-WYWN
`oCOoSTHRWN
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`
`415.543.1305|Fax415.543.7861
`KELLER
`
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 1 of 43
`Filed 03/06/15 Page 1 of 43
`Case 3:15-cv-01062-LB Document 1
`
`Jeffrey F. Keller, Esq. (SBN 148005)
`ifkeller
`)keller rover.com
`Kathleen R. Scanlan, Esq. (SBN 197529)
`Kkscanlan@kellergrover.com
`
`KELLER GROVER LLLP
`1965 Market Street
`San Francisco, CA 94103
`Telephone: (415) 543-1805
`Facsimile: (415) 543-7861
`Gordon Schnell (NY Bar No. 2502136)
`gschnell@constantinecannon.com
`Marlene Koury (NY Bar No. 4423471)
`mkoury@constantinecannon.com
`CONSTANTINE CANNON LLP
`335 Madison Avenue
`
`Telephone: (212) 350-2700
`
`New York, NY 10017
`Facsimile: (212) 350-2701
`
`SkeneMA,
`
`"
`
`EALED
`Y COURT ORDER
`
`
`IN THE UNITED STATES DISTRICT COURT
`
`FALSE CLAIMS ACT
`
`
`NORTHERNomepe 1069
`
`Attorneys for Relator
`
`[UNDER SEAL]
`
`Plaintiff,
`
`ASE NO.
`
`FILED IN CAMERA AND UNDER SEAL
`DO NOT ENTER ON PACER
`
`COMPLAINT FOR VIOLATIONS OF
`FALSE CLAIMS ACT
`
`JURY TRIAL DEMANDED
`
`DO NOT ENTER ON PACER
`DO NOT PLACEIN PRESS BOX
`
`[UNDER SEAL]
`
`Defendants.
`
`
`
`FILED UNDER SEAL AS REQUIREDBY31 U.S.C. § 3730(b)(2)
`
`COMPLAINT FOR VIOLATIONS OF THE
`
`
`
`

`

`
`
`FALSE CLAIMS ACT
`
`UNITED STATES OF AMERICA,
`ex rel. KATHY ORMSBY
`
`Plaintiff,
`
`Vv.
`
`SUTTER HEALTH,a California not-for-
`profit corporation and PALO ALTO
`MEDICAL FOUNDATION,a not-for-profit
`health care organization;
`
`Defendants.
`
`
`
`CASE NO.
`
`FILED IN CAMERA AND UNDER SEAL
`DO NOT ENTER ON PACER
`
`COMPLAINT FOR VIOLATIONS OF
`THE FALSE CLAIMS ACT
`
`JURY TRIAL DEMANDED
`
`DO NOT ENTER ON PACER
`DO NOTPLACEIN PRESS BOX
`
`FILED UNDER SEAL AS REQUIREDBY31 U.S.C. § 3730(b)(2)
`
`ijii|{
`
`COMPLAINT FOR VIOLAT IONS OF THE
`
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 2 of 43
`Case 3:15-cv-01062-LB Document1 Filed 03/06/15 Page 2 of 43
`
`‘
`
`Jeffrey F. Keller, Esq. (SBN 148005)
`jfkeller@kellergrover.com
`Kathleen R. Scanlan, Esq. (SBN 197529)
`kscanlan@kellergrover.com
`KELLER GROVER LLP
`1965 Market Street
`San Francisco, CA 94103
`Telephone: (415) 543-1305
`Facsimile: (415) 543-7861
`
`Gordon Schnell (NY Bar No. 2502136)
`tinecannon.com
`schnell@const
`No. 4423471)
`Marlene Koury (NY Bar|
`mkoury@constantinecannon.com
`CONSTANTINE CANNON LLP
`335 Madison Avenue
`New York, NY 10017
`Telephone: (212) 350-2700
`Facsimile: (212) 350-2701
`
`Attorneys for Relator
`KATHY ORMSBY
`
`IN THE UNITED STATES DISTRICT COURT
`
`NORTHERN DISTRICT OF CALIFORNIA
`
`—
`
`eoOoJNDHAHFeWYNY
`memeetbhWYNO|O&O
`
`
`KELLER
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`415.543.1305|Fax415.543.7861
`
`

