Despite MAOs’ Claims, Recent Decision Doesn’t Imperil DOJ and Whistleblower Risk Adjustment Fraud Cases

Many MAOs have overplayed the significance of this decision.

On Sept. 7, in federal district court in Washington, D.C., in a case in which the Medicare Advantage Organizations (MAOs) in the UnitedHealth Group family of companies sued Alex Azar, the Secretary for the U.S. Department of Health and Human Services (HHS), a federal judge vacated a single Centers for Medicare & Medicaid Services (CMS) regulation – the 2014 “overpayment rule.”

In much of the reporting that has followed since, many of the MAOs have vastly overplayed the significance of this decision and its impact on the series of False Claims Act (FCA) cases currently being pursued against them by the Department of Justice and multiple whistleblowers in courts throughout the U.S. for alleged risk adjustment fraud. Contrary to the MAOs’ prognostications, however, the sky is not falling for FCA enforcement in Medicare, and the risk adjustment fraud cases remain very much intact.

First, a quick overview of the Medicare Advantage program and risk adjustment, to put this case in context. Medicare Advantage, or Medicare Part C, is a program through which individuals who are otherwise eligible for traditional Medicare can choose to be covered by a private insurer. CMS pays the private insurer premiums for taking risk off of the government’s hands. How much premium is paid to an MA plan is determined by a beneficiary’s demographics and his or her health status. For health status, certain diagnosis codes map to 79 hierarchical chronic conditions, or HCCs. Each HCC is a broad disease category that CMS has determined to be a pretty good predictor of future healthcare costs. The demographic factors, as well as the HCCs, have coefficients assigned to them. Those coefficients are added up to result in a risk score. The risk score is then multiplied by what an MA plan bids to cover a hypothetical, average-risk beneficiary, and that amount of money is paid to the MAO in monthly installments. For example, in 2014, the risk coefficient for an 81-year-old woman living in the community was .539; if she was also diagnosed with chronic hepatitis and congestive heart failure, the risk score would be increased by .251 and .368, respectively. The resulting risk score would be the sum of all of those, 1.158. If the plan bid $10,000, the MAO would be paid $11,580, in monthly installments, for insuring this woman.

The regulation at issue in this case, known as the 2014 overpayment rule, centers on what is defined as an overpayment, or any payment based on a diagnosis code submitted to the MA program not supported by an underlying medical record (and hence being invalid). Under the 2014 overpayment rule, an overpayment is “identified” if a MAO knew of the invalid code or should have determined through the exercise of reasonable diligence that it had received an overpayment for that code. The MAO must then return the overpayment within 60 days or else risk liability under the False Claims Act. This knowledge standard was found to be inconsistent with that of the Act, which requires actual knowledge or reckless disregard. By finding that MAOs acting based on mere negligence can violate the overpayment rule, the judge here held that a violation of the regulation cannot be an independent basis for FCA liability and must be struck down.

MAOs are attempting to use this decision as a barrier to liability in the False Claims Act cases in which they are alleged to have committed risk adjustment fraud. However, in the ruling here, the judge merely struck down a single, apparently flawed regulation that most of the existing Part C False Claims Act cases don’t rely on and barely make mention of. As the judge here noted, “UnitedHealth does not contend that Medicare Advantage insurers should be permitted knowingly or recklessly to bill CMS for erroneous diagnosis codes.” MAOs are still liable for knowing or reckless violations of the requirement to submit truthful and complete diagnostic data, and to correct erroneous submissions. MAOs and their attorneys who suggest otherwise are trying to turn the invalidation of a single regulation relating to the identification and timely return of overpayments into a broad license to commit plain and simple fraud.

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