On December 11, 2018, the United States announced that it has elected to intervene in a False Claims Act (FCA) lawsuit filed against Sutter Health and its affiliated entity Palo Alto Medical Foundation (PAMF) alleging that the defendants defrauded the Medicare Advantage program by submitting false patient information to the government. The whistleblower, a former employee of PAMF, alleges that Sutter “has taken and continues to take hundreds of millions of dollars in inflated capitation payments” by submitting “risk adjustment data Sutter knows to be inaccurate, incomplete or false.”

Medicare Advantage Plans

Medicare Advantage, formally known as Medicare Part C, allows private insurance companies, acting as “Medicare Advantage Organizations (MAOs),” to offer insurance plans and administer Medicare benefits. MAOs contract with healthcare providers such as Sutter to provide Medicare services to the plans’ enrollees. Instead of receiving reimbursement on a traditional fee-for-service basis, MAOs provide benefits under a capitated payment system, whereby government reimbursement is based on each individual beneficiary’s risk adjustment data.

MAOs collect much of the risk adjustment data, including diagnoses, from the Part C providers and then submit the beneficiaries’ data to the Centers for Medicare and Medicaid Services (CMS). CMS categorizes each beneficiary’s diagnoses into Hierarchical Condition Categories (HCCs) and uses the HCCs and other demographic information to assign each beneficiary a risk score. In general, MAOs receive higher capitation payments for beneficiaries with higher risk scores. The capitation payment rates are adjusted annually and are prospective based on the previous year’s data.

The risk adjustment process is still evolving. On December 20, 2018, CMS issued an advance notice of methodological changes to the risk adjustment model, which, if enacted, would take effect in 2020. The proposal includes adjusting payments based on a beneficiary’s total number of conditions in addition to making risk adjustments based on each individual condition. It also proposes changing the risk score calculation to rely more heavily on encounter data, an approach insurers have lobbied against.

Relator Alleges Inflated Diagnosis Codes Resulted in Overpayments

The relator here alleges that during the course of her duties as the risk adjustment project manager at PAMF, she uncovered a “widespread failure of PAMF to comply with the requirements of the Medicare Advantage program and PAMF’s systematic overbilling of the program through improper and/or non-compliant HCC coding.” Specifically, she alleges that auditing HCCs revealed that many of the HCCs were incorrect because the diagnosis codes underlying them were not supported by the beneficiarys’ medical records.

Further, the relator alleges that after repeatedly raising the results of her audit to her superiors, they failed to take sufficient corrective action and in fact instructed her and her team to stop correcting the HCCs in the patient records and to only make corrections in the billing records. Because MAOs draw their risk adjustment data from medical records, not billing records, that procedure allegedly would result in the continued overbilling of Medicare Advantage. The relator alleges that she was eventually instructed to stop her audits all together and that the compliance department concluded that her compliance concerns were unfounded.

DOJ Continues to Target Part C Providers

Despite experiencing some setbacks in asserting similar claims in recent years, the government’s intervention in the Sutter case illustrates its continued focus on FCA enforcement efforts involving the Medicare Advantage program. DOJ abandoned similar claims against UnitedHealth in U.S. ex rel. Swoben v. Scan Health Plan after the district court dismissed the government’s complaint in intervention without prejudice and likewise abandoned much of its suit in U.S. v. UnitedHealth Group Inc. after the district court dismissed some of the allegations in the government’s amended complaint. However, DaVita Inc. agreed last year to pay $270 million to settle the allegations asserted against one of its divisions in the Swoben case. (These cases were previously discussed in detail hereherehere and here.)

This most recent intervention against Sutter signals that DOJ is not backing down from closely scrutinizing provider participation in the Medicare Advantage program. Regarding the decision to intervene, Assistant Attorney General Jody Hunt said, “[t]oday’s action sends a clear message that we will seek to hold healthcare providers responsible if they fail to ensure that the information they submit is truthful.”  Participants in the Medicare Advantage program should employ effective measures to ensure the accuracy of all beneficiaries’ risk adjustment data and continue to monitor how CMS develops the risk adjustment model and determines risk adjustment scores and capitated payment rates.

The government has until March 4, 2019, to file its Complaint in Intervention. Subscribe to the Inside the FCA blog to follow developments in this case or contact a member of the Bass, Berry & Sims Healthcare Fraud Task Force to learn more about providers’ obligations under Medicare Advantage.