagnosed conditions that patients actually have). In other words, the government suggests that it need not plead with particularity each instance of falsity for claims that violate the ICD provision because they are inherently false. Kaiser argues that the government must meet the heightened pleading standards for both alleged fraud schemes (i.e. plead with particularity the allegations regarding both clinically inaccurate diagnoses and clinically accurate diagnoses that violated ICD guidelines). Further, Kaiser contends that the government failed to show that the ICD guidelines, which are not issued through notice-and-comment rulemaking, are legally binding on Kaiser or a precondition to Kaiser’s right to payment.
More broadly, Kaiser argues that the government failed to plead falsity with the requisite particularity by failing to show either (1) evidence of a common scheme (i.e., coordinated effort) to submit clinically false diagnosis codes to CMS or (2) actual diagnosis codes that were clinically inaccurate and submitted to CMS (i.e., even when examples of allegedly clinically false diagnoses were provided, there is no evidence that they are actually incorrect). Kaiser asserts that the government did not establish that the alleged non-compliance was material by failing to show that CMS would have denied the risk-adjustment payments if it knew Kaiser submitted clinically accurate diagnosis codes but those conditions were coded in a way that violated the ICD guidelines. Kaiser also contends that the government has not satisfied the requisite knowledge state for FCA liability because there is insufficient evidence to show that Kaiser knew they submitted clinically inaccurate codes to CMS.
Other FCA litigation in the Medicare Advantage space is testing arguments surrounding the submission of risk adjustment data. In a decision issued on September 30, 2022, the U.S. District Court for the Southern District of New York denied Anthem Inc.’s motion to dismiss a government lawsuit filed in March 2020 claiming it submitted inaccurate risk adjustment diagnosis data under Medicare Part C that resulted in alleged overpayments in violation of the FCA. United States v. Anthem Inc., No. 20-CV-2593 (ALC), 2022 WL 4815978, (S.D.N.Y. Sept. 30, 2022). Read more about the Anthem case here.
The government’s arguments in the Kaiser case indicate that it will attempt to rely on subregulatory guidance in enforcement matters as a way to plead legal falsity. It will be interesting to watch whether the government can succeed on a theory that legal falsity can be based on non-binding, subregulatory guidance. While Medicare Advantage plans strive for diagnostic coding accuracy, it is worth keeping in mind when conducting provider oversight the distinction between clinically accurate diagnoses that are coded incorrectly according to subregulatory guidance and clinically inaccurate diagnoses. We will continue to follow this case, watch for the court’s treatment of this argument, and track the impact of the recent developments in the Anthem case on the upcoming Kaiser oral argument.
If you have any questions about the False Claims Act in the context of Medicare Advantage, please contact the authors or a member of the Healthcare Fraud Task Force and subscribe to our blog.