The CMS will have to defend in court its Affordable Care Act rule that treats Medicare Advantage overpayments like False Claims Act violations after a federal judge refused to toss UnitedHealthcare's lawsuit challenging it.
A federal judge in Washington, D.C., ruled on Friday that a group of UnitedHealthcare insurers participating in the Medicare Advantage program have standing to sue the CMS over a May 2014 rule detailing the requirements and penalties insurers face when they receive overpayments.
The May 2014 rule requires Medicare Advantage insurers return overpayments to the government within 60 days of identifying them or they will find themselves in violation of the False Claims Act and potentially subject to civil lawsuits, treble damages and additional penalties. The CMS hoped the rule would help curb Medicare fraud and upcoding, which may cost the government billions of dollars per year.
UnitedHealthcare sued the CMS in January 2016, alleging the rule meant they could be sued for negligence under the False Claims Act, a lower standard than the recklessness standard the law generally applies.
U.S. District Judge Rosemary Collyer said the CMS policy imposed new legal obligations on Medicare Advantage insurers, and it is subject to judicial review.
"In essence, the [HHS] secretary would have the court find that the CMS rule's insistence on 'proactive compliance activities,' under pain of a False Claims Act suit provable by negligence alone, is meaningless," Collyer said. "It is not; it imposes (for good reason or not) new obligations.”
Collyer's ruling did not address the merits of the case and only determined UnitedHealthcare has the right to sue the federal government.
The UnitedHealthcare insurers say the rule holds them to a higher standard that the CMS itself has to meet. They allege the CMS has never categorically reviewed diagnostic codes that can alter Medicare Advantage payments, and coding error rates can be as high as 20%.
Payment rates in Medicare Advantage are based on regional trends and utilization in traditional fee-for-service Medicare as well as adjustments to plan members' risk scores, among other variables. Under the Medicare Advantage program, the government pays private health plans monthly amounts for every member they cover, and those taxpayer-funded payments are adjusted based on how sick someone is.
While Medicare Advantage insurers must certify that all of their coding is "accurate, complete and truthful," they say it's widely known that physicians often enter faulty diagnostic codes. That can lead to serious consequences for the insurers.
The Justice Department recently joined two False Claims Act lawsuits against UnitedHealthcare over allegedly fraudulent Medicare Advantage billing. The whistle-blower lawsuits allege the Minnetonka, Minn.-based insurer inflated its plan members' risk scores since at least 2006 in order to boost payments under the Medicare Advantage risk-adjustment program.
The lawsuits claim that in 2010, UnitedHealth planned to increase operating income by $100 million through "Project 7," which was the company's codeword for initiatives to increase risk-adjustment payments.
UnitedHealth has said it will vigorously contest the whistleblower allegations.