The Department of Justice (DOJ) joined a qui tam action against UnitedHealth Group, the largest health carrier in the United States, for defrauding the Center for Medicare and Medicaid Services (CMS). The suit was originally filed in 2011 in camera until the DOJ completed its investigation. UnitedHealth allegedly violated the False Claims Act (FCA) by submitting false risk adjustment information to CMS and retaining the overpayments from the government. At the time the lawsuit was filed, UnitedHealth had 6.8 million people enrolled in the Medicare Advantage plans at issue.
“The alleged fraud scheme took place through the Medicare Advantage program…”
Several other health insurance carriers were co-defendants in the lawsuit, including Humana, Aetna, and Blue Cross Blue Shield of Michigan and Florida, comprising fifteen total defendants. In the complaint, the DOJ claimed that the fraudulent activity of these health insurance companies had cost the United States “hundreds of millions—and likely billions—of dollars.” Reports have suggested that fraudulent practices by health insurance companies are partially responsible for increased healthcare costs.
The alleged fraud scheme took place through the Medicare Advantage program, where the government participates in a managed care model of care in which an organization (in this case Medicare) pays a managed care organization (MCO) a fixed fee for services. The fee is calculated per month per member, which is referred to as a capitation rate. The capitation rate is based on a calculation of past and future medical expenses, the location of the members, the health status of the members, and whether the plan will contain any additional benefits.
“For each FCA violation, the civil penalty is $11,000, in addition to three times the amount of damages suffered by the government.”
The MCO is responsible for paying health care providers, such as hospitals or doctors, that provide services to members. Medicare pays a monthly capitation rate for each enrollee, and CMS adjusts the capitation rate to better reflect the beneficiary’s demographics. Capitation rates for members who have undergone a serious illness or procedure are significantly higher than normal rates—the increased rates are referred to as “risk adjustments.” Risk adjustments are meant to reflect a member’s disease state, and accurate risk adjustment depends on substantiated health condition codes. For each individual condition that requires a risk adjustment, CMS pays approximately $3,000.
The dispute between the insurance companies and the DOJ is centered around the risk adjustment payments. The insurance companies allegedly engaged in “upcoding.” This occurs when the insurer submits claims that the Medicare Advantage member does not have, or alleges that the member has a more serious condition than the member actually has. As long as the insurance companies knew the claims were false when it was submitted, each incident of upcoding is a violation of the FCA. Additionally, the FCA contains a duty to correct any known errors that will cause a government overpayment. For each FCA violation, the civil penalty is $11,000, in addition to three times the amount of damages suffered by the government. For insurance companies as large as UnitedHealth, Humana, and Aetna, the amount of alleged damage can add up quickly. For each chart it reviews, UnitedHealth spends approximately $30, but it receives $450 on average for the review. During chart reviews, UnitedHealth only looks for underlying diagnoses that can be added, and does not check patient charts for any potential errors that must be deleted. Additionally, the insurance companies organize training for physicians so that they will code services in a manner that complies with UnitedHealth’s financial objectives.
UnitedHealth participated in upcoding by creating documents that were used to submit the risk adjustment claims, and by failing to correct false claims. UnitedHealth ran several programs that were intended to increase risk adjustments, including reviewing medical charts, paying physicians bonuses if that physician submitted paperwork that supported a claim for additional diagnoses, and sending forms to physicians with pre-identified diagnoses that the insurance company suspected the patient had.
“Employees at UnitedHealth were explicitly instructed to maximize revenue by increasing risk scores, with a goal of increasing risk scores overall by three percent.”
The codes used by the government and insurance companies originate from the International Classification of Diseases, 9th Edition—which is referred to as ICD-9 or simply, ICD codes. Submitting even an incrementally more severe ICD code can result in increased risk adjustment payments, which begin to significantly add up when applied to the large pool of members in the Medicare Advantage program. Any time a code is incorrectly submitted to CMS, the MCO is required to contact CMS and request that the incorrect record be deleted. Although CMS periodically audits risk adjustments, consequences for coding mistakes are relatively minor.
In the case to which the DOJ is a party there is a co-plaintiff, Benjamin Poehling, a qui tam relator and former UnitedHealth executive. Poehling previously worked for Arthur Anderson, the accounting firm that famously worked with the Enron Corporation. Poehling stated that increasing risk adjustments were part of performance reviews at UnitedHealth, and that the insurance company went so far as to mine patient data to look for hints of a long-term condition that could be upcoded without complying with the requirement that the patient visit a physician in person to receive treatment for the more serious condition. Employees at UnitedHealth were explicitly instructed to maximize revenue by increasing risk scores, with a goal of increasing risk scores overall by three percent. Employees were also given monetary incentives that were directly tied to increases in risk scores, with some employees receiving incentives that totaled as much as 1.4 million for the employee’s progress.
Qui tam relators are whistleblowers with knowledge of the fraud scheme who inform the government and sometimes bring private lawsuits in the government’s place. Relators receive a percentage of the government’s civil recovery, usually between fifteen and twenty-five percent, as an incentive for insiders to come forward. FCA cases are usually filed under seal so that the government has time to conduct its own investigation to determine whether it wishes to take over the lawsuit from the private relator. In the case against UnitedHealth, the government spent five years conducting its investigation under seal before the complaint became public.
The FCA was originally passed to combat fraud against the government during the Civil War. When it was originally passed, relators could share in half of the recovery, and the government could receive double damages instead of treble damages. The law was curtailed in the 1940’s due to perceived abuse, before being amended and re-invigorated in the 1980’s to pursue common fraud schemes in the defense industry. Because complaints under the FCA are filed under seal, only the government is initially served with a copy of the allegations. The seal lasts for at least sixty days, upon which time the government can request an extension. Any claims that seek payment for services that are implicated by the anti-kickback statute are considered false and can result in liability.
If this alleged fraud scheme perpetrated by UnitedHealth Group is found to be legitimate, the consequences could be significant. UnitedHealth’s shares have dropped since news of the lawsuit broke, with their shares ending at 3.7 percent lower at the end of the session.