DOJ Defends Medicare Advantage Upcoding Claims Against Sutter

On August 28, 2019, the United States filed a brief in opposition to Sutter’s June 14, 2019 motion to dismiss the Department of Justice’s Complaint-in-Intervention in a False Claims Act suit alleging Sutter knowingly submitted and caused the submission of unsupported diagnosis codes for Medicare Advantage Organization (MAO) patients in order to inflate Medicare reimbursements.  On the same day, the Relator, Kathy Ormsby, also filed a similar brief in opposition to Sutter’s motion to dismiss.  We previously discussed Sutter’s motion to dismiss here and the Department of Justice’s Complaint-in-Intervention here.

The government’s brief opposing Sutter’s motion argues that the United States’ complaint set forth “well-pleaded facts sufficient to show violations of the False Claims Act”, because the complaint included “detailed allegations, which the Court must accept as true” that satisfy the falsity and scienter elements of “direct and reverse FCA violations.”  Specifically, the DOJ points to allegations that Sutter engineered a campaign to pad risk scores and ignored audit results, physician warnings, and “other red flags.”  Additionally, DOJ argues that there is no materiality issue because the United States alleges that CMS “would have taken action up to refusal of payment” if it had known the facts.  As support, DOJ cited similar allegations in United States ex rel. Swoben v. United Healthcare Ins. Co. et al., 848 F.3d 1161 (9th Cir. 2016) which the Ninth Circuit considered and “found a cognizable legal theory.”

Importantly, DOJ argues that Sutter’s reliance on UnitedHealthcare Insurance Co. v. Azar, 330 F. Supp. 3d 173 (D.D.C. 2018) is misplaced.  In Azar, the United States District Court for the District of Columbia vacated a portion of CMS’s 2014 Final Overpayment Rule applicable to the Medicare Advantage program, because, among other things, the Rule failed to account for known errors in the data (from traditional Medicare) used to calculate payments to Medicare Advantage plans, which the Court found violated the statutory mandate of “actuarial equivalence.”  DOJ argues that the actuarial equivalence arguments Sutter advanced in its motion are “meritless” because Azar is “non-binding” and “concerns an administrative rule that applies different standards, most notably a different knowledge standard, than the FCA.”  DOJ argues that, unlike in Azar, the United States seeks to recover damages for alleged fraud and that the Azar itself “disavowed” the argument that MA participants are permitted to knowingly and recklessly submit erroneous diagnosis codes.

DOJ also argues that Sutter misstates the holding in United States ex rel. Poehling v. UnitedHealth Grp., Inc., 2019 WL 2353125 (C.D. Cal. Mar. 28, 2019).  In Poehling, the court found that, in light of the decision in Azar and the lack of any binding authority in the Ninth Circuit, it could not conclude that the federal regulations unambiguously required United to delete unsupported diagnosis codes.  DOJ argues the court Poehling “only found ambiguity” about whether the MAO clearly must delete known unsupported diagnoses codes and “never found that the MAO was free to maintain unsupported diagnoses.”  Instead, DOJ argues that the Ninth Circuit’s decision in Swoben, which held that diagnosis codes must be supported by properly documented medical records, controls.

DOJ’s brief reinforces its increasingly aggressive enforcement of the Medicare Advantage space under the FCA and provides important insights into DOJ’s strategy for distinguishing its cases from Azar and Poehling.  We will continue to monitor and provide updates on this case as it moves forward.

A copy of DOJ’s brief can be found here.