United States ex rel. Silingo v. WellPoint, Inc.

• Citation: 895 F.3d 619
• Decision Date: 09 July 2018
• Docket Number: No. 16-56400,16-56400
• Parties: UNITED STATES EX REL. Anita SILINGO, Plaintiff-Appellant, v. WELLPOINT, INC., an Indiana corporation; Anthem Blue Cross, business entity, form unknown; Health Net, Inc.; Health Net of California, Inc., a California corporation; Health Net Life Insurance Company, a California corporation; Visiting Nurse Service Choice; Molina Healthcare, Inc., a Delaware corporation; Molina Healthcare of California, a California corporation; Molina Healthcare of California Partner Plan, Inc., a California corporation; Alameda Alliance for Health, a business organization, form unknown; Anthem Blue Cross Life and Health Insurance Company, a California corporation; Blue Cross of California, a California corporation, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

895 F.3d 619

UNITED STATES EX REL. Anita SILINGO, Plaintiff-Appellant,

v.WELLPOINT, INC., an Indiana corporation; Anthem Blue Cross, business entity, form unknown; Health Net, Inc.; Health Net of California, Inc., a California corporation; Health Net Life Insurance Company, a California corporation; Visiting Nurse Service Choice; Molina Healthcare, Inc., a Delaware corporation; Molina Healthcare of California, a California corporation; Molina Healthcare of California Partner Plan, Inc., a California corporation; Alameda Alliance for Health, a business organization, form unknown; Anthem Blue Cross Life and Health Insurance Company, a California corporation; Blue Cross of California, a California corporation, Defendants-Appellees.

No. 16-56400

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 8, 2018 Pasadena, California

Filed July 9, 2018

Abram Jay Zinberg (argued), The Zinberg Law Firm A.P.C., Huntington Beach, California; William K. Hanagami, The Hanagami Law Firm A.P.C., Woodland Hills, California; for Plaintiff-Appellant.

David Jeffrey Leviss (argued) and Amanda M. Santella, O'Melveny & Myers LLP, Washington, D.C.; Elizabeth M. Bock, Sabrina Strong, and David Deaton, O'Melveny & Myers LLP, Los Angeles, California; Poopak Nourafchan and Michael M. Maddigan, Hogan Lovells LLP, Los Angeles, California; David J. Schindler, Latham & Watkins LLP, Los Angeles, California; Anne W. Robinson, Latham & Watkins LLP, Washington, D.C.; Paul C. Burkholder and David Jacobs, Epstein Becker & Green PC, Los Angeles, California; Pamela A. Stone and Michael J. Daponde, Daponde Szabo Rowe PC, Sacramento, California; for Defendants-Appellees.

Before: Ronald M. Gould and Mary H. Murguia, Circuit Judges, and Jack Zouhary,^* District Judge.

GOULD, Circuit Judge:

Qui tam relator Anita Silingo appeals the dismissal of her False Claims Act suit against several Medicare Advantage organizations. We reverse in part, affirm in part, and remand.

I

Medicare Advantage is a modern adaptation of the momentous 1960s-era program. Traditional Medicare uses a fee-for-service payment model, whereby the more services physicians perform, the more money they earn. After Medicare was enacted, however, experts came to realize that this payment structure encourages healthcare providers to order more tests and procedures than medically necessary. See Thomas L. Greaney, Medicare Advantage, Accountable Care Organizations, and Traditional Medicare: Synchronization or Collision? , 15 Yale J. Health Pol'y, L. & Ethics 37, 38, 41 (2015).

Medicare Advantage seeks to improve the quality of care while safeguarding the public fisc by employing a "capitation" payment system. Capitation means an amount is paid per person. Capitation , Black's Law Dictionary (10th ed. 2014). Under Medicare Advantage's capitation system, private health insurance organizations provide Medicare benefits in exchange for a fixed monthly fee per person enrolled in the program—regardless of actual healthcare usage. These organizations pocket for themselves or pay out to their enrollees' providers the difference between their capitation revenue and their enrollees' medical expenses, creating an incentive for the organizations to rein in costs. See Patricia A. Davis et al., Cong. Research Serv., R40425, Medicare Primer 20 (2017), https://fas.org/sgp/crs/misc/R40425.pdf.

Unfortunately, human nature being what it is, Medicare Advantage organizations also have some incentive to improperly inflate their enrollees' capitation rates, if these organizations fall prey to greed. By design, Medicare Advantage is supposed to compensate these organizations for expected healthcare costs, paying "less for healthier enrollees and more for less healthy enrollees." Establishment of the Medicare Advantage Program, 70 Fed. Reg. 4588, 4657 (Jan. 28, 2005). So capitation rates are based largely on an individual's "risk adjustment data," which reflect several factors that can affect healthcare costs. See 42 U.S.C. § 1395w-23(a)(1)(C)(i) ; 42 C.F.R. § 422.308(c). Chief among these data are individuals' medical diagnoses. See Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs, 74 Fed. Reg. 54,634, 54,673 (Oct. 22, 2009). Medicare Advantage organizations obtain diagnosis codes from healthcare providers after these providers have had medical visits with plan enrollees. See CMS, Pub. No. 100-16, Medicare Managed Care Manual , ch. 7, § 40 (2014), https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/mc86c07.pdf. In turn, Medicare Advantage organizations report the diagnosis codes that they receive to the Centers for Medicare and Medicaid Services ("CMS") for use in the risk adjustment model that is the key to calculation of capitation rates. Id. The risk adjustment model deems a Medicare Advantage enrollee to be as healthy as the average Medicare beneficiary unless CMS receives updated diagnosis codes for the enrollee every year. See id. §§ 20, 70, 70.2.5, 120.2.4.

