Health Care Provider Liability under the False Claims Act (31 U.S.C. § 3729 et seq.)

By Cliff Holmes, Esq.

Attorney for Dunlap, Grubb & Weaver PLLC (Washington, DC)

A recent decision by the Third Circuit Court of Appeals details circumstances under which health care providers may be held liable under the False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq., for alleged fraud committed under Part C of the U.S. Medicare program.  United States ex rel. Wilkins v. United Health Group, Inc., 2011 WL 2573380 (3d Cir. June 30, 2011).  While comparatively less frequent than FCA claims arising under Parts A, B, or D of the Medicare program, with over 9 million enrollees at present— a figure that has grown from 5.4 million in 2006— the frequency of claims of fraud under Medicare Part C can be expected to increase in coming years. 

Medicare Part C (Medicare Advantage)

Among Medicare Parts A through D, each serves a different purpose.  Medicare Part A provides insurance for covered inpatient hospital and related post-hospital services.  Part B is a voluntary supplementary insurance program that covers physicians’ services and certain other medical and health services, while Part D is a voluntary prescription drug benefit program.

Medicare Part C, also known as Medicare Advantage, authorizes qualified individuals to opt out of the fee-for-service coverage model of Medicare Parts A and B  and enroll in privately managed care plans that supply coverage for both inpatient and outpatient services.  Medicare Advantage plan coverage comes in a variety of forms, including Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Private Fee-for-Service plans (PFFS), Special Needs Plans (SNPs), and Medical Savings Accounts (MSAs).

Organizations that provide services under Medicare Parts C and D do so under contracts with the Centers for Medicare and Medicaid Services (“CMS”), the U.S. agency that administers Medicare, along with Medicaid and the Children's Health Insurance Program. Under Medicare Part C and Part D, participating organizations are paid a capitated rate per enrollee – i.e., an amount of money that is fixed based on factors such as the risk presented by individual enrollees, and other characteristics.   42 C.F.R. § 422.300 et seq., 42 C.F.R. § 423.301 et. seq. Medicare Parts C and D thus differ from Medicare Parts A and B in that participating organizations are not paid fees for specific services performed. 

CMS makes capitated payments to participating organizations on a monthly basis, in advance, based on the volume of enrollees; the capitated payment amount is adjusted to reflect variables such as risk as well as rate variations in each plan’s service area. 42 C.F.R. § 422.304, 42 C.F.R. § 423.315.   Because providers are paid a capitated (i.e., fixed) rate per enrollee under Medicare Part C, Part C providers have little if any monetary incentive to exaggerate to CMS the level of service or care that they have ostensibly rendered to any individual  patient, or a group of patients.    Claims arising under Part C thus arise under a different and arguably far narrower range of potential facts giving rise to a fraud or alleged fraud than those under Parts A, B, and D.  Compare, e.g., United States v. Prabhu, 442 F .Supp. 2d 1008, 1010 (D. Nev. 2006) (Part A claims alleging that defendant violated the FCA “by billing for simple pulmonary stress tests…when performed as part of a pulmonary rehabilitation program”); United States ex rel. Augustine v. Century Health Services, 136 F.Supp.2d 876, 880 (M.D. Tenn. 2000) (alleging impermissible Part A invoicing for costs exceeding the “reasonable costs of providing services”).

Wilkins

In Wilkins, the Third Circuit affirmed in part and reversed in part the decision by the District Court for the District of New Jersey (Kugler, J.) dismissing the FCA count of the Wilkins relators’ complaint on Rule 12(b)(6) grounds.  The Wilkins relators alleged that the defendants (United Health Group, Inc., Americhoice, and Americhoice Of New Jersey, Inc.) falsely certified under Medicare Part C that they were in compliance with all healthcare laws and regulations even though they knowingly violated several Medicare marketing regulations. The relators further alleged that AmeriChoice-NJ violated the FCA by illegally providing kickbacks in violation of 42 U.S.C. § 1320a-7b; according to the relators, AmeriChoice-NJ shought to influence a New Jersey medical clinic to transfer its patients to AmeriChoice-NJ's Medicare and Medicaid programs.  Last, the relators alleged that AmeriChoice-NJ agents separately violated 42 U.S.C. § 1320a-7b (the federal “Anti-Kickback Statute”) by providing inducements to doctors to provide the names of patients eligible for Medicare and Medicaid programs.

CMS requires that Medicare Advantage providers supply a “Certification Of Monthly Enrollment and Payment Data Relating to CMS Payment to a Medicare Advantage Organization” with each Part C monthly request for capitated payments.  These reports require that providers certify that

The MA Organization has reported to CMS for applications received in the month of (MONTH AND YEAR) all new enrollments, disenrollments, and changes in Plan Benefit Packages, as well as those beneficiaries who have met the qualifying institutional period with respect to the above-stated MA plans. Based on best knowledge, information, and belief, all information submitted to CMS in this report is accurate, complete, and truthful.

Separately, by regulation, when CMS enters into an initial contract for Part C services with a Part C provider, the Part C provider is required to certify that it “agrees to comply with all the applicable requirements and conditions set forth in this part and in general instructions. An MA organization's compliance with paragraphs (a)(1) through (a)(13) of this section is material to performance of the contract.”  42 C.F.R. § 422.504(a); among the provisions of sub-sections (a)(1) through (a)(13) of Section 422.504(a) are that at 42 C.F.R. § 422.504(a)(1), which provides that “[t]he MA organization agrees— (1) To accept new enrollments, make enrollments effective, process voluntary disenrollments, and limit involuntary disenrollments, as provided in subpart B of this part.”  Subpart B provides, at 42 C.F.R. § 422.74(a) (“Disenrollment by the MA organization”), that “Except as provided in paragraphs (b) through (d) of this section, an MA organization may not—(1) Disenroll an individual from any MA plan it offers; or (2) Orally or in writing, or by any action or inaction, request or encourage an individual to disenroll.”

The Wilkins court held that the Wilkins relators had stated a valid claim for FCA liability under the implied false certification theory of liability by alleging that compliance with the federal Anti-Kickback Statute was an express condition of payment to which the defendants agreed when they entered into their initial agreement with CMS; and, relatedly, that the Defendants knowingly violated the AKS.  The court held, however, that the relators had failed to state a valid claim for FCA liability predicated on the defendants’ alleged violation of Medicare marketing regulations.

Taking Wilkins in context with 42 C.F.R. § 422.504(a), the case stands for the proposition that putative whistle-blowers can state cognizable FCA claims centered on allegations that a provider knowingly requested or encouraged Part C enrollees to disenroll from a Part C program.  Because Part C providers receive payments from CMS on a capitated, i.e., fixed basis per patient, providers face financial incentives to limit the amount of expenditure on patients with greater-than-anticipated medical need.  If a provider knowingly or systematically encourages such high-cost patients to disenroll from Part C, the provider could face FCA liability.

Dunlap Grubb & Weaver PLLC attorneys, including the author, Cliff Holmes, have experience in reviewing such plans and litigating Part C Medicare claims under the FCA.  The author can be contacted at mail@dglegal.com.