Industry Voices—A look at DOJ fraud enforcement efforts in the Medicare Advantage space

Specific areas of scrutiny in the Department of Justice’s enforcement focus on the healthcare industry have continued to shift and evolve. (skpy on Flickr)

The Department of Justice’s enforcement focus on the healthcare industry has been consistently intense over the last 20 years, though the specific areas of scrutiny shift and evolve.

In the last five years, the DOJ has invested significantly in investigating and pursuing potential fraud by providers and plans that provide services under the Medicare Advantage (MA) program. In particular, those matters which are public center on the submission of allegedly unsupported diagnosis codes to inflate reimbursements and the retention of resulting overpayments.

While the department has experienced judicial setbacks to these enforcement efforts, providers and plans that operate in the MA space continue to face significant potential exposure.

Many of the now public enforcement efforts in this area have focused on MA plans and allegations that, by failing to identify and delete diagnosis codes assigned to patients by providers that a plan knows or should know are unsupported, the plan retains “overpayments” in violation of the False Claims Act (FCA). Striking a blow to this theory, the D.C. District Court in 2018 vacated a portion of the Centers for Medicare & Medicaid Services' (CMS') 2014 final overpayment rule applicable to the MA program, finding that the rule violated the Medicare statute and the Administrative Procedure Act.

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In particular, the court objected to the concept in the final rule that plans have a duty to undertake “proactive compliance activities” to identify unsupported codes that prompt overpayments and that a negligent failure to identify such codes could give rise to treble damages and statutory penalties under the FCA.

While this decision is under appeal, at least one other court has relied on the reasoning in denying a motion for summary judgment by the DOJ on the question of whether a plan is obligated by contract or regulation to identify and delete unsupported diagnosis codes. Despite these setbacks, the DOJ continues to pursue these cases and other ongoing investigations of similar claims against MA plans.

At the same time, the DOJ has been aggressively pursuing managed care providers for their role in the alleged “upcoding” fraud. For example, in late 2018 the department intervened in an FCA suit against Sutter Health alleging that Sutter knowingly submitted unsupported diagnosis codes to its contract plan partners to inflate Medicare reimbursements. More recently, the DOJ settled a separate case against Sutter based on identical allegations but involving different affiliates for $30 million.

Managed care providers and organizations should expect that scrutiny of their conduct will increase in response to the setbacks that have thus far limited the DOJ’s ability to recover from the health plans’ pockets. While plans and providers alike can advance strong materiality-based defenses to FCA suits based on CMS’ awareness of errors in the data used to calculate payment and other factors, providers are more vulnerable to arguments that they submit diagnosis codes in reckless disregard of their accuracy.

This risk is particularly acute where the DOJ can point to evidence that providers identified erroneous codes and failed to correct them, conducted “one way” coding audits to mine for missed codes but not to identify unsupported codes or where scrutiny and incentives are placed on increasing RAF scores without also ensuring resources are devoted to training and auditing. MA providers are well advised to be as proactive in their compliance efforts as the DOJ has been in its enforcement efforts to date.

Jaime L.M. Jones is global co-leader of the Sidley Austin’s healthcare practice, and Jennifer M. Haney is an associate in the healthcare practice.