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“How The FCA Is Weeding Out Medicare And Medicaid Fraud”

Law360 By Sarah E. Coyne and Jon R. Kammerzelt

If (and bear with us) Medicare and Medicaid managed care is a garden, then false claims are the weeds. And, as all the green-thumbed readers will attest, a bigger garden means more weeds. Managed care is increasingly the preferred mechanism for the federal government and state governments to manage health care costs, which means more beneficiaries, more claims and more opportunities for potential false claims.

Accordingly, the government is ratcheting up its enforcement efforts in the managed care arena (or, using your authors' clever analogy, the "garden") using the False Claims Act (you guessed it, the "weed killer"). One particularly illustrative example is the settlement agreement reached in U.S. ex.rel. Miller v. CareCore National LLC et.al. in May 2017.

The Garden: Background on Managed Care

Managed Care is a health delivery system designed to lower costs and manage quality of care. Medicare and Medicaid managed care organizations (MCOs) manage the health care of Medicare and Medicaid beneficiaries to meet these goals. MCOs receive, process and submit claims from health care providers with which they contract to the government and, in turn, receive capitated (per member per month) payments for each enrollee. MCOs have an incentive to keep health care costs below the total of the capitated payments for the government, because they keep the difference.

The Weeds: False Claims in the MCO Garden

Medicare and Medicaid MCOs (and their business partners) can incur liability under state and federal FCAs in numerous ways including, without limitation:

  • Billing for services that were not provided;
  • Dividing out billing codes in a way that makes payment for each part greater than payment for the whole "bundle";
  • Double billing for a single service;
  • Billing a higher code than merited resulting in increased reimbursement;
  • Billing for brand name drugs when generics were used;
  • Billing for services or items that are not covered under the governmental program;
  • Forging physician signatures;
  • Billing under the wrong provider's identifying number;
  • Refusing to enroll individuals who are less healthy;
  • Falsifying enrollment information to achieve higher capitation rates;
  • Overinclusion of "eligible" members;
  • Unenrolling expensive members, contracting with unqualified practitioners, submitting false data to the government;
  • Inflating risk scores;
  • Retaining erroneous payments (reverse false claims); and
  • Billing for unnecessary medical procedures (hint: remember this one).


The Weed Killer: Background on the FCA

The False Claims Act (FCA) is a federal civil liability statute that subjects persons and entities to monetary liability for knowingly submitting a false claim for payment to the federal government. The FCA is the government's primary mechanism to combat fraud and recover monies improperly paid through federally funded programs including, but not limited to, Medicare and Medicaid. The FCA authorizes the recovery of three times the amount of damages sustained by the government, plus penalties ranging from $5,500 to $11,000 per claim.

One particularly scary aspect of the FCA is the statute's whistleblower, or qui tam, provisions, which incentivize individuals to file lawsuits alleging FCA violations on behalf of the government. Under the FCA, qui tam plaintiffs, known as "whistleblowers" or "relators," are entitled to up to 30 percent of the recovery if the government intervenes and prevails in the action. In 2005, President George W. Bush signed the Deficit Reduction Act which created a financial incentive for states to adopt their own false claims laws, modeled on the federal FCA. Many states have done so. State and federal governments contract with managed care organizations (described below) to manage costs. While these government-contracted managed care organizations (and their business associates) may not yet have the fear of the FCA (or its state law counterparts) ingrained, given the significant growth of managed care beneficiaries in recent years, they certainly should.

U.S. ex.rel. Miller v. CareCore National LLC et.al.

In U.S. ex.rel. Miller v. CareCore National LLC et.al., the U.S. Department of Justice alleged that CareCore, a company which provides benefit management services to Medicare Advantage and Medicaid MCOs, violated the FCA by automatically approving for government payment at least 200,000 "prior authorizations" for expensive diagnostic procedures (such as MRIs and PET (positron emission tomography) scans) without reviewing them for medical necessity. CareCore maintained that it did so due to timing pressures and a shortage of resources, in an effort to meet the demands of its customers. The case, originally filed as a qui tam complaint, just recently settled in May 2017 for $54 million, of which $18 million will be given back to state Medicaid programs. John Miller, the licensed practical nurse who filed the qui tam complaint, will receive $10.5 million.

The way CareCore's review protocol was supposed to work, nurses would review the preauthorization forms and refer those that failed to meet certain criteria to physicians who would evaluate them for medical necessity and either approve or deny. Instead, CareCore created a policy requiring the nurse reviewers to follow a "Process As Directed" program or "PAD" program," which required them to issue approval/preauthorization for the proposed diagnostic testing without the required physician review. Once approved, these "padded" requests were transmitted to CareCore's clients as preauthorized without any further evaluation as to their merit.

As a result, MCOs paid for expensive diagnostic tests that nobody had reviewed for medical necessity.

Takeaways

There are several takeaways from U.S. ex.rel. Miller v. CareCore National LLC et.al:

  • The targets of FCA investigations and lawsuits are expanding and MCOs (and their benefits managers) are squarely in the crosshairs.
  • Reckless behavior in the presentation of claims to the government even as an administrator on behalf of an MCO can result in significant FCA exposure.
  • State Medicaid programs (with New York at the forefront) are increasingly enforcing state false claims laws, jumping onto the longstanding federal enforcement bandwagon.
  • Whistleblowers pose an increasing risk to entities presenting or processing claims for payment to government programs — the stakes are extraordinarily high.
  • The reach of the FCA should scare all of you! If your company or your clients touch health care claims for payment, you should revisit and tighten up your compliance program.


Government-managed care plans are an important aspect of our health care infrastructure and they serve a valid purpose. Even the most beautiful gardens are at risk for weedsrigorous attention is required to ensure that, unlike CareCore, your garden is not sprayed with weed killer (Have we overdone the metaphor? We think not.)

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