Medicaid Managed Care Meets the False Claims Act (Again)

Last week the Department of Justice announced that a California managed care organization (MCO) and three providers had agreed to pay a total of $70.7 million to settle allegations that they submitted false claims to the state’s Medicaid program. Most of the payments ($68.25 million) will go to the federal government, the remaining $2.45 million to the state. The MCO, Gold Coast Health Plan, is operated by Ventura County.  The providers are the Ventura County Medical Center, also operated by Ventura County; Dignity Health, a nonprofit Catholic hospital system, and Clinicas del Camino Real Inc. (Clinicas), a nonprofit community health center. Neither Gold Coast nor any of the providers admitted to liability in connection with the allegations.  They and DOJ entered into separate settlement agreements “to avoid the delay, uncertainty, inconvenience, and expense of protracted litigation.”

The allegations?  That in the summer of 2015 Gold Coast entered into separate MOUs with Ventura County, Dignity Health, and Clinicas.  That under the MOUs, Gold Coast made retroactive payments to Ventura County, Dignity Health, and Clinicas for “Additional Services” provided to Medicaid expansion adults between January 2014 and May 2015.  That these payments were “wrongful” because, among other things, they were not “allowed medical expenses” under Gold Coast’s risk contract with the state Medicaid agency. That  “the payments were pre-determined amounts that did not reflect the fair market value of any Additional Services provided, and/or the Additional Services were duplicative of services already required to be rendered.”  That Gold Coast and the providers submitted claims to the state Medicaid program for reimbursement for these “wrongful” payments.

The settlement agreements for Ventura County, Dignity Health, and Clinicas don’t provide any further information about the allegations (what were the “Additional Services”? which were “duplicative”?  what were the “pre-determined amounts”? etc.).  The DOJ press release notes that under the risk contract between Gold Coast and the state Medicaid agency at the time, Gold Coast was required to spend at least 85 percent of the capitation payments it received for Medicaid expansion enrollees on “allowed medical expenses;” if it failed to do so, it was required to pay back to the state the difference between that 85 percent minimum amount and the lesser amount it actually spent.  The state was then required to return that difference to the federal government, which at the time was paying 100 percent of the cost of services for Medicaid expansion enrollees.  The press release offers no further information on this point.

Knowingly submitting false claims to Medicaid is a violation of the federal False Claims Act (FCA).  The FCA applies to all federal government programs and activities, not just Medicaid, and to claims submitted by all health care providers and suppliers, not just MCOs and hospitals and clinics.  The FCA allows private citizens—whistleblowers—to file lawsuits on behalf of the federal government against organizations or individuals who have defrauded it; if the lawsuits result in recoveries by the government, the whistleblowers can receive a portion.  In this case, the whistleblowers were the former comptroller and the former member services director of Gold Coast; under the terms of the settlement, they will receive 18.5 percent of the federal government’s recovery, or $12.6 million.

As is common in FCA settlements, at the same time as the organizations involved settle with DOJ they enter into Corporate Integrity Agreements (CIAs) with the HHS Office of Inspector General.  (The alternative is potential exclusion from Medicaid, Medicare, and other federal health care programs).  The CIAs typically run for five years and require, among other things, that the organization take steps to improve compliance with program requirements, including engaging an Independent Review Organization to monitor the organization’s compliance activities and report annually to the OIG. In this matter, only Gold Coast and Ventura County will be covered by CIAs. The DOJ press release notes that “Gold Coast’s annual reviews will focus on its calculation and reporting of medical loss ratio data under Medi-Cal” (the state’s Medicaid program).  MLR data indicate how much an MCO is spending on payments to network providers for furnishing services to enrollees as opposed to administration and profits.

As noted, Gold Coast does not agree with the federal government’s take on what happened.  In its view, at the time Medicaid expansion began, its network providers faced a “sizeable” increase in previously uninsured adults, so it offered funding to providers “aimed at improving patient outcomes through enhanced service offerings that were not already required under existing contracts.” According to Gold Coast, there was no “established regulatory guidance” for such funding, so it designed a program “through a transparent and deliberative public process.”  Under this program, network providers seeking funding had to meet specific criteria to “ensure that claims for funding were consistent with the mandate of covering the additional costs to providers resulting from the care of the new adult expansion population.”

Whatever the merits of DOJ’s and Gold Coast’s positions, there has been a settlement, and it appears to be the first FCA settlement involving a publicly owned or operated Medicaid MCO. Previous settlements have involved a nonprofit Medicaid MCO (CareSource), which paid the federal government and the state of Ohio $26 million in 2011, and two for-profit Medicaid MCOs: (Amerigroup), which paid the federal government and the state of Illinois $225 million in 2008, and (WellCare), which paid the federal government and nine states $137.5 million in 2012 to resolve four FCA lawsuits.  (WellCare was acquired by Centene in 2020).

The 2012 settlement was the second between WellCare and DOJ. In 2009, WellCare entered into a deferred prosecution agreement under which it paid $40 million in restitution and forfeited another $40 million and cooperated with the government’s criminal investigation.  This arose out of a scheme in which the WellCare CEO and other corporate officers submitted false information to the state Medicaid agency relating to WellCare’s spending on behavioral health services in order to meet the state’s 80 percent MLR requirement to avoid paying the state (and federal government) back for any shortfall.  Together, the 2009 and 2012 settlements resulted in WellCare paying out $217.5 million.

In 2014, a jury convicted WellCare’s CEO and three other corporate officers of health care fraud; three were sentenced to prison, the fourth to five years’ probation.  The convictions were affirmed by the Eleventh Circuit in 2016.  In 2017, WellCare’s former general counsel pleaded guilty to causing the submission of a false expenditure report to the Florida Medicaid agency in 2006; he was sentenced to six months in prison.  On January 13, 2021, just before leaving office, President Trump pardoned the former CEO, Todd Fahra, and the former general counsel, Thaddeus Bereday, along with the three other former WellCare corporate officers convicted of fraud against the Medicaid program:  Paul Behrens, Peter Clay, and William Kale.  The message to other Medicaid MCO corporate officers is clear, if unfortunate.

So, what are the take-aways of the latest FCA settlement?

The FCA is one of the federal government’s tools for holding Medicaid MCOs accountable for the proper expenditure of federal Medicaid funds. (In the 29 states that, like California, have their own false claims acts, the same can be said for the expenditure of state funds).  Medicaid MCOs are often large, complex, and opaque corporate enterprises that are difficult for state and federal regulators to monitor.  Recognizing that whistleblowers are an essential part of the oversight regime, the federal Medicaid managed care regulations require that the MCO and any contractor or agent provide detailed information about the FCA to all employees, including information about their rights to be protected as whistleblowers.

How well the FCA is actually working to protect the federal or state treasuries against bad actor MCOs is an open question. And while the FCA can protect the federal government’s funds from diversion by fraudulent MCOs, it does little to improve the accessibility and quality of services furnished by MCOs to Medicaid beneficiaries.  That’s simply not its job. Ensuring the accessibility and quality of MCO services requires active CMS and state Medicaid agency oversight, along with—wait for it—transparency.  It should not take a whistleblower to bring data on the performance of individual MCOs that state Medicaid agencies collect into the public domain.

Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.