On August 6, 2019, the United States District Court for the Western District of Texas granted a motion to dismiss filed by Baylor Scott & White Health (“Baylor”), a network of inpatient short-term acute care hospitals, in a False Claims Act suit alleging that Baylor submitted “more than $61.8 million in false claims” by upcoding certain diagnosis codes. The Court dismissed all claims with prejudice, finding that the Relator, Integra Med Analytics LLC, alleged only “naked assertions devoid of further factual enhancement” that were “insufficient under Rule 8’s pleading standards.” The Department of Justice declined to intervene in the suit.

Integra’s complaint alleged Baylor trained physicians and staff to “emphasiz[e] coding” for Major Complication or Comorbidity (“MCC”) codes by encouraging staff to use certain key words to trigger MCC coding, disseminating a list of key MCCs, and instructing employees to “look for opportunities” to assign MCCs. Baylor also allegedly told physicians that coding impacted the physicians’ pay for performance metrics, distributed “tip sheets” providing coding guidance, pressured physicians to change diagnoses that did not have a CC or MCC code, and provided unnecessary treatment in order to permit coding for MCCs.

Baylor argued the complaint should be dismissed because 1) the claims were barred by the FCA’s public disclosure bar; 2) Integra failed to plead fraud with particularity as required by Rule 9(b); and 3) Integra failed to state a plausible claim for relief as required by Rule 8(a). The Court found that dismissal was appropriate under Rule 8(a) “working in conjunction with Rule 9(b)”, and thus did not discuss the public disclosure bar arguments.

In finding that the allegations did not satisfy the FCA’s pleading requirements, the Court reasoned that the alleged “scheme” to identify and code MCCs was “not in and of itself one to submit false claims” and was “equally consistent with a scheme to improve hospital revenue through accurate coding of patient diagnoses.” The Court noted that CMS has encouraged hospitals to code diagnoses accurately and completely and has acknowledged that taking advantage of coding opportunities to maximize payments supported by the medical record is not inappropriate. As a result, the Court found that merely taking “targeted steps” to increase coding is “neither fraudulent, nor improper per se” and that “to state a claim for relief, there must be an allegation that a defendant knew that using a particular code was incorrect.” The court concluded that Integra failed to state a claim for relief because it alleged only “naked assertions” and failed to allege any “specific examples” of Baylor encouraging or requesting physicians to use codes that were unsupported by the physicians’ medical judgements or the medical records.

The Court’s decision represents another significant victory for Medicare Advantage providers. While DOJ did not intervene, the Court’s findings further weaken the ability of Relators and the government to bring suits under the FCA on the basis of potentially unsupported diagnoses codes for Medicare Advantage beneficiaries, without more. We will continue to monitor and provide updates on these issues as they develop.

A copy of the Court’s order can be found here.