`

`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 3 of 43
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 3 of 43
`
`Kathy Ormsbybrings this gui tam action as Relator on behalf ofthe United States of
`America against Sutter Health and Palo Alto Medical Foundation (together, “Sutter” or
`“Defendants”), under the False Claims Act, 31 U.S.C. § 3729-3733, and alleges — upon
`knowledge with respect|to her own acts and those she personally witnessed, and upon information
`and belief with respect to all other matters — as follows:
`
`PRELIMINARY STATEMENT
`
`This cas¢ is about Sutter’s fraud on Medicare Part C, commonly knownas the
`1.
`Medicare Advantage program, through its submission ofinaccurate and unsupported medical
`information whichartificially inflates the reimbursement Medicare provides for Sutter’s Medicare
`Advantagepatients.
`
`Under the Medicare Advantage program,private health insurance companies are
`2.
`authorized to administer Medicare benefits on behalfof the United States. They offer Medicare
`Advantage plans to Medicare eligible beneficiaries who pay monthly premiums and copayments
`that are often less than the coinsurance and deductibles undertraditional fee-for-service models
`for Medicare Part A and/B. The Medicare Advantage program has proven to be popular with
`seniors and now covers nearly 16 million Americansat a cost expected to top $150 billion in
`2014,
`|
`
`FALSE CLAIMS ACT
`
`oOoNDAHBRWYbv
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`
`415.543.1305|Fax415.543.7861
`KELLER
`
`A critical difference between traditional Medicare and the Medicare Advantage
`3.
`program is howtheprivate insurance companies, and the providers with whom they contract to
`deliver healthcare to the beneficiaries, are paid those billions of dollars by the government.
`Unlike the fee-for-service modelin traditional Medicare, the Medicare Advantage program
`provides a set capitation paymenteach year for the complete care of a beneficiary, a model often
`called Managed Care. Since notall beneficiaries require the samelevel ofcare, however, the
`Medicare Advantage program requires payments to the private health insurance companies (and
`the healthcare providers) |be risk-adjusted annually based on the health status ofeach beneficiary.
`4,
`In 2004, the government implemented the Hierarchical Condition Category (HCC)
`modelto calculate risk-adjusted payments for each beneficiary. The HCC model wasintended to
`compensate the healthcare providers based on thestate ofhealth ofthe particular enrollee, with
`oes4
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`COMPLAINT FOR VIOLATIONS OF THE
`
`1
`
`

`

`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 4 of 43
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 4 of 43
`
`greater compensation going to those whocare for those with greater health issues. The private
`
`insurance companiescollect risk adjustment data, including beneficiary diagnosesdata, from
`
`hospital inpatient facilities, hospital outpatient facilities, and physicians and submitit to the
`
`Centers for Medicare and Medicaid Services (“CMS”). CMSuses the HCCs,as wellas
`
`demographic characteristics, to calculate a risk score for each beneficiary. CMSthen uses the
`
`risk scores to adjust capitated payments for the next paymentperiod.
`
`
`mMNOHOHNWNWHNDNHNOKFFFFfFFFfFSFSFPFhhEhhlESonNNDBWnFPWDNYKHTDOoDHANAHDAFPWONYKFOS
`
`caused by its systematic}failure to code for HCCs accurately, she implemented procedures to
`refund the overpayments it received from Medicare. The compliance failures Relator uncovered
`should have been an eye-opener to Sutter-wide inflated capitation payments because what Relator
`COMPLAINT FOR VIOLATIONS OF THE
`2
`FALSE CLAIMS ACT
`
`SoOoSNDWNOHeeWONYeS
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`
`415.543.1305|Fax415.543.7861
`KELLER
`
`Defendant Sutter Health (“Sutter’’) through fouraffiliates, including Defendant
`5.
`Palo Alto Medical Foundation (“PAMF”), offers ten (10) Medicare Advantageplans for health
`
`care services at Sutter through three private insurance companies. Through these ten plans, Sutter
`is responsible for providing healthcare to approximately 48,000 eligible beneficiaries for which
`
`CMSpays them hundreds of millions of dollars in capitation payments each year.
`
`While Sutter has reaped the benefits ofthe Medicare Advantage program,it has
`6.
`utterly failed to assume anyof its responsibilities clearly set out in the regulations for the
`
`Advantage program for assuring the capitation paymentsit has taken, and continuesto take,are
`
`accurate and truthful. Relator Kathy Ormsbylearnedthis first-hand when she went to work for
`
`Sutter’s PAMFaffiliate in 2013.
`
`7.
`
`Asaresult, Sutter has taken and continues to take hundredsof millions of dollars
`
`in inflated capitation payments forthe care ofeligible beneficiaries based on risk adjustment data
`
`Sutter knowsto be inaccurate, incomplete or false. Sutter has been doing this for many years by
`
`shirking duties to monitor, investigate and certify the accuracy, completeness and truthfulness of
`
`the risk adjustment data it submits, and causes to be submitted, to CMS. Further, after receiving
`
`inflated capitation payments, Defendants havefailed in their duties to monitor whether the
`
`payments from CMSwere accurate. Even now,they continue to retain the inflated capitation
`payments from prior years they know to be overpayments.
`8.
`When Relator exposed a massive numberofinflated capitation payments to PAMF
`
`