With data for millions of people being submitted each year, CMS is unable to confirm diagnoses before calculating capitation rates. Instead, the agency accepts the diagnoses as submitted, and then audits some of the self-reported data a few years later to ensure that they are adequately supported by medical documentation. See 42 C.F.R. §§ 422.310(e), 422.311 ; Contract Year 2015 Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs, 79 Fed. Reg. 1918, 2001 (Jan. 10, 2014). These audits have revealed excess payments for unsupported diagnoses steadily increasing over the last decade, reaching an estimated $16.2 billion —nearly ten cents of every dollar paid to Medicare Advantage organizations—in 2016 alone. See James Cosgrove, U.S. Gov't Accountability Office, GAO-17-761T, Medicare Advantage Program Integrity: CMS's Efforts to Ensure Proper Payments and Identify and Recover Improper Payments 1 (2017), https://www.gao.gov/assets/690/685934.pdf; James Cosgrove, U.S. Gov't Accountability Office, GAO-13-206, Medicare Advantage: Substantial Excess Payments Underscore Need for CMS to Improve Accuracy of Risk Score Adjustments 9–10 (2013), https://www.gao.gov/assets/660/651712.pdf.

To combat the "incentive for [Medicare Advantage] organizations to potentially over-report diagnoses," Medicare regulations require risk adjustment data to be produced according to certain best practices. Contract Year 2015 Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs, 79 Fed. Reg. 1918, 2001 (Jan. 10, 2014). Every diagnosis code submitted to CMS must be based on a "face-to-face" visit that is documented in the medical record. Medicare Managed Care Manual , ch. 7, §§ 40, 120.1.1. Medical records must be validated by qualifying "physician/practitioner signatures and credentials." Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs, 75 Fed. Reg. 19,678, 19,743 (Apr. 15, 2010). Further, electronic medical records must meet special signature requirements and use software that is "protected against modification." CMS, Pub. No. 100-08, Medicare Program Integrity Manual , ch. 3, § 3.3.2.4 (2018), https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/PIM83c03.pdf.¹ Medicare regulations also establish several data certification requirements. Most important here, it is an express condition of payment that a Medicare Advantage organization "certify (based on best knowledge, information, and belief) that the [risk adjustment] data it submits ... are accurate, complete, and truthful." 42 C.F.R. § 422.504(l)(2). We have explained that a certification is thus false "when the Medicare Advantage organization has actual knowledge of the falsity of the risk adjustment data or demonstrates either ‘reckless disregard’ or ‘deliberate ignorance’ of the truth or falsity of the data." United States ex rel. Swoben v. United Healthcare Ins. Co. , 848 F.3d 1161, 1169 (9th Cir. 2016) (citing Medicare+Choice Program, 65 Fed. Reg. 40,170, 40,268 (June 29, 2000) ). The organization also is required to "[a]dopt and implement an effective compliance program, which must include measures that prevent, detect, and correct non-compliance with CMS' program requirements," such as written standards of conduct, the designation of a compliance officer, and other listed minimum requirements. 42 C.F.R. § 422.503(b)(4)(vi). The importance of accurate data certifications and effective compliance programs is obvious: if enrollee diagnoses are overstated, then the capitation payments to Medicare Advantage organizations will be improperly inflated.

The Medicare Advantage capitation payment system is subject to the False Claims Act. Originally enacted during the Civil War, the False Claims Act was intended to "forfend[ ] widespread fraud by government contractors." United States ex rel. Hopper v. Anton , 91 F.3d 1261, 1265 (9th Cir. 1996). The Act's qui tam provisions allow a person—called a "relator"—to bring suit on the federal government's behalf, and then share the recovered damages and civil penalties with the government. See United States ex rel. Kelly v. Boeing Co. , 9 F.3d 743, 745–47 (9th Cir. 1993). Liability attaches upon proof that a false claim for payment was made, regardless of whether the government suffered actual damage. United States ex rel. Aflatooni v. Kitsap Physicians Serv. , 314 F.3d 995, 1002 (9th Cir. 2002).

II

Anita Silingo is a former Compliance Officer and Director of Provider Relations for Mobile Medical Examination Services, Inc. ("MedXM"). MedXM employs physicians, nurse practitioners, and physician assistants to conduct in-home health assessments of Medicare beneficiaries. Silingo alleges that from 2010 to 2014, MedXM contracted with the defendant Medicare Advantage organizations to provide up-to-date diagnosis codes and medical...