United States ex rel. Swoben v. United Healthcare Insurance Company et al.

On August 10, 2016, the Ninth Circuit vacated a Central District of California court’s judgment that had dismissed without leave to amend the third amended complaint of qui tam relator James Swoben (Swoben). Swoben had alleged that the defendant Medicare Advantage (MA) organizations United Healthcare, Aetna, WellPoint and Health Net (Defendants) submitted false certifications to the Centers for Medicare & Medicaid Services (CMS) in connection with risk adjustment data, in violation of the FCA. The Ninth Circuit remanded the case with instructions to allow Swoben to file a proposed fourth amended complaint. In so doing, the Court held that Swoben’s proposed fourth amended complaint sufficiently alleged that the Defendants violated the FCA by using biased review procedures designed to not reveal erroneously reported diagnosis codes.

The ruling will have significant implications for health insurers and their risk adjustment vendors, not only in MA, but also in Medicaid managed care and the individual and small group commercial health insurance markets. The Ninth Circuit held that, even though the MA regulations may not require MA organizations to conduct retrospective chart reviews to verify submitted diagnosis data, when MA organizations choose to do so—and especially when CMS’s risk adjustment data validation efforts independently document a high error rate—MA organizations must design chart reviews to identify over-reported diagnosis codes that could reduce federal payments to MA plans, and not just underreported diagnosis codes that could result in higher payments to plans. Because such retrospective chart reviews are common throughout risk-adjusted health insurance programs, the ruling creates new compliance concerns for insurers, even if they do not participate in MA.

Swoben filed a qui tam complaint alleging that, commencing in 2005, the Defendants and a physician group (which provided care to enrollees in exchange for a percentage of the organizations’ capitated payments) performed biased reviews of enrollee health risk data that were designed to “cause the CMS to make inflated capitated payments” to the Defendants. Specifically, Swoben alleged that, where Medicare Advantage organizations engaged in retrospective reviews of previously reported risk adjustment data, they must identify (and report to CMS) both favorable and unfavorable errors. Unfavorable errors would include previously submitted diagnosis codes that were “not supported by the enrollee’s medical records (over-reporting errors).” Swoben alleged that Defendants’ one-sided retrospective reviews, designed to identify only unfavorable errors, rendered their periodic required certifications to CMS false in violation of the FCA.

The Defendants moved to dismiss Swoben’s claims in June 2013, arguing among other things that his complaint failed to allege a claim under the FCA. The district court granted the Defendants’ motion to dismiss, and denied Swoben leave to amend. Swoben appealed to the Ninth Circuit, which asked the parties to submit a supplemental briefing to address “when conducting retrospective medical record reviews designed to identify only diagnoses that would trigger additional payments by CMS, not errors that would result in negative payment adjustments, would cause a certification to be false” under the FCA. Although the Government declined to intervene in district court against Defendants, the Justice Department did file an amicus brief on appeal in support of Swoben, upon which the Court relied in vacating the district court’s judgment.

The Court found that the district court had erred as to the sufficiency of Swoben’s allegations to support his FCA claims:

when … Medicare Advantage organizations design retrospective reviews of enrollees’ medical records deliberately to avoid identifying erroneously submitted diagnosis codes that might otherwise have been identified with reasonable diligence, they can no longer certify, based on best knowledge, information and belief, the accuracy, completeness and truthfulness of the data submitted to CMS. This is especially true, when, as alleged here, they were on notice that their data included a significant number of erroneously reported diagnosis codes. We do not see how a Medicare Advantage contractor who has engaged in such conduct can in good faith certify that it believes the resulting risk adjustment data reported to CMS are accurate, complete and truthful.

The Court made clear that “[b]y holding that one-sided retrospective reviews can result in false certifications under § 422.504(l), we do not suggest that they necessarily always do… We do not in this opinion attempt to define the parameters of these requirements.” Instead, the Court said that “[w]e hold only that the theory alleged here—that the defendants designed their retrospective review procedures to not reveal unsupported diagnosis codes, allegedly for no other reason than to avoid reporting that information to the government—states a cognizable legal theory under the False Claims Act.”

The Court also clarified that its decision did not invalidate the practice of “blind coding.” The Court held “[w]e also do not intend to suggest that the practice of concealing previously submitted diagnosis codes from coders conducting retrospective reviews is necessarily a suspect practice. On the contrary, blind coding may help ensure the integrity of a retrospective review.” However, the Court said that “blind coding cannot be squared with the good faith required by § 422.504(l) when it is employed as a means of avoiding or concealing over-reporting errors. If Medicare Advantage organizations acquire the codes identified by retrospective coders, compare them to the codes previously submitted to CMS, identifying both under- and over-reporting errors, but withhold information about the over-reporting errors from CMS, this would result in a false certification.” The Court went on to helpfully give an example of when blind coding would pass muster, stating “[o]n the other hand, if through reasonable diligence the comparison between the codes identified by the retrospective reviewers and the codes previously submitted to CMS is capable of identifying only under-reporting errors, we assume this would not result in false certifications under current CMS regulations. The due diligence standard requires only reasonable efforts.”

