Kaiser Scores First-to-File Dismissal in Medicare Advantage Fraud Suit

Medicare Advantage Organizations have come under increased fire as their parent companies continue to acquire more healthcare practices across the country.  Experts suggest that this vertical integration has led to inflated Medicare spending, with providers facing new pressure to diagnosis chronic conditions that fetch more money for Medicare Advantage plans.

These dynamics are on full display in a consolidated False Claims Act action against integrated managed care consortium, Kaiser Permanente, in which the federal government intervened in 2021.  Despite failing to dismiss the government’s claims, Kaiser has scored a victory in the Ninth Circuit against two of the qui tam relators.

In non-precedential opinion dated January 10, 2024, a three-judge panel for the Ninth Circuit affirmed the dismissal of one of the FCA complaints against Kaiser under the statute’s first-to-file rule.

The two dismissed relators, Marcia Stein and Rodolfo Bone, had alleged that Kaiser submitted false diagnosis codes to CMS to inflate payments that Kaiser’s health plans received through the Medicare Advantage risk-adjustment system.  Three other relators had made similar allegations against Kaiser in earlier filed actions, leading the Northern District of California to dismiss Stein and Bone’s FCA complaint under the first-to-file rule.

Under the FCA, “[w]hen a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”  This bar against subsequent “related” actions is known as the first-to-file rule.[i]

Stein and Bone appealed the dismissal ruling on grounds that their complaints provided new details about Kaiser’s scheme and that the district court had disregarded their proposed amended pleading.  The Ninth Circuit rejected both arguments.

Ninth Circuit’s Ruling

The Ninth Circuit acknowledged that Stein and Bone had provided “more details about a few diagnoses.”  Still, applying the “material facts test,” the Ninth Circuit held that Stein and Bone’s more detailed allegations related to the same fraudulent scheme alleged in the earlier actions.  And because the earlier actions “alerted the government to the essential facts of [the] fraudulent scheme,” the first-to-file rule barred Stein and Bone’s complaint, the Ninth Circuit concluded.

The Ninth Circuit also held that the district court did not abuse its discretion in denying leave to amend, reasoning that “Relators made no showing below—nor on appeal—that any amendment could cure their first-to-file deficiency.”

In a concurring opinion, Judge Danielle J. Forrest urged the Ninth Circuit to overrule en banc its “controlling” decision in United States ex rel. Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121 (9th Cir. 2015).  In Hartpence, the Ninth Circuit held that the first-to-file rule was jurisdictional.  But Section 3730(b)(5) “says nothing about the court’s ‘adjudicatory authority,’” Judge Forrest wrote.

“[O]ur en banc court should take the opportunity to bring our precedent regarding the FCA’s first-to-file bar in line with the Supreme Court’s repeated instruction not to make rules jurisdictional absent clear direction from Congress.”

Stein and Bone have 14 days from the ruling to petition the Ninth Circuit for a rehearing en banc.

The case is United States ex rel. Stein, et al. v. Kaiser Foundation Health Plan, Inc., et al., Case No. 3:16-cv-05337-EMC (N.D. Cal.).

Ongoing Litigation Against Kaiser

In 2021, the United States filed a complaint-in-intervention that consolidated the related actions in United States ex rel. Osinek, et al. v. Kaiser Permanente, et al., No. 3:13-cv-03891-EMC (N.D. Cal.).

In June 2023, District Judge Edward Chen cut a novel theory that Kaiser should be liable under the FCA for misusing tax credits through the manipulation of its risk-adjustment data submissions to CMS.  The other claims against Kaiser are ongoing.

Increased Scrutiny for Medicare Advantage Organizations

With insurers acquiring more control over providers through practice acquisitions, Medicare Advantage Organizations face increased scrutiny for risk-adjusting diagnosis codes submitted to CMS.

In October 2023, for example, the Department of Justice filed a rare criminal indictment against Kenia Valle Boza, a certified coder and former director of Medicare risk adjustment analytics at HealthSun Health Plans Inc. The DOJ declined to prosecute HealthSun.

A month earlier, in September 2023, DOJ announced a $172 million settlement with Cigna to resolve claims that it submitted false diagnoses for morbid obesity and other risk-adjusting conditions through its “chart review” program.

“Over half of our nation’s Medicare beneficiaries are now enrolled in Medicare Advantage plans, and the government pays private insurers over $450 billion each year to provide for their care,” said Deputy Assistant Attorney General Michael D. Granston of the Justice Department’s Civil Division.[ii]  “We will hold accountable those insurers who knowingly seek inflated Medicare payments by manipulating beneficiary diagnoses or any other applicable requirements.”

[i] 31 U.S.C. § 3730(b)(5).

[ii] See Press Release Number: 23-1082, U.S. Dep’t of Just., Cigna Group to Pay $172 Million to Resolve False Claims Act Allegations, (Oct. 5, 2023).



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