`

`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 5 of 43
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 5 of 43
`
`identified was not a problem with just a sub-section ofpayments at PAMF for 2013. Relator
`
`exposed a system-widefailure at Sutter to train physicians on proper HCC coding which was
`causing the inaccurate HCCsto bein the patients’ medical records, a complete lack of any
`auditing for the accuracy ofthe HCCs they were submitting for payment, and a complete lack of
`auditing to validate thatpayments they did receive were correct. This perfect storm is causing
`massive overpayments to Sutter under the Medicare Advantage program.
`
`9.
`
`Moreover, as described below, while Relator directed Sutter’s return ofmillions in
`
`refunds to CMS,Sutter has takenstepsto throttle Relator’s efforts to refundall the inaccurate
`
`payments made to PAMF andtakennoeffort at all to correct the inaccurate payments it knows
`exist at Sutter’s other affiliates because of what Relator discovered at PAMF. Worse still, since
`Medicare Advantage payments are made prospectively, Defendants’ failure to make these
`
`corrections and refund these overpayments is causingnew, additional false claims to be submitted
`
`for the capitation paymentsstill based on what Sutter knowsto be inaccurate risk-adjustment
`
`data.
`
`10.
`
`The solution to this increasingly expensivespiral is for Sutter to stopall billing to
`
`CMSuntilit can correct its systems. However, to date Sutter has made no moveto cut off what it
`
`knowsare massive overpayments from CMS,causing hundredsofmillionsof dollars in damages
`
`
`
`SoCOSNDBWAfF
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`
`KELLER
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`415.543.1305|Fax415.543.7861
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`to the federal government.
`PARTIES
`:
`11.—‘Relator Kathy Ormsby(the “Relator”) is a citizen ofthe United States and a
`residentof the State of California. She has been employed by Sutter since May 2013 and sheis
`
`4 |
`
`currently the Risk Assessment Factor (“RAF”) Managerin Sutter’s PAMFaffiliate. Sheis suing
`
`on behalf of the United States, inclusive of the United States Department of Health and Human
`
`Services, Center for Medicare Services, pursuant to 31 U.S.C. § 3730(b).
`
`Defendant Sutter Health is a California not-for-profit corporation headquartered in
`12.
`Sacramento County,California. Sutter owns, controls and/or operates affiliated hospitals and
`
`physician foundations throughoutCalifornia, including the Palo Alto Medical Foundation. Sutter
`
`generates annual operating revenue of roughly $9.6 billion with approximately 48,000 employees.
`COMPLAINT FOR VIOLATIONS OF THE
`3
`FALSE CLAIMS ACT
`
`

`

`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 6 of 43
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 6 of 43
`|
`
`|
`
`13.
`Defendant Palo Alto Medical Foundationis part of the Peninsula Coastal Region
`ofSutter and is headquartered in Palo Alto, California. PAMFis a not-for-profit health care
`organization with approximately 4,300 employees and locations across Alameda, San Mateo, |
`Santa Clara and Santa Cruz counties.
`|
`JURISDICTION AND VENUE
`
`
`
`. 14._—_Pursuant to 28 U.S.C. § 1331, this District Court has original jurisdiction over the
`
`SoCOSNDHNONPPWDDBO
`
`
`KELLER
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`415.543.1305|Fax415.543.7861
`
`NONONYOHNNYOWNNHYNNOKFeeBeBeRewmmeeeaoJNDHOHHhWHDYEK§3DObOoHTDHDRwnBPWHOHPOKHOC
`
`
`
`
`17.|Medicareiis a health care benefit program funded by the federal government. The -
`Medicare program compensates participating doctors, hospitals and other health care providers
`who furnish health care servicesto citizens of the United States (and certain other legal residents)
`
`subject matter ofthis civil action since it arises underthe laws of the UnitedStates, in particular
`
`In addition, the FCA specifically confers
`the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seg.
`jurisdiction upon the United States District Court, 31 U.S.C. § 3730(b).
`
`This District Court has personal jurisdiction over Sutter pursuant to 31 U.S.C.§
`15.
`3732(a) because the FCA authorizes nationwide service ofprocess and Sutter has significant
`
`operations withinthis district.
`16.
`Venueis likewise properin this district pursuant to 31 U.S.C. § 3732(a) because
`
`Sutter transacts substantial business andresides in this judicial district.
`|
`FACTUAL BACKGROUND
`
`I.
`
`THE MEDICARE PROGRAM
`
`whohavereachedthe age of 65 or who suffer from certain qualifying disabilities. Medicare was
`
`established by Title XVIII of the Social Security Act of 1965 (codified as amended at 42 U.S.C.
`
`§1395 et. seq.).
`18.
`The agendy ofthe United States responsible for the Medicare program is the
`Department of Health and Human Services (“HHS”). See e.g. 42 U.S.C. §§1395b-1, 1395b-2,
`
`1395b-3, 1395b-4, 1395b-7, 1395r and 1395u. The agency within HHS administering the
`
`program is the Centers for Medicare and Medicaid Services (“CMS”).
`
`19,
`
`The Medicare Program is comprised of Parts A, B, C and D. This case is about
`
`Sutter’s fraud on Part C.|
`COMPLAINTFOR VIOLATIONS OF THE
`FALSE CLAIMS ACT
`
`

