An Unsettling Settlement: Health Plan to Pay $32 Million to Settle Coding and Provider Network Misrepresentation Charge

On May 30, the Department of Justice (DOJ) announced that it reached a settlement with commonly-owned Freedom Health Inc. and Optimum Healthcare, Inc. (Freedom Health) — two Tampa, Florida, managed care plans — to settle False Claims Act allegations. Freedom Health agreed to pay nearly $32 million to resolve allegations. In addition, its former chief operating officer agreed to pay $750,000. Freedom Health also agreed to enter into a five-year Corporate Integrity Agreement under the settlement.

The settlement stems from a whistleblower allegation from Darren Sewell, Freedom Health’s former chief medical officer, resulting in the case United States ex rel. Sewell v. Freedom Health, Inc., et al., Case No. 8:09-cv-1625 (M.D. Fla.). The case was brought under the Federal False Claims Act and the Florida False Claims Act, permitting Dr. Sewell to sue on behalf of the government.

Dr. Sewell alleged that Freedom Health, which contracts with the Centers for Medicare and Medicaid Services (CMS) to participate in the Medicare Advantage program, cheated on two processes run by CMS — Risk Adjustment and Network Adequacy. According to a DOJ press release, Freedom Health submitted “unsupported diagnosis codes” resulting in “inflated reimbursements” through CMS’s risk adjustment program. Freedom Health also “made material misrepresentations” of its provider networks in order to pass network adequacy review and gain permission to expand its service area.

There are currently a handful of risk adjustment whistleblower lawsuits against Medicare Advantage plans. The circumstances and merits of each of these cases are different, so generalizing them is unwise. But DOJ’s big settlement — $16.7 million for risk adjustment “upcoding” — from a small plan (Freedom Health) may encourage the DOJ to seek even larger amounts in settlements against larger plans.

Observers have long understood potential risks from so-called “upcoding” in Medicare Advantage plans. More noteworthy in the Freedom Health case is the first-of-its-kind payment for alleged provider network misrepresentation. The $15 million settlement for provider network misrepresentation, and the $750,000 payment from the chief operating officer for his role in the misrepresentation, comes amid growing criticism of so-called narrow networks and increased provider network scrutiny across markets. As part of its five-year Corporate Integrity Agreement, Freedom Health agreed to additional oversight from an independent auditor tasked with confirming the accuracy of its provider networks if it adds to its service area or offers new plans. The plan faces daily penalties if it fails to produce information requested by the auditor.

By nearly all comparisons, CMS is a strict regulator of Medicare Advantage plans. The Freedom Health whistleblower settlement, roughly 10-times the size of the largest civil money penalty imposed by CMS against a Medicare Advantage plan to date, is a stark reminder that the greatest risk faced by non-compliant Medicare Advantage plans comes from outside the agency.