With two recent False Claims Act cases (and six in the last decade), relators have taken aim at a new target for FCA enforcement and liability: Managed Care Plans. Managed Care providers should be aware of this growing threat and take steps to reduce their exposure.

Whistleblowers’ interest is understandable, with Managed Care enrollment numbers ever-increasing. As of May 2015, nearly 30 percent of Medicare patients, approximately 16 million people, were enrolled in Medicare Advantage, Medicare’s Managed Care plan.[1] That number is dwarfed by the millions currently enrolled in Medicaid Managed Care plans—estimated at 80 percent of more than 72 million Medicaid recipients in the U.S.[2]

Managed Care providers are paid a per-person (capitated) payment based on the health of population of beneficiaries, rather than on a fee-for-service basis. The capitated amount is determined by forecasting the amount of health care that the beneficiary pool will need, an assessment known as the risk score. The higher the risk score, the higher the capitated payment. At their introduction, Managed Care plans seemed less vulnerable to fraud than fee-for-service plans because the capitated payment system provided less incentive for excessive treatment. As with all human endeavors, however, incentives tend to influence behavior.

Risk scores for individuals on fee-for-service plans and Managed Care plans with the same diagnoses and characteristics should be identical. Risk scores for beneficiaries in Managed Care plans, however, tend to be higher than risk scores for those in fee-for-service plans with similar health and identical characteristics.[3] One reason may be that Managed Care providers have a greater incentive to document all possible medical diagnoses, which is not only appropriate (if accurate), but also critical to the plan’s financial viability. This incentive, however, could motivate unscrupulous physicians or plans to artificially inflate diagnoses in order to increase the risk score and resulting payments. Indeed, that is exactly what these two recent cases allege.

In U.S. ex rel Valdez v. Aveta, Inc.,[4] now pending in Puerto Rico, the Relator alleges that the health system “knowingly overstated, and/or concealed and failed to correct their overstatements of, risk adjustment scores.”[5] Similarly, in U.S. ex rel. Graves v. Plaza Medical Centers Corp., Humana, Inc., filed in Florida, Relator charges that Humana knew or should have known that the number of patients being diagnosed with diabetes and renal or circulatory complications increased dramatically when a new doctor took over a long-standing medical practice.[6] These inflated diagnoses, according to the Relator, led to increases in the capitated payments for those patients.[7]

Both of these cases, and at least four others filed in the last 5 years, indicate a trend towards this new enforcement focus. The Government has noticed the increasing costs associated with Managed Care plans. GAO has already published a report urging CMS to further adjust its capitated rates to account for this more complete documentation and prevent the overpayment of Managed Care providers.[8] There are few steps from these cases and GAO’s findings to many more FCA investigations and prosecutions of Managed Care providers.

Those who operate Medicare or Medicaid Managed Care plans, or may seek to do so in the future, must recognize that these plans are not immune from whistleblower lawsuits. Compliance policies and practices should be updated, if necessary, to include reasonable measures to prevent and detect any effort to inflate risks scores. These measures should include educating appropriate personnel as to the potential FCA risks and the importance of ensuring that documentation, especially email traffic, does not create the impression that risk scores are being inflated for financial gain.

When acquiring a new practice, it is important to analyze the practice’s patients, as part of due diligence, and to conduct follow-up review to detect unusual increases in the risk profile of the patient population. If irregularities are detected, the reasons should be thoroughly investigated. Most of the time, the reasons will be benign but, where red flags are found, providers must respond promptly by identifying, analyzing, and understanding the root causes.

If an investigation reveals improprieties, disclosure to the government may be necessary. Also important to keep in mind, under amendments to the False Claims Act, passed as part of the Affordable Care Act, any overpayments based on inaccurate risk scores must be refunded within 60 days of identification.


[1] U.S. Gov’t Accountability Office, GAO-15-710, Medicare Advantage: Actions Needed to Enhance CMS Oversight of Provider Network Adequacy 6 (2015). While this article focuses on Medicare, the Medicaid percentages are much higher. As of June 2009, the Office of Inspector General for the U.S. Dep’t of Health and Human Services estimated that 72 percent of Medicaid beneficiaries were enrolled in Medicaid Managed Care plans.

[2] U.S. Dep’t of Health and Human Servs., Office of the Actuary, 2014 Actuarial Report on the Financial Outlook for Medicaid 16 (2014). The 80 percent estimate is based on calculations by Medicaid.gov, taken from its Managed Care State Profiles and State Data, available at http://www.medicaid.gov/medicaid-chip-program-information/by-topics/delivery-systems/managed-care/managed-care-site.html (last visited Oct. 19, 2015).

[3] U.S. Gov’t Accountability Office, GAO-13-206, Medicare Advantage: Substantial Excess Payments Underscore Need for CMS to Improve Accuracy of Risk Score Adjustments 1-2 (2013).

[4] United States ex rel. José R. Valdez v. Aveta, Inc., et al., Case No. 15-cv-01140-CCC (D.P.R.).

[5] Valdez, Complaint at 4.

[6] United States ex rel. Olivia Graves v. Plaza Medical Centers Corp., Humana, Inc., et al, Case No. 10-23382-CIV-MORENO (S.D. Fl.).

[7] Id. at 8.

[8] GAO, Substantial Excess Payments at 11-13 (“Our work confirms that differences in diagnostic coding caused risk scores for MA beneficiaries to be higher than those for comparable beneficiaries…. [CMS’ current risk] adjustment was too low and resulted in estimated excess payments to MA plans of at least $3.2 billion.”).