`

`
`NyNONYNHNHNDNPHNYNHSeSeBoeeSeeeiaoNOONFFWONOESlUCOCOlUCUCUNOlOOUNLUMNNCCCCOweONDeCO
`
`
`
`
`KELLER
`
`
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`415.543.1305|Fax415.543.7861
`
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 7 of 43
`Case 3:15-cv-01062-LB Document1 Filed 03/06/15 Page 7 of 43
`
`II. MEDICARE PART C —- THE ADVANTAGE PROGRAM
`
`20.
`
`Medicare! Part C, also known as Medicare Advantage, authorizes qualified
`
`individuals to opt out of traditional fee-for-service coverage under Medicare Parts A and B and
`
`enroll in privately-run managedcare plansthat provide coverage for both inpatient and outpatient
`
`services. 42 U.S.C. §§ 1395w-21, 1395w-28. Part C allowsprivate health insurance companies
`
`to administer Medicare benefits on behalf of the United States. The private health insurance
`
`companiesthat run these plans are known as Medicare Advantage Organizations (“MAO”) and
`
`act as agents of CMS.
`
`21.
`
`Inthe Medicare Advantage program, Medicareeligible beneficiaries join a
`
`Medicare Advantage plan offered by an MAO. Beneficiaries usually pay monthly premiums and
`
`oFSFSNNnOWFPWONHN
`
`copayments that are often less than the coinsurance and deductibles underthetraditional
`
`Medicare Part A and B programs.
`
`22.
`
`The MAQsmayenter into contracts with providers to provide health care services
`
`for enrollees on behalf of the MAO. However, “{aJll contracts or written agreements must
`
`specify that the related entity, contractor, or subcontractor must comply with all applicable
`
`Medicare laws, regulations, and CMSinstructions.” 42 C.F.R. § 422.504(i) (4) (iv)(C). The
`
`MAOswith which Sutter contracts to providehealthcare services for Medicare Advantage
`
`beneficiaries include Health Net, Inc.; Humana, Inc.; and UnitedHealth Group Inc. Sutter offers
`
`eligible beneficiaries ten|(10) Medicare Advantage products. See,
`
`http://www.pamf.org/physicians/healthplans.html#maplan.
`
`A. The Program’s Key Attributes
`
`23.
`
`Asdescribed by the HHS’s Office of the Inspector General (“OIG”), here are the
`
`keyattributes of the Medicare Part C program:
`Medicare Advantage Program
`The Balanced Budget Act of 1997, P.L. No. 105-33, established Medicare Part C
`to offer beneficiaries managed care options through the Medicare+Choice
`program. Section 201 of the Medicare Prescription Drug, Improvement, and
`Modernization Act of 2003, P.L. No. 108-173, revised Medicare Part C and
`renamed the program the Medicare Advantage (MA)program.
`
`COMPLAINT FOR VIOLATIONS OF THE
`FALSE CLAIMS ACT
`
`5
`
`

