Managed Care Fraud

Managed Care

Managed care is a form of health insurance that aims to reduce costs and improve quality by capitalizing on the efficiency of coordinated patient care. Insurance companies offering managed care options generally take on the risk for providing all of their members’ care, including primary care and other physician services, hospital and emergency services, and sometimes prescription drugs and dental care.

To keep costs down and promote coordination, managed care plans often restrict or otherwise encourage beneficiaries to visit providers within the plan’s network. Another characteristic feature of managed care is capitated payment (or per member payment), designed to incentivize prevention and encourage the least expensive method of care.

Government Funded Managed Care Programs

Federal and state governments contract with managed care plans to provide health insurance benefits to government beneficiaries. For instance, the federally funded Medicare program allows eligible enrollees to select a managed care plan by opting into Part C of the Medicare program.

Under Part C, a private insurance company takes responsibility for paying all of a Medicare beneficiary’s healthcare costs in exchange for a capitated monthly payment from the federal government. Part C is an alternative to traditional Medicare Parts A and B, under which the government directly pays its enrollees’ physician and hospital bills.

Many states’ Medicaid programs operate within a similar managed care paradigm. The same is true for some federal and state employee benefit programs. Managed care payment structures differ, but generally incorporate some form of capitated reimbursement, and additional payments to offset the cost of sicker, more expensive patients.

Operators of managed care plans have devised many schemes to game the reimbursement system and retain more than their fair share of government funds. Such fraudulent practices subject the plans to False Claims Act liability.

Common fraud schemes in the managed care industry include:

  • Adverse Selection/Cherry Picking and Lemon Dropping: These schemes involve minimizing risk by enrolling a disproportionately healthy pool of beneficiaries—or cherry picking—and avoiding high-risk members such as those with preexisting conditions—lemon dropping. In a particularly egregious instance, Amerigroup Corporation was found liable for defrauding the Illinois Medicaid program by discriminating against costly patients, including pregnant women. United States ex rel. Tyson v. Amerigroup Ill., Inc., 488 F. Supp. 2d 719 (N.D. Ill. 2007). Amerigroup paid $225 million to settle the action, which was initiated by a whistleblower.
  • Risk Adjustment Fraud: In part to reduce plans’ incentive to engage in adverse selection, many reimbursement arrangements provide for additional “risk adjustment” payments to plans that provide care to beneficiaries with expensive conditions. Because risk adjustment payments are calculated based on members’ diagnoses, plans have developed a number of schemes aimed at “upcoding” or exaggerating their members’ diagnostic data to cause the government to pay out more risk adjustment reimbursement than is warranted.
  • Medical Loss Ratio (MLR) Fraud: The MLR rule, mandated by the Patient Protection and Affordable Care Act (ACA), requires Medicare managed care plans to spend a minimum proportion of premium revenue on patient care and quality improvement initiatives, effectively limiting the ratio that can be allocated for administrative expenses and profits. In other words, the government wants assurance that its funds are used provide healthcare, and not to pad insurance companies’ pockets. Plans commit fraud by misrepresenting the proportion of funds spent on patient care and quality improvement measures.
  • Bid Rate Fraud: Plans operating under Medicare Part C submit annual bids to the government, estimating their costs for the upcoming year. These bids are used to calculate the monthly per-member payment. Managed care plans may distort bids to maximize their reimbursement.
  • Star Metrics/Healthcare Effectiveness Data & Information Set (HEDIS) Fraud: The ACA created a quality incentive program, allowing Medicare Advantage plans to receive Quality Bonus Payments (QBP) based on the plan’s Star rating. Star ratings rank plans on quality, incorporating several performance measures like HEDIS, a standardized tool for measuring various quantifiable dimensions, such as cancer screenings and access to preventive health services. Plans defraud the government by manipulating quality metrics to receive QBPs to which they are not entitled.

To find out more about whether a particular type of fraud is actionable under the False Claims Act, contact us today.