United States ex rel. Fisher v. Iasis Healthcare LLC
| Decision Date | 08 November 2016 |
| Docket Number | No. CV-15-00872-PHX-JJT,CV-15-00872-PHX-JJT |
| Parties | United States of America, ex rel. Aaron Fisher, et al., Plaintiffs, v. IASIS Healthcare LLC, et al., Defendants. |
| Court | U.S. District Court — District of Arizona |
NOT FOR PUBLICATION
At issue is Certain Defendants'1 Motion to Dismiss (Doc. 78, Mot.), to which Plaintiff Relators2 have filed a Response (Doc. 95, Resp.), and Moving Defendants Replied (Doc. 105, Reply). Multiple parties3 joined in both the Motion to Dismiss and Reply. (Docs. 83, 88, 89, 90, 106, 107, 108.) Both sides also submitted supplemental authority in support of their respective filings. (Docs. 84, 102.) The Court finds this matter appropriate for decision without oral argument. See LRCiv 7.2(f).
Pursuant to the False Claims Act ("FCA"), private persons known as "relators" may file qui tam actions and recover damages on behalf of the United States. 31 U.S.C. § 3730(b). Relators here are healthcare professionals currently or formerly employed by one of the Health Choice entities. Relators originally filed this FCA action on May 14, 2015 on behalf of the United States. (Doc. 1.) Relators filed a First Amended Complaint, as of right, on July 22, 2015 (Doc. 7) and a Second Amended Complaint on January 28, 2016 (Doc. 14). In accordance with the FCA's qui tam provisions, the Complaint remained under seal until the United States determined whether they would intervene and proceed with the case as co-Plaintiff—which they declined to do. Moving Defendants met and conferred with Relators, who then filed the Third Amended Complaint, the operative pleading, on May 23, 2016. (Doc. 67, TAC.) The Relators assert four claims under three subsections of the FCA—31 U.S.C. §§ 3729 (a)(1)(A)-(C).
The Court accepts as true the following allegations for the purpose of resolving this Rule 12(b)(6) Motion. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 338 (9th Cir. 1996). The Centers for Medicare & Medicaid Services ("CMS") oversee Medicaid—which provides healthcare services for low-income and disabled individuals and is jointly funded by the federal government and the states, and is administered on a state-by-state basis. 42 U.S.C. § 1396, et seq. IASIS Healthcare LLC ("IASIS") is a hospital management company that owns or leases at least 17 healthcare facilities. Health Choice Arizona ("Health Choice"), a wholly owned subsidiary of IASIS, is a prepaid Medicaid-managed health plan that contracts with Arizona Health Care Cost Containment System ("AHCCCS"), the state agency that administers Arizona's Medicaid program pursuant to a Section 1115 waiver that permits states to enact certain pilot projects in their Medicaid programs. 42 U.S.C. § 1315. Health Choice provides healthcare services to Medicaid enrollees through subcontracted providers. Unlike a traditional fee-for-service model, under a managed care program, the managed care organizations ("MCOs") enter into comprehensive risk contracts with the state. See 42 U.S.C. § 1396b(m) (defining MCOs);42 C.F.R. § 438.1(a) (). Under a risk contract, the MCO is paid a "capitation payment," and in return assumes risk for the costs of the services covered under the contract. 42 C.F.R. § 438.2 (defining risk contract). Here, Health Choice provides insurance to Medicaid beneficiaries on a capitated per-member, per-month payment from AHCCCS. Health Choice experiences a loss when it pays more for medical care than it receives in capitation payments, and earns a profit when it pays out less. Health Choice's contract with AHCCCS requires all funds to be medically necessary and cost effective, and incorporates various regulations and policies by reference. 42 C.F.R. § 438.210(a)(1).
