Medicare Advantage Risk-Adjustment Fraud – Where’s the False Claim? (Part I)

I recently saw this article discussing a False Claims Act (FCA) case pending in federal district court in Florida.  The theory is an interesting one involving the Medicare Advantage program.  The full story is available here and here, but I’ll provide a brief synopsis.

In 2003, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), which required the Centers for Medicare and Medicaid Services (CMS) to initiate the formal implementation of a fully risk-adjusted capitation reimbursement model for Medicare Advantage.  Essentially, a risk-adjusted model recognizes that many Medicare Advantage beneficiaries experience health conditions that can be very costly, to the point where a single hospitalization can wipe out the entire amount of premiums the Medicare Advantage managed care organization received over the course of the year.  Therefore, it pays higher premiums for those beneficiaries who have been diagnosed with conditions that make them more likely to use significant health care resources over the course of the year (e.g., diabetics, people suffering renal failure, etc.).

You can see the potential for fraud and abuse.  If Medicare Advantage plans get paid more for covering high-risk beneficiaries, then they’ll have an incentive to exaggerate the poor health of their beneficiaries.  Doctors will err on the side of diagnosing their patients with the more serious conditions in borderline (and perhaps not-so-borderline) cases.  That’s what the plaintiff alleges the provider did in the case linked above (I won’t name the company, but you can click through).  In related news, CMS recently announced that it intends to scrutinize Medicare Advantage risk-adjustment data submitted by plans to ensure its accuracy, primarily in an attempt to deter this potential practice.

But there’s a problem from the government’s point of view.  Where’s the claim?  The FCA only covers false claims submitted to the government for payment, or false records or statements material to false claims.  It is not a general fraud statute.  And it is at least debatable whether a trumped up diagnosis submitted for risk-adjustment purposes falls within the “false claim” category.  Now, it’s probably inarguable that if a Medicare Advantage plan knowingly included false or exaggerated diagnosis data when it submitted its capitated reimbursement request, that conduct would be a false claim.  But that’s unlikely to happen.  Instead, the plans normally will just aggregate the data they receive from their doctors without investigating its accuracy (which would be impossible on any large scale).  And in the absence of any direct connection between the receipt of false data and the submission of the reimbursement request, it’s hard to cite any specific false claim.

Now, it’s important to note that the Department of Health and Human Services (HHS) rejects this analysis.  It takes the position that the FCA encompasses risk-adjustment fraud (see note 12 for FCA actions brought by HHS).  But all of the matters involving this theory have settled before a court can opine on the issue, so we have no judicial pronouncement on whether HHS’s interpretation is a viable one.

And there’s one more thing.  The Medicare Advantage program seems to be growing, despite cuts made in the Affordable Care Act (ACA).  (It is only used by 30 percent of the population eligible for Medicare, tallying about 15.7 million beneficiaries.)  But it is not the only federal health care program that uses a risk-adjustment model.  In fact, the ACA contains a virtually identical concept to help offset insurance plans that cover high-risk individuals through the state and federal insurance exchanges.  These plans theoretically will have the same incentive as the Medicare Advantage plans to exaggerate – or even lie about – their enrollees’ health conditions.  There is an important difference between the two risk-adjustment approaches though – how Congress has decided to treat them for FCA purposes.  That difference may be crucial to the question of whether and how false or exaggerated risk-adjustment data is covered by the ACA.  More on that in my next post.