`

`Under the CMS model, MA organizationscollect risk adjustment data, including
`beneficiary diagnoses, from hospital inpatient facilities, hospital outpatient
`facilities, and physicians during a data collection period.! MA organizations
`identify the diagnoses relevant to the CMS model and submit them to CMS. CMS
`
`categorizesthedagnose into groupsofclinicallyrelateddiseases called HCCs
`
`and uses the HCCs, as well as demographic characteristics, to calculate a risk score
`for each beneficiary. CMSthen usesthe risk scores to adjust the monthly
`capitated payments to MA organizations for the next paymentperiod.”
`
`
`
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 8 of 43
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 8 of 43
`
`Organizationsthat participate in the MA program include health maintenance
`organizations, preferred provider organizations, provider-sponsored organizations,
`and private fee-for-service (FFS) plans. The Centers for Medicare & Medicaid
`Services (CMS), |which administers the Medicare program, makes monthly
`capitated payments to MA organizationsfor beneficiaries enrolled in the
`organizations’ health care plans (beneficiaries).
`
`Risk-Adjusted Payments
`
`Subsections 1853(a)(1)(C) and (a)(3) of the Social Security Act requirethat
`payments to MAjorganizations be adjusted based on the health status of each
`beneficiary. In calendar year (CY) 2004, CMS implemented the Hierarchical
`Condition Category (HCC) model (the CMS model)to calculate these risk-
`adjusted payments.
`
`Federal Requirements
`
`Regulations (42 CFR § 422.310(b)) require MA organizations to submitrisk
`adjustment data to CMSin accordance with CMSinstruction....
`
`Diagnosesincludedin risk adjustment data mustbe based onclinical medical
`record documentation from a face-to-face encounter; coded accordingto the
`International Classification of Diseases, Ninth Revision, Clinical Modification
`(ICD-9-CM)(the Coding Guidelines); assigned based on dates of service within
`the data collection period; and submitted to the MA organization from an
`appropriate risk adjustment provider type and an appropriate risk adjustment
`physician data source.
`
`https://oig.hhs.gov/oas/reports/region2/20901 014.pdf.
`
`B. The Critical Role of Risk Adjustment
`
`24.
`
`Risk adjustmentis a unique feature of the Medicare Advantage program that does
`
`not exist in traditional Medicare fee-for-service plans. The purposeofrisk adjustmentis to
`
`“allow[] CMSto payplansforthe risk ofthe beneficiaries they enroll” and to “make appropriate
`
`and accurate payments for enrollees with differences in expected costs.”Medicare Managed Care
`
`'Risk adjustment data also include health insurance claim numbers, provider types, and the from
`and through dates for the/services.
`*For example, CMS used data that MA organizations submitted for the CY 2006 data collection
`period to adjust payments for the CY 2007 paymentperiod.
`COMPLAINT FOR VIOLATIONS OF THE
`FALSE CLAIMS ACT
`
`6
`
`
`KELLER
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`415.543.1305|Fax415.543.7861
`
`oOCOYNDBDAWFPWONO
`
`NoNYNONYHNHNKHPPOHNOReeeeeweeheueluaoryDnHNFFWDNYY|§DOoOaDHAHNWBPWwHBKFOC
`
`

`

`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 9 of 43
`Case 3:15-cv-01062-LB Document1 Filed 03/06/15 Page 9 of 43
`
`Manual, Ch. 7, § 20. An) MAOwith a population ofpatients with less severe illnesses than
`
`normal would see a downward adjustmentofits capitation rates because it was servicing a
`
`healthier than normal population ofpatients. See 42 C.F.R. §§ 422.308(c) and 422.310; see also
`70 Fed. Reg. 4588, 4657 (intending to pay MAOs“appropriately for their plan enrollees(thatis,
`less for healthier enrollees and more for less healthy enrollees).”). The risk adjustment system
`
`|
`
`was phasedin beginning in or about 2005 and was completed by or about the end of the 2008.
`
`25.
`
`Each time a Medicare Advantagepatientis treated, the healthcare provider enters
`
`patient diagnosis and treatment codesinto the patient’s medical records. Thepatient’s health
`
`conditions are coded using the International Classification of Disease- 9 (“ICD-9-CM”). The
`
`approximately 3,300 ICD-9-CM codes mapto 70 Hierarchical Condition Categories (“HCC”) in
`
`CMS’ risk adjustment model. CMSrequires documentationin the patient’s medical record to
`
`support every HCC submitted. The documentation must support the active presence of the
`
`condition andindicate the healthcare provider’s assessment andplan for treatment.
`
`26.
`
`The provider, in turn, forwards the HCCsfrom the patient’s medical records to the
`
`MAO.Eachvisit for each Medicare Advantagepatient results in a new submission ofthis risk
`
`adjustment data from the patient’s medical records to the MAO. Each submission includesall of
`
`the HCCs — new andexisting — for each patient.
`
`
`
`oOoSeSNDNOH
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`
`KELLER
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`415.543.1305|Fax415.543.7861
`
`27.|MAOsare required to submitthe risk adjustment data to CMSin accordance with
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`CMSinstructions. 42 CFR § 422.310(b). The MAO aggregates thepatient data forall
`
`beneficiaries and electronically submits it to CMSin the form of Risk Adjustment Processing
`
`System (“RAPS”) reports. CMSrequires reports to be submitted at least quarterly.
`28.
`CMS is required to risk adjust payments to Medicare Advantage organizations on
`an ongoing basis. 42 U.S,C. § 1395w-23(a)(3); 42 C.F.R. §§ 422.308(c); 422.310(g). The
`
`capitation rate is set on a yearly basis, and is subject to two retroactive adjustments per plan year.
`
`CMSdeterminesthe per-patient capitation amountusing actuarial tables based primarily on the
`
`patient’s medical diagnoges and adjusted for the patient’s county of residence and over 70 factors
`
`such as age, sex, severity ofillness, etc. “Medicare risk adjustmentis prospective, meaning
`diagnoses from the previgus year and demographic informationare usedto predict future costs,
`COMPLAINTFOR VIOLATIONS OF THE
`FALSE CLAIMS ACT
`7
`
`

