Medicare Overpayments Ruling Hits Insurers’ Fraud Defenses

A recent federal circuit court decision against UnitedHealthcare Insurance Co. regarding when Medicare Advantage plans have to report and refund overpayments to the government could lead to more successful False Claims Act lawsuits.

The decision by the U.S. Court of Appeals for the District of Columbia Circuit found the overpayments rule, issued by the Centers for Medicare and Medicaid Services, was a valid exercise of statutory authority.

Under the Affordable Care Act, Congress amended the Medicare program’s data-integrity provisions for Medicare Advantage (MA) plans, in response to perceived misreporting of diagnosis information for beneficiaries enrolled in Medicare Part C, or MA plans. Medicare does not pay for medical treatment that is not supported by a valid diagnosis, and such payments made to a MA plans are considered an overpayment.

CMS issued a rule requiring a MA plan to report and refund an overpayment within 60 days if the insurer identifies it received an overpayment based on an unsupported diagnosis. Failure to do so can give rise to liability under the False Claims Act.

Misreporting of the diagnosis for a beneficiary directly impacts the amount of Medicare reimbursement to MA plans because they are paid based on a prospective lump sum, per-capita amount each month. That sum is derived from medically documented diagnosis codes and various demographic factors.

To ensure “actuarial equivalence,” a requirement specified by law, these risk factors include age, disability status, gender, institutional status and adjustment for health status, factors that CMS determines to be predictive of health-care costs. The sum ultimately derived by statute is based on the amount it would cost CMS if payments were made directly to providers rendering care to the beneficiaries under traditional Medicare.

UnitedHealthcare’s Challenge

UnitedHealthcare brought suit challenging the overpayment rule. The D.C. Circuit ruled that the plaintiffs’ reading of the Medicare statute is contrary to the plain text and structure of that law.

UnitedHealthcare’s most salient assertion was that the rule needed to be based on “actuarial equivalence,” just as required by statute for the setting of monthly per-capita rates. Without that adjustment, MA plans would be underpaid.

The D.C. Circuit disagreed, and made clear that the requirement for “actuarial equivalence” when setting monthly per-capita rates does not apply to the obligation to refund identified overpayments. The court’s ruling effectively denies MA plans a defense in litigation brought under the False Claims Act.

What to Watch

The impact of the decision should be viewed in the context of how other courts will address this issue, and current legislative action. It remains to be seen if the court of appeals decision in UnitedHealthcare is viewed as persuasive authority by other courts.

Legislators on Capitol Hill have indicated a dislike for how the False Claims Act has been interpreted in ways that restrict whistleblowers. Most pertinent, the Supreme Court’s decision in Escobar and implementation by the DOJ of the Granston Memo have been viewed as impeding fraud cases.

The False Claims Amendments Act of 2021, S. 2428, has been introduced by a bipartisan group of senators. The bill would amend the federal statute to impose a higher burden of proof on defendants when rebutting the materiality element of a claim. Here, the defendant would need to prove a lack of materiality under a standard of “clear and convincing evidence.”

It also would impose stricter standards for dismissal of cases under the Granston Memo. Where a defendant seeks discovery in a False Claims Act qui tam case, the bill shifts the cost incurred by the government responding to discovery requests to the defendant in cases where the government has elected not to intervene.

It is early to predict the success of S. 2428. The False Claims Act, though, is viewed as a significant tool to combat fraud. There is sentiment on Capitol Hill to strengthen the law.

Taken together, the current landscape is in flux, generally against MA insurers as defendants in False Claims Act litigation. There are several takeaways from the UnitedHealthcare decision. Although not a subject of wide-ranging litigation, the prevailing view of courts, limited as it is, has been to reject a challenge to the overpayment rule because it is not based on “actuarial equivalence.”

The D.C. Circuit’s reasoning in UnitedHealthcare was thorough, and it rejected this argument. MA plans need to be proactive in identifying and refunding overpayments with robust compliance programs.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Stuart Silverman is a health-care attorney in Washington, D.C. He was previously an attorney with the Department of Health and Human Services, Office of the General Counsel, and the Office of the Inspector General for the District of Columbia Government, Medicaid Fraud Control Unit, and the law firm Greenberg Traurig.