The Court thus concluded that “[t]he district court abused its discretion by dismissing Swoben’s third amended complaint without leave to amend. Swoben’s proposed fourth amended complaint adequately alleges a false certification claim under the False Claims Act, so amendment would not have been futile.”

United States ex rel. Willette v. University of Massachusetts

On July 11, 2016, a District of Massachusetts judge ruled that where an entity voluntarily repaid stolen funds—after proactively cooperating with the government to do so as soon as the theft was discovered—there was no “alternative remedy” pursued by the government under the FCA that would entitle a qui tam relator to a share of the recovery. The case is interesting because the underlying qui tam lawsuit was brought under a nontypical provision of the FCA—dealing with the retention of funds owed to the government rather than the filing of false claims—and the qui tamrelator was seeking his “relator’s share” under the similarly nontypical “alternative remedy” provision of the FCA qui tam statute.

To briefly recap the facts of the case, in 2013 an employee (Relator) of the University of Massachusetts, Worchester (UMass) informed UMass that a deceased coworker, a financial analyst in UMass’s estate recovery division, had misappropriated approximately $3.8 million in healthcare reimbursements that were intended for remittance to the Massachusetts Executive Office of Health and Human Services (EOHHS). The facts show that “the decision to repay the Commonwealth was made almost immediately after UMass officials found out about [the deceased employee’s] conduct, although it took time to investigate the matter and determine the appropriate method of repayment.”

In 2015, after a two-year internal investigation and cooperation with the EOHHS and the Medicare Fraud division of the Massachusetts Attorney General’s Office, UMass repaid the misappropriated funds to the EOHHS in full. During the two-year investigatory period, the Relator filed qui tam actions against UMass and the deceased employee’s estate under both the federal and commonwealth FCA statutes, and even though the underlying FCA actions were subsequently dismissed, the Relator still sought a qui tam whistleblower award—which was the subject of the instant case.

In December 2015, the District of Massachusetts judge granted the parties two months of limited discovery in order to investigate the “issue of whether [the Relator] may be entitled to a relator’s share pursuant to the ‘alternate remedy’ provision of the FCA, 31 U.S.C. § 3730(c)(5).” After hearing oral argument in June 2016, the judge denied the Relator’s motion on July 11, 2016.

In his opinion, the judge first reviewed the congressional intent behind the enactment of the FCA and the qui tam provisions, stating that the applicable statutory language at issue in this case “imposes liability on a person who ‘has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property.’ § 3729(a)(1)(D).” Furthermore, Section 3730(c)(5) of the FCA allows a qui tam Relator to share in any recovery if the government chooses to pursue an “alternative remedy” to intervening in the Relator’s qui tam lawsuit, as follows:

[T]he Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty. If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.

Thus, the issue at hand was whether the course of action the government pursued in this case constituted an “alternative remedy” entitling the Relator to his share of the recovery. The judge ruled that it was not, stating that “I find no indication that either the Commonwealth or the United States pursued an alternate remedy against UMass or the [deceased employee’s] estate.” The judge concluded that, based on the factual record, “[t]here was no need for an alternate remedy, because UMass began investigating the fraud immediately and never exhibited an intent to withhold repayment of the stolen funds.” Furthermore, “there is no evidence that UMass’s actions were motivated by the Relator’s lawsuit, or that the Commonwealth or the United States took affirmative action to enforce the repayment.” Thus, although the Relator “unquestionably did the honorable thing by alerting UMass of [the deceased employee’s] misconduct, he is not entitled to a share of the proceeds under the FCA or MFCA.”

Increase in FCA Civil Monetary Penalties

In an attempt to keep up with inflation, the DOJ made the civil liability penalties for violating the FCA provisions much more cost-prohibitive. On June 30, 2016, the DOJ posted a “Civil Monetary Penalties Inflation Adjustment” (via an “Interim Final Rule with Request for Comments”) in the Federal Register that made inflationary adjustments to the civil monetary penalties imposed under numerous statutes administered by the DOJ, including the FCA. The adjustments for the FCA took effect on August 1, 2016 and provided for a steep, almost double increase in the civil monetary penalty amounts applicable to FCA violations that occurred after November 2, 2015 as follows: The new minimum per-claim penalty amount increased from $5,500 to $10,781, and the maximum per-claim penalty amount increased from $11,000 to $21,563.