`

`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 10 of 43
`Case 3:15+cv-01062-LB Document1 Filed 03/06/15 Page 10 of 43
`
`and adjust payment.” CMS 2013 National Technical Assistance Risk Adjustment 101 Participant
` Guideat p. 3.
`HHS’ Office ofthe Inspector General acknowledges that because payments to
`29.
`MAOsare adjusted based onthe patient’s health status “Gnaccurate diagnoses may cause CMSto
`pay MAorganizations improper amounts.” HHS OIG Work Plan, FY 2015, found at
`
`http://oig.hhs.gov/reports-and-publications/archives/workplan/2015/FY15-Work-Plan.pdf.
`
`
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`
`415.543.1305|Fax415.543.7861
`KELLER
`
`oOCeo“SN
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`30.|CMShasspecifically notified MAOsand Part C providersthatit relies on the data
`
`they submit to make appropriate and accurate payments under the Medicare Advantage program:
`“Accurate risk-adjusted paymentsrely on the diagnosis coding derived from the member’s
`
`medical record.” (See, e.g., CMS 2013 National Technical Assistance Risk Adjustment 101
`
`Participant Guide at p.13). Put simply, Medicare relies on the patient diagnosis codes and data
`healthcare providers like Sutter provide the MAOs to determinethe appropriate and accurate
`
`capitation paymentper patient.
`
`C. Defendants’ Duties Under the Medicare Advantage Program
`
`31.
`
`Because CMSrelies on the data supplied by healthcare providers like Sutter, there
`
`are clear duties they must abide by to ensure the data they provide is accurate, complete and
`
`truthful. See 42 C.F.R. § 422.504 (i) (4) (iv)(C) (discussing provider’s obligations to comply with
`
`all applicable Medicare laws, regulations, and CMSinstructions.).
`
`1.
`
`The Duty to Monitor
`
`32.
`Foremost amongthese dutiesis the duty to monitor the implementation of the
`Medicare Advantage program for compliance with CMS’ requirements. Accordingly, every
`
`healthcare provideris required to implementan effective compliance program that meets the
`
`regulatory requirementsset forth at 42 C.F.R. §§422.503(b)(4)(vi) and 423.504(b)(4)(vi).
`
`Medicare Managed Care Manual, Ch. 21.
`
`33.
`
`In implementing an effective compliance program, each healthcare provider must,
`
`amongother things: develop procedures to promote and ensure compliance with all Part C rules
`
`and regulations; provide effective training and education for employees; implementpolicies and
`
`procedures to conduct baseline assessments of major compliance andrisk areas, including
`COMPLAINT FOR VIOLATIONS OF THE
`g
`
`FALSE CLAIMS ACT
`
`

