4 Key takeaways from 9th Circuit’s Resurrection of the Silingo Medicare Advantage Case

For the second time in as many years, the Ninth Circuit swept aside a number of favorite defenses of Medicare Advantage Organizations (MAOs) when confronted with allegations of risk-adjustment fraud in Medicare’s Part C program. Here are four key takeaways from the panel’s ruling in U.S. ex rel. Silingo v. WellPoint, Inc., et al., No. 16-56400 (9th Cir. July 9, 2018).

1. The Ninth Circuit gets the Part C Medicare Advantage program and the serious fraud incentives posed by risk-adjustment. In both the Silingo opinion and the earlier opinion in U.S. ex rel. Swoben v. United healthcare Ins. Co., 848 F.3d 1161 (9th Cir. 2016), the 9th Circuit demonstrates its thoughtful understanding of the Medicare Advantage program and the financial incentives and pitfalls of risk-adjusted payments. CMS increases monthly payments to MAOs if the MAOs submit diagnosis codes that enhance a beneficiary’s health risk score.

• The Swoben court noted the clear “incentive for [Medicare Advantage] organizations to potentially over-report diagnoses so that they can increase their payment.”
• The Silingo panel followed with: “Unfortunately, human nature being what it is, Medicare Advantage organization also have some incentive to improperly inflate their enrollees’ capitation rates if these organizations fall prey to greed.”
Silingo goes further with: “And all of these organizations had an incentive to pass along fraudulent data because, by overstating diagnoses, they could yield more revenue and profit under the capitated payment system – and it was not certain that they would get caught. That may not have been what was going on here, but the [] complaint certainly states a plausible claim for knowingly participating in fraud, even as to the well-respected companies who are defending here.”

2. Common sense is alive and well in the world of pleading defendants’ requisite knowledge (scienter) of the fraud. Although she did not have inside information from the MAOs, Silingo adequately alleged that the MAOs acted with sufficient knowledge that its claims for payment were false. In Silingo, the plaintiff alleged that multiple MAO defendants engaged in the same conduct with respect to a common vendor, MedXM, which employed personnel including nurse practitioners and physician assistants to provide in-home health evaluations of Medicare Advantage beneficiaries. The Ninth Circuit found amply persuasive the plaintiff’s multiple allegations of alarming red flags apparent on the face of MedXM’s in-home health data and submissions to the MAOs, upon which the MAOs based their risk-adjusted claims to CMS.

First, the health reports contained only typewritten signatures in violation of Medicare Advantage requirements, which should have alerted defendants to falsified assessments. Second, the overuse of nurse practitioners and physician assistants who allegedly may not legally make conclusive diagnoses also would have tipped off the MAOs as to improperly supported risk adjustment data. Third, many of the diagnoses themselves (e.g., COPD, hepatitis) allegedly could not have been diagnosed without an invasive procedure (e.g., spirometry test, biopsy) for which the vendor would be unauthorized or unequipped. Fourth, allegedly often, obviously erroneous duplicative patient information was sent to the MAOs requiring frequent “correction.” Finally, the Ninth Circuit also found persuasive the reasoning that it “is too good to be true” that MedXM unearthed unusually unhealthy diagnoses from Medicare Advantage enrollees who apparently were not “in such dire health” as to see fit to visit a provider during the year.

These concrete examples and logical inferences adequately and plausibly alleged the MAOs’ knowledge of false claims.

3. “Group pleading” for wholly distinct defendants may be just fine. While a plaintiff might be required to differentiate her allegations against separate defendants who play different roles in a fraudulent scheme, she need not do so if the defendants “had the exact same role in the fraud.” Silingo alleged that the MAO defendants allegedly all failed in the same way to catch or correct MedXM’s fraudulent inflation of diagnosis codes and passed them along to CMS for reimbursement.

The court explained that generally, in a “chain conspiracy” where each defendant performs a distinct part in the scheme, differentiated allegations as to defendants’ respective conduct might be required. In Silingo, however, the plaintiff alleged a “wheel conspiracy-like fraud” in which the in-home health vendor was the “hub” and the MAOs were the “spokes,” where each company passed along the inflated diagnoses in precisely the same way. Group pleading was appropriate and the district court erred in dismissing claims for this reason.

The court extended its reasoning to hold that group pleading also was acceptable for the allegations of each defendant’s knowledge of the fraud, which knowledge was allegedly gained in the same manner.

4. Details of a defendant’s internal workings in processing and submitting claims is not required. Plaintiff Silingo had first-hand experience and about the multiple frauds perpetrated by the home-health vendor (the “hub”), but only circumstantial evidence that the MAOs (the “spokes”) submitted the vendor’s bad risk adjustment data to CMS. Using sensible inferences, the court made short work of the defendants’ argument that the allegations were insufficient under 9(b) to plead actual false claims.

The court observed that MedXM focused only on Medicare Advantage beneficiaries who did not have the desired risk adjustment codes for the year. Without the codes, the MAO would receive a lower payment for that beneficiary, and with the codes the MAO would receive the higher payment. The MAOs employed MedXM’s services over a period of at least four years, suggesting that it was of continued benefit for the MAOs to use the vendor. “There is no reason to believe that these companies consistently paid MedXM for data that they desperately needed but, time after time, did not actually use.” The court rejected the MAOs insistence that plaintiff should also allege facts regarding their “claims filtering, verification, or submission processes our outcomes” and upheld the district court’s finding that the allegations adequately showed reliable indicia leading to a strong inference that false claims were submitted.

If you have information about risk-adjustment fraud and believe you might have a case, please contact us.

By Jessica T. Moore, Partner, Constantine Cannon

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