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California HMO pays $323M in overpayment fines

SCAN Health Plan recently agreed to pay the largest overpayment fines in California history, a total of $323 million to both the state and federal governments for Medicare and Medicaid over billings stretching as far back as 1985.

Under the terms of the settlements, non-profit SCAN, the Senior Care Action Network, will pay California $190.5 million, the federal government $129.4 million and also a separate $3.8 million to settle a Medicare Advantage whistleblower lawsuit from a former SCAN employee whose actions brought all of the other payments to light.

[See also: RACs Identify $162M in Overpayments in Q2 FY 2011 Alone]

In complaints to California lawmakers in 2009, James Swoben, a former SCAN data encounter manager, accused the company of fraudulent Medicare billing and not disclosing contractually required financial information to MediCal, the state's Medicaid program. His complaints eventually led to state and federal investigations that put the federal government and the state of California at odds over who is to blame for the overpayments, which may spark more dogged billing and payment oversight of publicly-funded health plans.

Justice Department officials blame the California Department of Health Care Services (DHCS) for "actuarial errors" in their rate-setting between 1985 and 2008 for at-home, long-term care based on the much-higher fee-for-service reimbursements for long term care at nursing homes. In addition, between 2001 and 2007, the state paid SCAN for long-term care patients who had spent some time in a nursing home but were no longer under the company's care. DHCS blames SCAN for not reporting information that would've let state officials correct those errors. SCAN did not admit to any misconduct as part of the settlements.

"There's certain truths and omissions in all of this stuff," said Swoboden's attorney William Hanagami, of the competing explanations from the government agencies.

While SCAN did not respondent to a request for comment, its CEO and president Chris Wing said in a statement on the company's website: "We played no role in how the state set rates for the population at issue, and we were previously unaware of the mistake the state made. Once we learned that the state made errors, we decided to refund all the money mistakenly paid."

An investigation by the U.S. Attorney's Office of Central California seems to support SCAN's defense, pinning the blame on the state.

"We did not develop any evidence that SCAN participated in the setting of the rate or that SCAN ever knew the rates exceeded the legal cap set by state statute and regulations," Susan Hershman, an assistant U.S. attorney on the case, told the Los Angeles Times. "It was a mistake by the state of California."

But Dylan Roby, a healthcare policy professor at the University of California, Los Angeles, thinks it hard to determine who is right and who is wrong. Roby called the settlement "a fairly complex case," due in large part to the fact that SCAN has many "dual eligible patients" and was submitting claims to both the Centers for Medicare & Medicaid Services for Medicare payments and DHCS for Medicaid reimbursements.

[See also: California project takes aim at dual eligibles; HHS rolls out three initiatives to lower costs of dual eligibles]

"When having both coverage sources, there is often confusion over which program/plan covers what," Roby said. "In Medicare fee-for-service, it ends up being easier, but with the Medicare Advantage HMO plans where a private HMO is managing part of the care and they have to coordinate with fee-for-service MediCal or another MediCal managed care plan, it can be more difficult to navigate."

Some of the confusion, Roby said, might be the result of Medicare Advantage policy that tries to make sure health plans taking on riskier, more expensive members are compensated enough, with the CMS-HCC risk adjustment reporting methodology.

"In this case," Roby said, "it appears SCAN's risk adjustment data vendor was not accurately reporting data to CMS on specific diagnosis codes that made payments higher for the plan enrollees than they should have been."  

With more public healthcare dollars set to be spent through private plans, especially in state insurance exchanges, Roby thinks the claims and coding confusion in the SCAN case might prompt new government monitoring strategies.  

"If health plans are engaged in systematic 'upcoding' to get higher risk adjustment payments, CMS and the state-based exchanges that run risk adjustment programs for the private insurers may play a more active role in policing and auditing the results to avoid situations like this one," Roby said.

"These are very small coding details that require lots of data and computing to detect, but CMS may view it as a worthwhile area to invest in."

Hanagami, the whistleblower's attorney, agreed: "I think there will be greater scrutiny in connection with how retrospective reviews are performed and there'll be greater scrutiny for how risk adjustment payments are calculated."

All of these findings were spurred by Swoben's findings in what eventually became the $3.8 million Medicare Advantage settlement. Swoben alleged SCAN was deliberately gaming the reimbursement system, with both a capitated rate and HCC diagnosis codes, by filing claims using retrospective review of medical charts, with data analysis performed by a vendor and data submitted selectively.

"The retrospective review process was developed for accuracy," Hanagami said, to find claims that should be deleted and claims that should be added. SCAN was using the retrospective review as a "revenue enhancement" strategy, Hanagami said.

Swoben "noticed there were only adds, no deletes," Hanagami said.

After two state Senators intervened, Swoben's complaints led to an audit by the California Controller, John Chiang, who reviewed the state DHCS's contract with SCAN and found what he called a "flawed methodology for setting contract rates." DHCS then did its own investigation and found SCAN had profit margins around 80 percent in 2007 and 2008, far higher than the typical 4 percent for similar managed care contracts. The agency also found that SCAN had "co-mingled" MediCal and Medicare capitation claims and data, a violation of its contract.

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