Health Law Daily FCA claim alleging rigged preauthorization review process survives arguments to dismiss
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Thursday, April 2, 2020

FCA claim alleging rigged preauthorization review process survives arguments to dismiss

By Susan L. Smith, JD, MA

A company that provides screening services for Medicare Advantage plans failed to dismiss the False Claims Act claims of the former chief medical officer who alleged that the company violated Medicare rules by rigging its preauthorization review process to achieve a higher denial rate.

The former chief medical officer (CMO) of a company that provides screening services for Medicare beneficiaries enrolled in Medicare Advantage (MA) plans sufficiently alleged violations of the False Claims Act (FCA) (31 U.S.C. §3729) to sustain her claim against her former employer. The CMO alleged that the company as well as its parent company violated the FCA by not complying with Medicare rules thus causing MA plans to make fraudulent statements regarding their compliance with Medicare rules when the companies allegedly rigged the pre-authorization process to increase the rate of denials. However, the CMO failed to provide sufficient evidence that the parent company was intimately involved in the design and direct approval of the rigged review process. Although the court denied the company’s motion to dismiss the CMO’s claim, the court granted the parent company’s motion to dismiss (U.S. ex rel. Nedza v. American Imaging Management, Inc., Case No. 15 C 6937, March 26, 2020 Alonso, J.).

Allegations regarding Medicare rules. The CMO alleges that a private insurer must enter into a contract with CMS to operate as an MA plan and agree to operate the plan in compliance with Medicare statutes, regulations, and guidance documents. Medicare regulations also require subcontractors that help operate MA plans to be in compliance with Medicare rules and regulations.

Specifically related to the allegations, the CMO contends that a private health insurer must certify to CMS that it will comply with two requirements to participate in the MA program to receive capitation payments from CMS. First, MA plans must pay for all reasonable and necessary medical care that would be covered under Medicare fee-for-service (FFS). Second, if an MA plan uses a pre-authorization review process to determine if treatment is covered it must consider a beneficiary’s medical history in making the coverage determination and include a personal review by a health care professional if it denies coverage. The CMO alleges that an MA plan that does not comply with these two requirements is in violation of the Medicare contract. In addition, the CMO argues that an MA plan implicitly certifies compliance with Medicare rules in its request for capitation payments and states that CMS would not issue monthly capitation payments to the MA plan that violated the rules.

Allegation’s regarding the company’s pre-authorization process. The company contracts with MA plans to provide review of pre-authorization requests by medical providers for coverage of certain medical treatment. The CMO alleges that the company developed a rigged preauthorization process that violated Medicare requirements to maximize coverage denials allowing MA plans to keep a greater share of capitation payments and increase MA plan profits. This was allegedly accomplished by promising MA plans denial rates that were higher than would be if in compliance with Medicare rules. Specifically, the CMO claims that the company rigged a computer algorithm that did the initial evaluation. If the company was concerned it did not meet the contractual denial rate, it turned off the algorithm and categorically denied all requests as well as rig the next steps of its review to increase denials. The company entered a motion to dismiss the CMO’s claim.

The court determined that the CMO’s claim survived the company’s motion to dismiss based on a fraudulent inducement theory. The court found that she presented sufficient evidence including the MA contracts requiring compliance with Medicare rules and comments and conduct of the company’s executives to support her allegations that the company knowingly violated the terms of the MA contract and caused MA plans to certify compliance when it intended to violate Medicare rules. She also presented evidence supporting her allegation that the company’s pre-authorization review process violated Medicare rules by providing three examples of the company’s internal coverage guidelines that deviate from Medicare coverage rules and citing to internal reviews of denied pre-authorization requests that should have been approved under Medicare coverage rules. The court also found that the CMO met her pleading burden under Federal Rules of Civil Procedure, Rule 9(b). Finally, the court concluded that the CMO has sufficiently alleged materiality to sustain her claim.

The parent company’s alleged role. The CMO alleged that the parent company was intimately involved in the design and direct approval of the screening service company’s rigged review process and it had regular oversight over the company even though the company maintained control over its internal coverage guidelines. The court concluded that the CMO’s allegations were not sufficient to show that the parent company directly participated in the pre-authorization review process.

The case is No. 15 C 6937.

Attorneys: Steven H. Cohen (Cohen Law Group, PC) for Susan Nedza. Prashant Kolluri, U.S. Attorney's Office, for the United States. Lisa Marie Noller (Foley & Lardner LLP) for American Imaging Management, Inc., Anthem Health Plans of Kentucky, Inc. and Anthem Health Plans of New Hampshire, Inc.

Companies: American Imaging Management, Inc.; Anthem Health Plans of Kentucky, Inc.; Anthem Health Plans of New Hampshire, Inc.

MainStory: TopStory CaseDecisions CMSNews CoPNews FCANews FraudNews PaymentNews PartCNews ProgramIntegrityNews IllinoisNews

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