`

`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 11 of 43
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 11 of 43
`
`accuracy ofclaims processing,detection ofpotentially fraudulent claims and provider oversight
`
`and monitoring; and conduct regular audits. See, 42 C.F.R. §§ 422.504(i), (1)(3);
`422.503(b)(4)(vi)(A), (C)(1)-(3), (D), (E), (F). See also, Medicare Managed Care Manual, Ch.
`21 §§ 30-50.
`|
`The Duty to Investigate
`
`2.
`
`34.
`
`CMSalso anticipated possible program noncomplianceor fraud, waste and abuse
`
`(FWR). It might “be discovered through a hotline, a website, an enrollee complaint, during
`routine monitoringorself-evaluation, an audit, or by regulatory authorities.” In those instances,
`however it is discovered, the healthcare provider “mustinitiate a reasonable inquiry as quickly as
`
`possible, but not later than 2 weeksafter the date the potential noncompliance or potential FWR
`
`incident was identified.” Medicare Managed Care Manual, Ch. 21 § 50.7.1. See also, 42 C.F.R.
`
`§ 422.503(b)(4)(vi)(G); 42 C.F.R. § 423.504(b)(4)(vi)(G). Thus, there is a clear duty notjust to
`
`investigate possible noncomplianceor fraud. There is a duty to investigate it promptly.
`
`3.
`
`Duty to Certify Accuracy of Risk Adjustment Data
`
`
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`
`415.543.1305|Fax415.543.7861
`KELLER
`
`oOeeYNDBDAFFWDNO
`
`NyNYNYNYKHNHDBNOROReieeeaaaaaaonNDNMNFFYWNYKFDGDOoOoHIDRHWBRWDBHKFOC
`
`35.
`
`Healthcare providers also have a duty to certify the accuracy, completeness and
`
`truthfulness ofthe risk adjustment data they submit, or cause to be submitted, to CMS. 42 C.F.R.
`
`§ 422.504(1) (the duty to certify accuracyis “a condition for receiving a monthly payment’).
`
`The duty extendsto any provider that may generate the data the MAOultimately
`36.
`submits. See, 42 C.F.R, §§ 422.504(1)(3) (“If such data are generated bya related entity,
`
`contractor, or subcontractor ...such entity ... must certify that the data it submits under § 422.310
`are accurate, complete and truthful.); see also 42 C.F.R. § 422.310 (discussing risk adjustment
`data).
`:
`This duty to certify accuracy, completeness and truthfulness applies to any data
`37.
`submitted to CMSandis a continuingobligation. 42 C.F.R. § 422.310(g)(1); 42 C.F.R. §§
`422.504(1); (i)(4)(iii).
`|
`4.
`Duty to Return Overpayments
`
`38.
`
`On May24, 2010,the Patient Protection and Affordable Care Act becamelaw.
`
`Pub. L. No. 111-148, 124 Stat. 755, 42 U.S.C. § 18001 (2010). The Affordable Care Act
`COMPLAINT FOR VIOLATIONS OF THE
`FALSE CLAIMS ACT
`
`9
`
`

`

`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 12 of 43
`Case 3:15-cv-01062-LB Document1 Filed 03/06/15 Page 12 of 43
`
`established a new section ofthe Social Security Act and created a duty for any person to return
`any overpayments. Sodial Security Act of 1935 (Title XI), ch. 531, § 1128)(d), (codified as
`amended at 42 U.S.C § 1320a-7k(d) (2011)). Overpayment means “any funds that a person
`receivesor retains under sub-chapter XVIII or XIX to which the person, after applicable
`reconciliation, is not entitled to under such subchapter.”42 U.S.C § 1320a-7k (d)(4)(B).
`39.
`To find a violation ofthis provision, there need not be “proofofspecific intent to
`defraud.” 31 U.S.C. § 3729(b). Rather, Section 1320a-7k (d)(4)(A) defines “knowing” and
`“knowingly”as those terms are defined in 31 U.S.C. § 3729(b). Thus, “knowing and knowingly
`mean that with respect to information ofthe existence ofan overpayment, a person: (1) has actual
`knowledge ofthe information; (2) acts in deliberate ignoranceofthe truth orfalsity ofthe
`information; or (3) acts in reckless disregard ofthe truth or falsity of the information.” 31 U.S.C.
`§ 3729(b).
`
`In January, 2014, in proposed rulemaking implementing the Affordable Care Act
`40.
`for the Medicare Advantage program, CMSreiterated that the duties created by the Affordable
`Care Act went into effect on May 24, 2010 - when it was signed into law -- and were not
`dependentonfinal rulemaking by CMS:
`
`Weremindall stakeholders that even in the absence ofa final regulation on these
`statutory provisions, MA organizations and Part D sponsors are subject to the
`statutory requirements found in section 1128J (d) of the Act and could face
`potential False Claims Act liability, Civil Monetary Penalties (CMP) Law liability,
`and exclusion from Federal health care programsforfailure to report and return an
`overpayment. Additionally, MA organizations and Part D sponsors continue to be
`obliged to comply with our current procedures for handling inaccurate payments.
`79 Fed Reg 1917, 1996 (Jan. 10, 2014).?
`
`FALSE CLAIMS ACT
`
`On May23, 2014, CMSpublishedfinal regulations regarding these duties. 42
`41.
`C.F.R. § 422.326. See also, 79 Fed. Reg. 29844, 29923 (May 23, 2014). In relevantpart, Section
`422.326 provides:
`
`
`
`> Healthcare providers like Sutter are stakeholders to whom this guidance is directed. When
`MAOscontract with healthcare providers like Sutter to care for beneficiaries, the MAO’sduties
`are extended to the provider who must agree to comply with all rules and regulations of the
`Medicare Advantage program. 42 C.F.R. § 422.504(i) (4) (iv)(C).
`COMPLAINTFOR VIOLATIONS OF THE
`10
`
`
`KELLER
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`415.543.1305|Fax415.543.7861
`
`—oOoOONDDRWHBPWHbw
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`

