Last week’s decision by a federal appeals court to allow a whistleblower to restructure allegations against several large health insurers didn’t get a lot of mainstream media attention. Admittedly, Medicare Advantage risk scores don’t make for very sexy headlines.
But the decision breathes new life into a case that was pronounced dead by a district court three years ago, and reveals some interesting clues into potential liability that five different insurers face regarding Medicare Advantage risk scores, which have drawn plenty of attention from whistleblowers over the past several years.
The original complaint dates back to 2009, when James Swoben, a former data manager for California-based SCAN Health Plan, filed a whistleblower complaint against his own employer, and then amended that compliant three times over the next two years to add claims against United Health, HealthCare Partners, Aetna, WellPoint and Health Net.
But in 2013, district court in central California dismissed the case, arguing that his claims were too vague, and denied Swoben the opportunity to file a fourth amended complaint, arguing it would be “futile.”
Last week, a three-judge panel with the U.S. Court of Appeals for the Ninth Circuit overturned that decision and methodically tore apart arguments from the defense team in the process.
Let’s start with the allegations.
The Centers of Medicare & Medicaid Services pays Medicare Advantage plans using risk scores calculated by the level of services each beneficiary requires--the higher the risk scores, the higher the reimbursement. Swoben claims the five insurers rigged their retrospective reviews of those risk scores by identifying and reporting only those errors that were underreported--diagnosis codes that had not been submitted to CMS--while purposefully leaving out potential overpayments.
Swoben further alleges that contracted coders tasked with reviewing medical records were not permitted to report incorrect diagnosis codes, only to enter additional codes that had been left out, effectively creating a one-lane highway for reporting errors. This despite the fact that CMS risk adjustment data validation (RADV) audits discovered error rates “well in excess of 20 percent,” for codes that were not supported by medical documentation, according to Swoben.
Other reports have indicated that figure was closer to 40 percent, leading to $32 billion in overpayments between 2008 and 2010.
Swoben’s allegations can be boiled down to this: Insurers rigged the system and they knew exactly what they were doing.
That was an important caveat for the appeals court, which rebuffed repeated attempts by the defendants “to portray themselves as the passive victims of their providers’ errors.” The court also struck down the defense’s argument that CMS never told insurers they needed to “unearth potentially unsupported codes,” noting that in addition to having an effective compliance program, CMS has always required insurers to “take steps to ensure the accuracy, completeness and truthfulness of encounter data.”
The defense team did the legal equivalent of throwing spaghetti against a wall, even suggesting the insurers should be absolved of liability since they had essentially offered their best guess regarding the accuracy of risk scores, all of which were met with a wagging finger from the court. Of course the insurers weren’t expected to catch every mistake amid millions of diagnosis codes, but the idea that they could bury their head in the sand was equally absurd.
“That is precisely the sort of ‘ostrich-like’ behavior that the False Claims Act was intended to reach,” the Department of Justice (DOJ) wrote in an amicus brief that the court referenced on several occasions.
This is a legal battle that’s far from over, so it’s hard to draw any definitive conclusions, but it’s at least noteworthy that every single argument posed by the defense was unilaterally rejected. It’s also worth noting that Swoben has already made a name for himself. In 2012, he was the whistleblower in SCAN Health Plan’s $320 million settlement that included a $3.8 million payment to resolve similar allegations regarding the company’s Medicare Advantage plans.
This case adds to the tangled web of whistleblower cases currently in the system, including a recently unsealed complaint against Humana claiming the insurer encouraged physicians to up-code patient conditions in order to inflate risk scores. One of those physicians is facing up to 10 years in prison after pleading guilty to fraud charges.
For now, Swoben’s case is going back to the drawing board. But it’s impossible to ignore the fact that Medicare Advantage is a reliable revenue generator, and with nearly one-third of all Medicare beneficiaries in the program, these cases could translate to massive penalties, or more likely, significant settlements. If it comes to that, we’ll be able to look back at this appeals court decision as a key turning point.