Under traditional Medicare, beneficiaries receive an array of inpatient and outpatient healthcare services from hospitals, doctors and other providers who are reimbursed on a “fee-for-service” basis. In that environment billing fraud typically arises where the provider does not render the reported service and/or provides medically unnecessary services. Medicare Advantage, in contrast, is a managed care program that utilizes a “capitated” payment system. In that context private Medicare Advantage organizations (MAOs) receive a fixed amount of money per patient from the government and pay healthcare providers for their member-patients’ covered services, keeping what is not paid out as their profits. The amount of the capitated payment depends on the member-patients’ age, health, diagnoses and other physical and medical conditions (known as the risk adjustment score), as determined and reported by the MAOs. In an audit released on July 19, 2019, the Centers for Medicare & Medicaid Services (CMS), the agency overseeing the Medicare and Medicaid programs, estimated approximately $16 billion (or nearly 10%) of its payments to MAOs were improper because of incorrect risk adjustment scores.
Recent whistleblower cases have also revealed a number of schemes by which MAOs “game the system” by falsifying risk adjustment scores to make their member-patients appear sicker than they are in order to fraudulently obtain higher capitated payments. For example, in October 2018, HealthCare Partners Holdings LLC, a company owned by DaVita, agreed to a $270 million false claims settlement with the Department of Justice and a whistleblower. HealthCare Partners allegedly overstated its patients’ diagnoses and engaged in a “one-way” review of past diagnoses, looking for mistakes that led to lower payments from the government while ignoring mistakes that led to higher ones. The whistleblower in the case received more than $10 million.
Similarly, in December 2018, the Department of Justice joined a whistleblower lawsuit against Sutter Health, a California health system with 24 hospitals and more than 5,000 physicians. In that case, Sutter Health allegedly submitted false diagnosis codes for its patients. The whistleblower there reportedly tried to bring this to light internally before starting her lawsuit, but was ignored by the company.
And in January 2019, a federal whistleblower lawsuit against St. Louis-based Essence Group Holdings Corp. was unsealed. That case alleges Essence Group and its technology arm, Lumeris, and its local partner, Lester E. Cox Medical Centers, used data-mining software to identify patients for an “enhanced encounter” that artificially raised patients’ risk adjustment scores to boost Medicare payments. The company disputes these allegations and says it intends to fight the lawsuit. However, on July 15, 2019, a federal judge denied the defendants’ attempt to dismiss the whistleblower’s complaint. Relatedly, an April 2019 government audit found that Essence Group could not substantiate fees for a significant percentage of patients diagnosed with stroke or depression.