`

`
`
`5.
`
`Complying With These Duties is a Condition ofAll Medicare Advantage
`Payments
`Asa condition ofreceiving capitation payments from the Government underthe
`42.
`Medicare Advantage program,all healthcare providers are required to monitor andinvestigate the
`integrity ofthe risk adjustment data and certify the same. See, 42 C.F.R. § 422.504(i)(4)(v),(1).
`43.
`In 2014, CMS emphasizedthat the duties to monitor, investigate and certify the
`accuracy ofpaymentrelated data have existed for years, and are the basis upon which CMS
`makes its payments under the Medicare Advantage program. CMSwrote, “For many years
`organizations have been obliged to submit accurate, complete, and truthful - paymentrelated data,
`as described at §422.504(1).... Further, CMS has required for manyyearsthat diagnoses that MA
`organizations submit for payment be supported by medical record documentation. Thus, we have
`always expected that MA organizations[] ... implement, during the routine course of
`business, appropriate payment evaluation procedures in order to meet the requirement of
`certifying the data they submit to CMSfor purposes of payment.” 79 Fed. Reg. 29844,
`29923 (May 23, 2014) (discussing requirementsto certify the accuracy ofrisk adjustment data
`and a new requirement imposing FCAliability forthe retention ofoverpayments set forth at 42
`
`COMPLAINTFOR VIOLATIONS OF THE
`FALSE CLAIMS ACT
`
`1]
`
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 13 of 43
`Case 3:15-cv-01062-LB Document1 Filed 03/06/15 Page 13 of 43
`
`(b) General Rule. If an MA organization has identified thatit has received an
`overpayment, the MA organization mustreport and return that overpaymentin the
`form and mannerset forth in this section.
`
`(c) Identified Overpayment. The MA organization has identified an overpayment
`when the MA organization has determined, or should have determined through the
`exercise ofreasonable diligence, that the MA organization has received an
`overpayment.
`
`382K ae
`
`(e) Enforcement, Any overpaymentretained by an MAorganization is an
`obligation under,31 U.S.C. § 3729 (b)(3) ifnot reported and returned in
`accordance with|paragraph (d) ofthis section.
`(f) Look-backperiod. An MAorganization must report and return any
`overpaymentidentified for the 6 most recent completed paymentyears.
`42 C.F.R. § 422.326.
`
`(d) Reporting and returningofan overpayment. An MAorganization must report
`and return any overpaymentit received nolater than 60 days after the date on
`whichit identified it received an overpayment, unless otherwise directed by CMS
`for purposes of§422.311.
`
`
`KELLER
`
`GROVERLLP1965MarketStreet,SanFrancisco,CA94103Tel.
`415.543.1305|Fax415.543.7861
`
`coOoNDHWBRWwWLPO
`
`SB®RP%®&YSNRNNDYBeBeeweeewKwYeAAOLotOHFeYNF&FSG6BweAAaBRDBH2Ss
`
`

`

`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 14 of 43
`Case 3:15-cv-01062-LB Document 1 Filed 03/06/15 Page 14 of 43
`
`C.F.R. §§ 422.504(1) and 422.326). CMS further emphasized, “MA organizations...are expected
`
`to have effective and appropriate payment evaluation procedures and effective compliance
`
`programsas a wayto avoid receiving or retaining overpayments. Thus, at a minimum,
`
`reas