On September 13, 2021, the Department of Justice (“DOJ”) intervened in a False Claims Act (“FCA”) suit alleging that a health insurer defrauded the government by submitting false patient data to wrongfully inflate payments under the Medicare Advantage program. This case continues a recent trend in the government’s civil FCA enforcement targeting Medicare Advantage Organizations (“MAOs”) for allegedly bilking increased risk-adjusted payments by submitting false diagnoses to the Centers for Medicare & Medicaid Services (“CMS”). MAOs should take note of the government’s enforcement activity and review their practices and procedures to lessen the risk of non-compliance and to be prepared to respond to government scrutiny.

MAOs are private companies contracted by CMS to provide and administer Medicare Advantage health insurance plans to Medicare Part C beneficiaries. CMS pays MAOs a fixed amount per beneficiary each month, increasing the payment for more infirm beneficiaries based on a risk adjustment system. Under this system, CMS calculates a “risk score” for each beneficiary based, in part, on their medical history. The risk score reflects the anticipated cost to manage a beneficiary’s care relative to other beneficiaries. CMS relies on medical records submitted by the MAOs to calculate these risk scores and, ultimately, any increases to the monthly fixed payment MAOs receive.

The Allegations against Independent Health and DxID

The government alleges that one such MAO, Independent Health Association (together with its subsidiary Independent Health Corporation, “Independent Health”), obtained inflated payments by submitting records containing unsupported diagnosis codes that the government claims Independent Health knew were false.¹ According to the government, Independent Health created a subsidiary called DxID LLC (“DxID”) and charged it with identifying and capturing diagnosis codings that providers and other coders had not recorded.² DxID did this by (1) implementing a retrospective chart review program, where DxID reviewed beneficiaries’ medical records to identify additional “missed” diagnosis codes that would maximize Independent Health’s risk adjustment payments; and (2) implementing an addenda process, where DxID sent providers “leading and suggestive forms” that encouraged them to retroactively add “missed” diagnoses to beneficiaries’ charts, according to the government’s complaint.³

The government alleges that while undertaking the retrospective chart reviews, “DxID recklessly disregarded the requirement that a condition for which a diagnosis code is submitted must be documented as relevant to patient care, treatment, or management during a visit or encounter in the date of service (“DOS”) year, and not merely mentioned in records from prior years, suggested by computer algorithm, or inferred anywhere on an outpatient medical record.”⁴ Specifically, the government alleges that DxID violated coding guidelines by “trolling” medical records to “gin up” diagnosis codes from “impermissible sources like Problem Lists, Past Medical History, labs (e.g., diagnostic and radiology tests), and orders for Durable Medical Equipment.”⁵ According to the government, this review process captured diagnosis codes “that were not documented by a qualified provider, that did not exist at the time of the encounter or visit, that did not require or affect patient care, treatment, or management, and/or that were otherwise unsupported by the medical records,” and therefore “should not have been submitted to CMS.”⁶

The government also alleges that DxID’s addenda process was fraudulent because the addenda forms sent to providers were “impermissibly leading” and “introduced new information or conditions that were neither indicated nor even suggested in the medical record or sought to up-code conditions that were documented during the patient encounter to more severe conditions . . . .”⁷ The government also claims that DxID’s addenda forms were “impermissibly late” to support the diagnosis codes, having been sent to providers months after patient encounters.⁸

The government asserts that each unsupported diagnosis code submitted to CMS that was used to calculate a risk adjustment payment was a false claim under the FCA, as was every attestation that Independent Health submitted affirming the accuracy of its risk adjustment data submissions. According to the government, DxID’s retrospective chart review and addenda programs resulted in tens of millions in overpayments to Independent Health.

The case is pending before the District Court for the Western District of New York.

What This Means for You

The government’s intervention in the case against Independent Health and DxID shows DOJ’s continued focus on MAOs and the Medicare Advantage risk adjustment system. In recent years, the government reached a couple of notable resolutions in Medicare Advantage FCA cases. The government announced a $90 million settlement in one such case on August 30, 2021, and a $270 million settlement in another on October 1, 2018. Given the FCA’s treble-damages provision and its imposition of civil penalties for each individual false claim, the potential upside for the government, and relators, in pursuing cases of alleged Medicare Advantage fraud is significant.

It is common in the healthcare industry for MAOs and other health plans to retrospectively review medical charts to identify suspected health conditions reflected in patient medical records that had not been submitted to CMS on a claim earlier that year. This practice, sometimes called “chart chasing,” enables MAOs to secure the resources needed to manage their beneficiaries’ care, which can help improve their care.

MAOs and other participants in the Medicare Advantage system should assess their chart review programs to ensure that all diagnosis codings are adequately documented as relevant to patient care, treatment, or management during a visit or encounter in the DOS year and are otherwise in compliance with all relevant coding guidelines and regulations, as opposed to merely mentioned in records from prior years, suggested by computer algorithm, or inferred anywhere on an outpatient medical record, as alleged in the government’s complaint.⁹ They should also ensure that any addendum requests are based solely on permissible criteria in patients’ medical charts and do not nudge providers towards particular diagnoses. The chart review program itself should be documented as well to support the company’s explanation of these practices to the government in the event of an investigation or other inquiry. Finally, if a company does receive a Civil Investigative Demand (“CID”) from the government or becomes aware of an internal whistleblower allegation, the best practice is to engage counsel as early as possible to rapidly develop a strategy to address the matter and conduct an internal investigation to determine what actually occurred.

¹ United States’ Compl. in Intervention ¶¶ 1-2, United States ex rel. Ross v. Independent Health Assoc., No. 1:12-cv-00299-WMS (W.D.N.Y. Sept. 13, 2021) [hereinafter “Independent Health Complaint”].

² Id. ¶ 6.

³ Id. ¶¶ 11-17.

⁴ Id. ¶ 13 (emphasis added).

⁵ Id. ¶ 142.

⁶ Id. ¶ 141.

⁷ Id. ¶ 356.

⁸ Id.

⁹ See, generally, 45 C.F.R. § 162.1002(c); Independent Health Complaint ¶ 13.