District Court Denies Home Health Assessment Company’s Motion to Dismiss in Medicare Advantage Fraud Case, Dismisses Health Plan Defendants

A court in the Central District of California recently granted in part and denied in part the motions to dismiss of defendants—multiple Medicare Advantage (“MA”) plans and a home health assessment company—in a suit alleging that the sickness of patients had been inflated through illegitimate in-home assessments.  See United States ex rel. Silingo v. Mobile Med. Examination Servs., No. 13-cv-01348 (C.D. Cal. Sept. 29, 2015).  The case is one further development in the broader ongoing enforcement effort against private Medicare insurers (as reported here), and highlights the scrutiny by CMS of the role in-home assessments play in the MA program.

MA beneficiaries receive “risk adjustment factor” scores based on their diagnosed medical conditions, and health plans receive higher reimbursement for higher risk scores, to cover the correspondingly higher costs of caring for sicker patients (as discussed further here).  The relator, a former compliance officer at a home health assessment company, MedXM, alleged that MedXM engaged in a number of business practices designed artificially to inflate risk scores.  The defendant health plans, which had hired MedXM to perform in-home assessments on patients and document their illnesses for risk adjustment purposes, allegedly failed to implement internal controls to monitor those business practices and rectify the fraudulent conduct.

The district court granted in part and denied in part MedXM’s motion to dismiss.  The relator set forth a series of alleged business practices supporting theories of factual falsity and express and implied certification.  Under the relator’s factually false theory of liability, MedXM used fraudulent practices to falsify medical diagnoses, rendering false the risk adjustment data the health plans submitted to CMS for purposes of determining future reimbursement rates.  These business practices ranged from assessments performed by nurses/physician assistants without physician supervision, to MedXM examiners diagnosing patients despite lacking the equipment to perform the tests necessary to make such diagnoses.  The court denied MedXM’s motion to dismiss these claims, ruling that the relator “has set forth detailed allegations about MedXM’s business practices, which could have resulted in falsely inflated . . . risk scores.”  Notably, the court ruled that the relator adequately pled scienter under the FCA by alleging that she raised her concerns about these business practices with MedXM’s CEO and COO, “but these concerns were ignored.”

However, the court ruled that the relator’s articulation of these business practices failed to support theories of express or implied certification, because the relator did not explain how they violated rules and regulations as to which MedXM either expressly certified compliance, or that were conditions for payment.  Finally, the court also dismissed the claims against the health plans under Rule 9(b), holding that the relator failed to differentiate her allegations of fraud as to most of the defendants.  While the relator did sufficiently distinguish her allegations as to one MA plan, her claims that the plan’s audits were “not a good faith effort to avoid receiving overpayments nor to reduce fraud” were held too conclusory, particularly in light of her other allegations that the MA plan had instituted a corrective action plan for MedXM.

A copy of the court’s order can be found here.