Recent FCA Resolutions

  • On July 28, 2016, the DOJ announced that Lexington County Health Services District Inc. d/b/a Lexington Medical Center (LMC) agreed to pay $17 million to resolve FCA and Stark Law violations: The DOJ said that the South Carolina hospital ran afoul of the Stark Law (a.k.a. the Physician Self-Referral Law) which generally—subject to limited exceptions—prohibits a hospital from billing Medicare for services referred by physicians who have a financial relationship with the hospital. In this case, the DOJ alleged that LMC (which did not admit to liability) violated the Stark Law by entering into either asset purchase agreements (for the acquisition of physician practices) or employment agreements with 28 physicians that improperly “took into account the volume or value of physician referrals, which were not commercially reasonable or provided compensation in excess of fair market value.” As part of the settlement, LMC agreed to enter into a Corporate Integrity Agreement with the Department of Health and Human Services Office of the Inspector General (HHS-OIG) that required it to implement measures designed to avoid or promptly detect future similar misconduct. Qui tam whistleblower to receive award of $4.5 million.
  • On July 22, 2016, the DOJ announced that Acclarent, Inc. (Acclarent) agreed to pay $18 million to resolve FCA allegations that it caused healthcare providers to submit false claims to federal healthcare programs in connection with one of its medical device products: The DOJ alleged that California-based medical device manufacturer Acclarent (a subsidiary of Ethicon, a Johnson & Johnson company) agreed to pay $18 million to resolve allegations that it caused healthcare providers to submit false claims to Medicare and other federal healthcare programs by marketing and distributing one of its products, the Relieva Stratus, for use as a drug delivery device without U.S. Food and Drug Administration approval. Acclarent did not admit liability in the settlement. Related to the settlement, the DOJ said that on July 20, 2016, Acclarent’s former Chief Executive Officer and Vice President of Sales were convicted by a federal jury on July 20, 2016 of 10 misdemeanor counts of fraud in connection with distributing adulterated and misbranded medical devices in interstate commerce. The jury acquitted them of 14 felony counts of fraud.
  • On July 13, 2016, the DOJ announced that Evercare Hospice and Palliative Care (Evercare) agreed to pay $18 million to resolve FCA allegations that it claimed Medicare reimbursement for hospice care for patients who were not terminally ill: The DOJ alleged that the Minnesota-based hospice provider (now known as Optum Palliative and Hospice Care) knowingly submitted false claims to Medicare for hospice care from January 1, 2007 through December 31, 2013 for Medicare patients who were not eligible for the Medicare hospice benefits because Evercare’s medical records did not support that the patients were terminally ill. Evercare did not admit liability as part of the settlement. Qui tam whistleblower award not yet determined.
  • On June 30, 2016, the DOJ announced that a Florida cardiologist and his practice The Institute of Cardiovascular Excellence (ICE) agreed to pay an aggregate of $8 million to resolve claims that they violated the FCA by filing false claims with government-funded healthcare programs for medically unnecessary procedures and providing illegal kickbacks to patients: The DOJ said that the cardiologist and ICE agreed to pay $8 million (consisting of a $2 million penalty plus release of claims to $5.3 million in suspended Medicare funds) to resolve claims that they violated the FCA by improperly billing Medicare, Medicaid and TRICARE for medically unnecessary procedures, and paying kickbacks to patients by waiving Medicare co-payments irrespective of financial hardship. The cardiologist also agreed to a three-year period of exclusion from participating in any federal healthcare program followed by a three-year Integrity Agreement with the Depart of Health and Human Services Office of the Inspector General (HHS-OIG).Qui tam whistleblowers will split the award of $1.3 million.

See here to read the Ninth Circuit’s 8/10/16 opinion in United States ex rel. Swoben v. United Healthcare Insurance Company et al.

See here to read the District of Massachusetts’ 7/11/16 opinion in United States ex rel. Willette v. University of Massachusetts.

See here to read the DOJ’s “Civil Monetary Penalties Inflation Adjustment,” published in the Federal Register on 6/30/16.

See here to read the DOJ’s 7/28/16 press release entitled “South Carolina Hospital to Pay $17 Million to Resolve False Claims Act and Stark Law Allegations.”

See here to read the DOJ’s 7/22/16 press release entitled “Medical Device Manufacturer Acclarent Inc. to Pay $18 Million to Settle False Claims Act Allegations.”

See here to read the DOJ’s 7/13/16 press release entitled “Minnesota-Based Hospice Provider to Pay $18 Million for Alleged False Claims to Medicare for Patients Who Were Not Terminally Ill.”

See here to read the DOJ’s 6/30/16 press release entitled “Florida Cardiologist and His Practice Pay Millions and Agree to Three Years of Exclusion to Resolve Alleged False Billings for Unnecessary Procedures and Illegal Kickbacks.”