The latest settlement involving Medicare Advantage (MA) organizations highlights not only the government’s continuing enforcement focus on Medicare Part C but also the vulnerabilities inherent in that program. In United States ex rel. Sewell v. Freedom Health, Inc. et al., two Florida-based MA organizations – Freedom Health and Optimum HealthCare – agreed to pay $32.5 million to resolve allegations that they had fraudulently exaggerated diagnosis codes and misrepresented the adequacy of their provider networks.

According to the complaint, internal coding auditors were instructed by Freedom Health and Optimum to review member medical records for “missing” medical conditions that corresponded to high-value diagnosis codes, regardless of whether the condition or treatment had actually occurred. To circumvent the requirement by the Centers for Medicare & Medicaid Services (CMS) that diagnosis codes must be justified by a face-to-face encounter with a physician each year, the physician whistleblower alleged that the defendants directed doctors to schedule unnecessary office visits for the sole purpose of documenting lucrative diagnosis codes for conditions that had been previously suffered by members but were not treated in the past year.

The MA organizations were also alleged to have fraudulently expanded into new geographic service areas by falsely certifying to CMS that they had developed an adequate network of providers in those regions. When the MA organizations submitted to CMS their request for expansion, the list of providers furnished to the agency was not the same as what was published in the provider directories. The MA organizations had omitted from their published network lists the providers who charged high commercial rates which both prevented members from identifying local in-network providers and created significant coverage gaps, according to the complaint.

Although there was no admission of liability, the settlement involves a five-year Corporate Integrity Agreement under which the MA organizations agreed to promptly establish a robust compliance program, provide annual compliance training for employees, retain an independent compliance auditor and establish a disclosure program to facilitate anonymous reporting of complaints. In addition, Freedom Health’s former chief operating officer agreed to personally pay $750,000 to resolve allegations of his role in one of the schemes.

The case is United States ex rel. Sewell v. Freedom Health, Inc. et al, 8:09-cv-1625 (M.D. Fl. May 12, 2017).