Medicare Advantage Providers Be Aware: Choppy Enforcement Waters Ahead

Government Enforcement Update

Client Alert


Many observers are watching with keen interest how the new nominee for the Secretary of the Department of Health and Human Services (HHS), California Attorney General Xavier Becerra, will run the department if confirmed. In some respects, Becerra has a different background as compared to past HHS heads. Nonetheless, Becerra’s background is intriguing, and observers are carefully monitoring how his past experiences might affect his future policy plans. 

Becerra has historically been aggressive in cracking down on public fraud and expanding the scope of California’s False Claims Act. And, in this respect, the Biden administration has suggested that Becerra will bring this prosecutorial outlook to HHS and work closely with the Department of Justice to “boost health fraud enforcement efforts.” Whatever the administrative impact of Becerra’s nomination may be, it serves as a clear signal that the continued crackdown on healthcare fraud remains one of the few policy areas still enjoying bipartisan support in Washington.

Medicare Advantage Scrutiny

Total Medicare Advantage Enrollment, 1999-2020Perhaps no area of federal healthcare is likely to attract more scrutiny or enforcement activity over Becerra’s tenure than Medicare Part C, or Medicare Advantage (MA) plans. These plans, which pay private health insurers based on a capitated monthly rate per patient, have traditionally been considered less of a fraud risk than their typical fee-for-service counterparts. However, this view seems to be changing as regulators and private whistleblowers continue to uncover significant fraud within managed care plans.

Medicare Advantage Penetration, by State, 2020For instance, last December, Deputy Assistant Attorney General Michael Granston referred to Medicare Part C fraud as an “important priority” for the DOJ as it moves forward under a new administration. Notably, MA fraud was one of only two specific enforcement areas (along with opioid prescription schemes) that Granston singled out in his speech.



Following the Money

If we look to the trend in federal spending on MA plans, it is easy to see why the DOJ is so interested. Put simply, MA plan enrollment has exploded over the past 20 years. In 2003, only 13% of Medicare enrollees choose Part C plans – a rate so low that the program had to be amended and rebranded as “Medicare Advantage.” Since that time, and for a number of reasons, enrollment in MA plans has nearly quadrupled. This year CMS estimates that over 26 million Americans will be enrolled in MA plans. This would account for over 44% of all beneficiaries and over $335 billion in total spending

Some recent notable MA False Claims Act cases include:

  • DaVita Medical Holdings agreed to pay $270 million to resolve allegations of upcoding at one of its subsidiaries. The California kidney-care provider voluntarily disclosed to the government that its physicians had been trained to use an improper diagnosis code for a particular spinal condition that led to risk adjustments and inflated premiums from CMS.
  • The Kaiser Foundation Health Plan agreed to pay nearly $6.4 million to resolve allegations that it submitted invalid diagnoses to Medicare for MA members. The allegations centered around risk adjustments that were not supported by beneficiaries’ medical records.
  • UnitedHealth Group Inc. (UHG), the nation’s largest Medicare Advantage Organization, faces two separate FCA complaints stemming from allegations of inflated risk adjustment scores. The government has also alleged that UHG ignored information about invalid diagnoses from healthcare providers with financial incentives to upcode their diagnoses.

Unsurprisingly, as federal subsidies paid out under MA plans have grown, so has the associated risk of fraud. For practitioners, this risk centers primarily around diagnosis codes that are reported to CMS as part of their billing contracts. For each MA patient, plans receive a capitated fee from the government that is calculated using a risk score, which is baselined off the patient’s demographic data. However, this fee can be increased through a process called “risk adjustment,” which increases the federal contribution premium for patients with more serious or complex medical conditions. The subjective nature of these risk adjustments – along with the myriad attendant documentation requirements – can create significant FCA risk for practitioners and insurers. In the past three years, numerous False Claims Act whistleblower (or qui tam) lawsuits have been filed against providers, alleging fraudulent inflation of MA patient diagnoses and risk adjustment scores. 

Another significant area of risk arises from reporting around CMS’s “loss ratio” requirements, which are administrative rules designed to ensure sufficient healthcare service coverage for members and prevent excessive profits for insurers. CMS requires that all MA insurers spend at least 85% of their annual budget on actual healthcare services to members. If the insurer fails to meet this ratio, it must refund a certain amount of its premiums back to the federal government. The threat of this claw back has led some bad actors to falsify loss ratio data in order to preserve profits and/or avoid spending the minimum ratio on patient care. 

A final reason why we expect MA fraud to be squarely in DOJ’s crosshairs in 2021 is the fact that it dovetails so seamlessly with another key DOJ priority moving forward – the prosecution of fraud tied to the COVID-19 epidemic. Last May’s $2.3 trillion CARES Act was, by any measure, an unprecedented expenditure of resources by the federal government. Out of necessity in response to the public health crisis, the government rapidly paid out funds into the healthcare system and simultaneously modified, relaxed or suspended a number of Medicare’s regulatory requirements. With respect to MA plans, the government’s regulatory modifications included several rules designed to prevent or mitigate fraud.

Most notably, CMS began to allow risk adjustments to capitated premiums based on diagnoses given over telehealth visits, where before CMS had imposed strict face-to-face requirements. This rule change made it possible to obtain significantly heightened risk-adjusted fees based solely on subjective evaluations over video conferences. For bad actors, this relaxation of diagnosis requirements created a unique opportunity. For the vast majority of organizations responding to the COVID-19 crisis in good faith, it created complex compliance obligations and risk.

Prospective Compliance Guidance

In response to this evolving risk environment, we recommend healthcare practitioners and organizations participating in MA plans take the following steps to protect against potential FCA liability:

  1. Be mindful of documentation. Increasingly, DOJ is scrutinizing Medicare Part C provider documentation to ensure that diagnosis codes are fully supported by the patient record. Providers should diligently monitor and verify their clinical documentation, particularly around risk adjustments. Insurers who offer MA plans must do the same. If healthcare providers in their network fail to comply with documentation requirements in making diagnoses or risk adjustments, any resulting loss to the government could be attributed to the insurer under a reverse false claims theory.
  1. Perform Introspective Data Analytics Queries.Increasingly, DOJ is expecting providers to mine their own data for aberrant billers or unexpected diagnoses. This is no longer an aspiration; it’s now required, and it must be done with an eye toward not just fraudulent transactions, but unintentional overpayments as well. For example, DOJ has begun to target the practice of one-sided “retrospective reviews” of diagnosis codes by MA plans. This refers to the practice of conducting patient file reviews designed to find unsubmitted payable diagnosis codes to submit to CMS, but simultaneously ignoring any findings that would indicate an over-payment by CMS. Therefore, if a MA plan audits its file to add diagnosis codes, it should also remove codes that are unsupported.
  1. Finally, soliciting and following legal advice is key. Most government prosecutions require some finding of improper intent. The best way to preemptively dispel any potential notion of improper intent is by seeking and following legal advice. Therefore, MA plans would be well-served by consulting experienced counsel sooner rather than later.