As an MCO, Health Choice mandatorily provides AHCCCS with ongoing reports, known as Encounter Data Reports, that record all Medicaid-covered services reported on an inpatient or outpatient claim submitted to an MCO, including those paid, administratively denied, or for which no Medicaid payment was due. Health Choice's Chief Financial Officer or Chief Executive Officer, or another individual designated to sign on their behalf, is also required to report contractor encounter data under 42 C.F.R. §§ 438.604 and 438.6087. This report must include an attestation that the data or documents recorded and submitted are based on best knowledge, information, and belief, are in compliance with Subpart H of the Balanced Budget Act requirements, are complete, accurate, and truthful, and are in accordance with all federal and state laws, regulations, policies, and contracts. In order to receive federal funds, each state must submit a quarterly estimate to the United States for estimated costs, including MCO services (Form CMS-37), and a quarterly expenditure report (Form CMS-64). Both the CMS-37 and CMS-64 include a certification attesting that the reported data include only allowable expenditures "in accordance with applicable federal, state, and local statutes, regulations, policies, and the state plan approved by the Secretary . . ." Relators allege that Health Choice's encounter reports are directly incorporated into the State's CMS-37 and CMS-64 reports.
To deliver services, each MCO is required to develop a network of sub-contracted providers consisting of physicians, hospitals, clinics, medical equipment suppliers, and other entities necessary to deliver care. Each subcontractor agrees to deliver services based on the negotiated payment rates. Despite these subcontracts, the MCO remains fully responsible for the aspects of contract performance, agreeing to assure that all activities carried out by its subcontractors conform to its duties.
From 2011 on, Health Choice operated a program in which certain providers were granted "Gold Card" status as an apparent provider retention measure and to entice other providers to join the Health Choice network. Gold Card status was granted, apparently, without regard to the performance of the provider or demonstrated ability to provide medically necessary and cost effective care. Once recorded in the provider's computer profile, Gold Card status granted automatic approval for any service payments requested by that provider without prior authorization review. When they became aware of the program, Relators Nowak and Gutzwiller each raised concerns regarding the Gold Card system's compliance with applicable statutes and regulations. Relators provide at least one example of a provider's request being denied due to lack of documentation of x-ray reports, activity modification, or physical therapy that was immediately approved once it was determined that the provider was a Gold Card member. Relators allege that each physician, physician group, or clinic named in the TAC was a Gold Card provider.
Health Choice also created a similar provider retention measure known as "Platinum status," under which a provider's claims bypassed the review process and were automatically paid within ten days—without documentation and regardless of whether the provider had obtained any prior authorization or had passed a medical necessity review. Relators allege that such claims were manually approved and manipulated within the system so as to circumvent the medical review and audit departments.
Relators also allege that Health Choice was improperly staffed, which led to its inability to timely process requests for prior authorization in violation of AHCCCS's performance standards. To alleviate the backlog caused by such staffing issues andcomply with its contractual and regulatory requirements (or create the appearance of compliance), Health Choice would "admin. approve" the delinquent requests without evaluating the claims for necessity, consistency, or other prior authorization requirements. Such approval also ignored any previous denial due to preauthorization review.
Health Choice similarly created a "place-holder" code—99950—to approve blocks of claims. Like the Platinum status claims and those marked admin. approve, 99950 claims were automatically dropped out of the internal audit queue for possible review by Health Choice and approved en masse, resulting in the creation of incorrect accuracy statistics and encounter reports that contained non-compliant, non-covered services for transmission to AHCCCS.
During the relevant time period, Health Choice also applied a different appeals and utilization review process for IASIS-owned facilities. Through these programs, administrators would override Health Choice's medical personnel's denial of claims if submitted by IASIS-affiliated providers.
Beginning in 2013, Health Choice also created a program entitled "partnership for quality outcomes." Through this program, providers were given funds purportedly to shift administrative burden, particularly with regard to prior authorization. For example, Defendant North Country Healthcare Inc. ("North Country") contracted with Health Choice as part of the partnership program. In doing so, North Country agreed to participate in non-specific cost control measures. In return, Health Choice provided a $25,000 payment to fund a care coordinator to facilitate implementation of those measures. Health Choice failed to ensure that a care coordinator was hired or that any other measurable was tracked with regard to the grant or use of funds.
Relators also allege that Moving Defendants failed to properly credential providers in its network, paid claims submitted by uncredentialed providers, and routinely operated a system of intentional backdating of approval dates for providers and approving providers who did not meet minimum quality standards for network participation.
Federal Rule of Civil Procedure 12(b)(6) is designed to "test[] the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). When analyzing a complaint for failure to state a claim for relief under Rule 12(b)(6), the...
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