Kaiser accused of Medicare fraud on huge scale
For the better part of a decade, a time bomb has been ticking at Oakland-based Kaiser Permanente — an accumulation of allegations that the giant health plan systematically defrauded Medicare by overstating the severity of its patients’ medical conditions.
On July 30, the bomb detonated. That’s when the Department of Justice joined six lawsuits filed by Kaiser employees since 2013 asserting that they witnessed the alleged fraud.
The government’s action instantly brought those lawsuits, which had been filed under seal in federal court in San Francisco, into the daylight. Taken together they allege wrongdoing on a stunning scale; plaintiffs’ lawyers involved in the cases say hundreds of millions of dollars in penalties and damage claims may be at stake.
At this stage, none of the allegations has been proved in court. Kaiser denies them
But the allegations, and the Department of Justice’s decision to support them by becoming a co-plaintiff against Kaiser, point to a larger issue with Medicare — specifically, the Medicare Advantage program, which allows private health insurers rather than government administrators to provide coverage to seniors. The indications are that Medicare Advantage is profoundly infected with
fraud.
Recently, the federal government has joined in private lawsuits against a host of major healthcare providers and health insurers.
“It’s industry-wide and it’s of major proportions,” says Mary Inman of Constantine Cannon, a law firm specializing in whistleblower cases, which numbers one of the Kaiser whistleblowers among its clients.
In recent years, the government has extracted settlements from several healthcare providers accused of exaggerating patient conditions to inflate Medicare Advantage fees, which are based partially on “risk scores,” assessments of the health of individual enrollees.
The resolutions included a $270-million settlement in October 2018 from El Segundo-based Healthcare Partners and a $30-million settlement in April 2019 from Sacramento-based Sutter Health. The companies settled without admitting to the allegations.
A settlement in another case against Sutter Health is expected to be announced imminently.
Medicare Advantage was designed in part to counteract a structural flaw in Medicare — because the program paid doctors a fee for each service they rendered, it carried a built-in incentive for doctors to do more than their patients needed, merely to jack up their billings.
Under Medicare Advantage, health plans are paid a set amount per patient per month, known as a capitation. If the doctors overprescribe, they could lose money on patient care; if they keep services under control, they pocket more of the capitation for themselves.
The stakes in the fraud cases are immense. Medicare Advantage risk adjustments average $3,000 per year for every documented condition. That can double the capitation rates for enrollees with multiple risks. In 2013 alone, according to an audit by the Government Accountability Office, Medicare overpaid Medicare Advantage providers $14.1 billion, primarily because of “unsupported diagnoses.”
“Unfortunately, human nature being what it is,” U.S. Magistrate Laurel Beeler observed last year in rejecting Sutter Health’s motion to dismiss the case against it, “Medicare Advantage organizations ... have some incentive to improperly inflate their enrollees’ capitation rates, if these organizations fall prey to greed.”
The Kaiser allegations may be the most explosive because of its unique position in U.S. healthcare.
“They’re the mother of managed care,” Inman says. “They’re seen as a leader, and for them to stoop to doing this shows how irresistible the notion is of increasing your risk score to increase your reimbursement from Medicare.”
Several factors could account for the apparent explosion in fraud allegations in Medicare. One is the federal False Claims Act, which Congress upgraded in 1986 to ensure whistleblowers of a sizable share of recoveries from cheating government contractors — up to about 25% in cases in which the government participated as a plaintiff, and 30% if they pursued claims on their own.
Another is the maturity of the Medicare Advantage program, which was established in the 1970s to allow seniors to receive Medicare services through private health insurers rather than the traditional government-administered program.
The health plans can obtain increased capitations for individual patients by showing that they’re victims of specific ailments that are especially costly to treat, such as diabetes, stroke or pulmonary problems, a process known as risk-adjustment.
The health plans have strived to attract more enrollees — and healthier ones — by offering such ancillary services as health club memberships and vision and dental care, some of which can be obtained only by enrolling in “Medigap” plans that cover services unavailable through traditional Medicare. Medicare Advantage enrollment has been growing sharply in recent years, reaching 22 million, or 34% of all Medicare enrollment, in 2019.
It should be clear that health plans have two main ways to maximize their Medicare Advantage profits — by cutting costs, or increasing risk-adjustment payments.
To regulate the latter, Medicare imposes limitations on risk-adjustment claims: They can’t result merely from radiology or laboratory tests but must reflect face-to-face encounters between doctor and patient that result in treatment, and those encounters must be thoroughly documented.
An analysis of the numerous false claims lawsuits currently filed against major healthcare providers suggests that the industry has been extremely creative at circumventing these rules.
In a review of the risk-adjustment landscape for an industry conference in 2012, Inman reported that the dodges ranged from simply making up diagnoses and treatments, to exaggerating the severity of a patient’s condition, to claiming that a patient was being currently treated for a condition such as stroke or cancer that had actually been treated in the past.
“You could have a patient with minor depression who’s suddenly upcoded to major depression,” Inman told me. “We were seeing cases of malnutrition that you weren’t expecting to see anywhere outside sub-Saharan Africa.”
That brings us back to the allegations against Kaiser, which have been disclosed as a result of the government’s intervention.
In a case filed in 2013, data quality employee Ronda Osinek says that around 2007, Kaiser started “diagnosis chasing” — poring over patient data for conditions such as diabetes, kidney disease and depression that would warrant claiming higher-risk reimbursements.
Some of these inquiries required physicians to amend their patient files, sometimes months after the patient visits, she says.
Taken at face value, the allegations against Medicare Advantage organizations imply a stupendous misdirection of government resources into the wrong hands. The GAO estimated in 2014 that almost 10% of the payments to Medicare Advantage organizations were improper. Given that Medicare Advantage providers were paid about $290 billion last year, that means some $30 billion a year may be going astray.
That’s money that could be used for a host of goals other than fattening the budgets of healthcare companies: funding universal coverage, reinvigorating the nation’s tattered public health infrastructure, you name it. The profit motive has long been a huge drag on the American healthcare system, but it’s much worse when the profits are dishonestly obtained.
