Medicare Fraud Lawsuit: Independent Health to Pay Up To $98M to Settle False Claims Act Suit

 United States Of America vs. Independent Health Association et al

Case Background

On April 11, 2012, the Plaintiff, the United States of America, filed a lawsuit in the United States District Court for the Western District of New York (Case number: 1:12cv299). The Honorable William M. Skretny presided over the case. This legal action was brought under the False Claims Act in response to allegations of Medicare fraud. The lawsuit accused the defendants of deliberately submitting false and inflated Medicare risk adjustment claims to the Centers for Medicare & Medicaid Services (CMS), thereby defrauding the government. The case sought to hold the defendants accountable for violating the False Claims Act and demanded penalties and damages for the fraudulent claims submitted under the Medicare Advantage program.

Cause

The defendants deliberately orchestrated a complex scheme to defraud the Centers for Medicare & Medicaid Services (CMS) by submitting thousands of false and inflated risk adjustment claims. Group Health Cooperative (GHC), a Washington-based healthcare provider, and Independent Health Corporation (IHC), a New York-based company, partnered with DxID LLC, a subsidiary of IHC specializing in risk adjustment reviews, to manipulate Medicare Advantage reimbursements.

Between 2010 and 2012, the defendants knowingly submitted fraudulent risk adjustment claims to CMS to inflate reimbursements for their Medicare Advantage plans. DxID reviewed patient medical records and fraudulently identified additional diagnoses, even though these were unsupported by adequate medical documentation. The defendants submitted these exaggerated diagnoses, falsely claiming patients had severe medical conditions like chronic kidney disease, diabetic neuropathy, and major depressive disorder, even when treating physicians had explicitly ruled out these conditions in their medical notes.

Bypassing GHC’s internal Insurance and Health Data Analysis (IHDA) department, which adhered to CMS’s strict coding standards, GHC executives authorized DxID to submit fraudulent claims directly through the Finance and Decision Support department. This bypassed proper oversight. DxID also failed to delete previously submitted erroneous claims, compounding the fraud. By exploiting CMS’s risk adjustment payment model, the defendants systematically defrauded the U.S. Government of millions of dollars.

Injuries

The fraudulent activities committed by the defendants caused significant financial harm to the U.S. Government and taxpayers. CMS paid millions of dollars in inflated reimbursements based on false risk adjustment claims, diverting funds that should have gone to legitimate Medicare beneficiaries. These fraudulent practices undermined the integrity of the Medicare Advantage program and eroded public trust in federal healthcare systems.

The government incurred substantial administrative costs to investigate and validate risk adjustment claims through Risk Adjustment Data Validation (RADV) audits. These audits revealed that the defendants’ fraudulent claims were supported by inadequate documentation, such as outdated “problem lists” and lab test results that failed to meet CMS standards.

The fraudulent activities also created an uneven playing field for honest Medicare Advantage providers who complied with CMS regulations, compromising the integrity and sustainability of Medicare programs.

Damages

The defendants caused over $12 million in financial damages for the 2010 service year alone by submitting more than 4,500 fraudulent risk adjustment claims to CMS. According to internal reviews by the relator, approximately 74% of these claims were erroneous, resulting in $8 million in fraudulent overpayments to GHC.

In addition to direct financial losses, the defendants’ fraudulent activities caused indirect damages, including skewing the accuracy of risk score calculations. This led to excessive reimbursements for unsubstantiated diagnoses, undermining CMS’s ability to allocate resources effectively.

The damages are further compounded by penalties under the False Claims Act (FCA), which mandates treble damages and statutory penalties for each false claim submitted. The defendants also knowingly retained overpayments, violating their duty to correct errors in prior submissions.

Key Arguments and Proceedings

Legal representation

• Plaintiff(s): United States of America Ex Rel. Teresa Ross | Teresa Ross, Relator
  • Counsel for Plaintiff: Brian Melber | David Wiseman | Kathleen Ann Lynch | Rodney O. Personius | Samson Oluwasegun Asiyanbi | David M. Coriell | Gretchen L. Wylegala | Michael James Ronickher | Rosie Dawn Griffin | Timothy P. McCormack | Max Voldman | Emily Anne Stabile | Alan B Howard | David Jeffrey Leviss | David B. Robbins | Matthew P Gordon | Elizabeth M Bock

• Defendant(s):Independent Health Corporation | DxID LLC | Betsy Gaffney, Co-Chief Executive Officer of DxID | Independent Health Association, Inc.
  • Counsel for Defendants:Andrew M. Debbins | Michael Clemente | Vincent E. Doyle, III | Bryan Paul Kroetsch | Daniel Meron | David C. Tolley | Annie Wilson | Timothy W. Hoover | Spencer Leeds Durland

Claims

The U.S. Government filed multiple claims against the defendants under the Federal False Claims Act, alleging deliberate fraud and conspiracy. Key claims included:

Submission of False Claims:

The defendants knowingly submitted thousands of false and fraudulent risk adjustment claims to CMS, asserting diagnoses that patients did not have or were not treated for during the relevant year.

Conspiracy to Commit Medicare Fraud:

The defendants conspired to defraud the U.S. Government by submitting false risk adjustment claims, inflating CMS reimbursements, and concealing their fraudulent activities.

Failure to Correct Known Errors:

The defendants failed to delete or correct erroneous risk adjustment claims after discovering inaccuracies, knowingly retaining fraudulent overpayments.

Retention of Overpayments:

The defendants deliberately retained Medicare Advantage overpayments resulting from false risk adjustment claims, in violation of federal laws that mandate repayment of funds obtained through fraud.

Bypassing Internal Controls:

The defendants circumvented established risk adjustment protocols at GHC, allowing DxID to submit fraudulent claims without oversight from the IHDA department, which followed CMS regulations.

The government sought treble damages and civil penalties under the FCA, demanding compensation for all fraudulent claims and punitive penalties to deter future Medicare fraud.

Defense

The defendants denied all allegations of wrongdoing and asserted that their actions were lawful and complied with the regulations governing the Medicare Advantage program. They argued that their risk adjustment claims to CMS were based on accurate medical data and industry-standard practices. The defendants maintained that they relied on qualified professionals and thorough retrospective reviews to identify and submit claims for legitimate diagnoses. They insisted that any alleged errors in the claims were unintentional and did not constitute fraud or deliberate misconduct.

The defendants claimed that their use of “problem lists” and diagnostic test results was in alignment with CMS guidelines and industry norms. They argued that CMS’s guidelines were complex and subject to interpretation, leading to different methodologies for coding and documentation. The defendants asserted that they acted in good faith to comply with the requirements for risk adjustment payments and that their submissions reflected their understanding of the guidelines at the time.

Additionally, the defendants contested the relator’s findings regarding the error rate of their claims. They argued that the relator’s analysis was incomplete and biased and failed to consider the broader context of their submissions. They emphasized that they had implemented robust review processes to ensure compliance and had no intention of defrauding the U.S. Government. The defendants also claimed that any overpayments received were the result of CMS’s calculations, not fraudulent actions on their part.

The defendants contended that the relator’s allegations were based on isolated instances rather than a systemic pattern of fraud. They maintained that discrepancies in their claims resulted from human error or differences in interpretation, not deliberate fraud. They further argued that they were not obligated to delete previously submitted claims unless CMS explicitly identified them as erroneous or invalid. The defendants sought to have the case dismissed, arguing that the claims against them lacked merit and did not meet the legal standards required to prove fraud under the False Claims Act.

Settlement

Court Documents:

Documents are available for purchase upon request at jurimatic@exlitem.com