Insurers pay $32M to settle Medicare Advantage fraud case

In yet another sign that the Justice Department is cracking the whip on Medicare Advantage insurers, two health plans have reached a multimillion-dollar settlement to resolve fraud allegations against them.

Tampa, Florida-based Freedom Health and Optimum HealthCare, both of which are owned by America's 1st Choice Holdings of Florida LLC, will pay just shy of $32 million to settle a whistleblower case brought by former employee Darren D. Sewell, the DOJ announced Tuesday.

Sewell’s lawsuit accuses the two Florida insurers of inflating reimbursements by submitting unsupported diagnosis codes to the Centers for Medicare & Medicaid Services from 2008 to 2013. Medicare Advantage plans use diagnosis codes to calculate risk scores for their beneficiaries, which they submit to CMS to determine their level of reimbursement. The higher the risk scores, the more health plans get paid.

The government also alleged that the health plans “made material misrepresentations” to CMS about the score and content of their provider networks when applying in 2008 to expand to new counties in Florida. Siddhartha Pagidipati, former chief operating officer of Freedom Health, agreed to pay $750,000 to resolve his alleged role in that scheme, the DOJ said.

“Today’s result sends a clear message to the managed care industry that the United States will hold managed care plan providers responsible when they fail to provide truthful information,” Acting Assistant Attorney General Chad A. Readler, of the Justice Department’s Civil Division, said in the DOJ’s announcement.

The case also represents the largest False Claims Act settlement to date involving Medicare Advantage insurers, Edward Arens, an attorney with Phillips & Cohen LLP who represented Sewell in the case, told FierceHealthcare.

“It’s an important find for future actions,” he said, adding that he predicts there will be more such cases going forward as the government increases its scrutiny of MA plans.

Indeed, the DOJ in recent months joined two separate whistleblower cases that accuse UnitedHealth of fraudulently inflating its Medicare Advantage risk scores, the most recent of which alleges the insurer overbilled the government by more than $1 billion. UnitedHealth has strongly denied any wrongdoing, however, and the company is pursuing a separate lawsuit against CMS regarding its MA overpayment rules.

Related: Whistleblower speaks out about Medicare Advantage fraud claims against UnitedHealth

Meanwhile, the DOJ is also investigating Aetna, Humana, Health Net and a division of Cigna, which are all also named in one of the whistleblower cases against UnitedHealth. The agency has not yet filed any complaints against those insurers while it conducts its probe.