Diligence Remains Key for Medicare Advantage Plans

Health Highlights

Editor’s Note: A federal court has determined that it is too easy for Medicare Advantage (MA) health plans to be accused of fraud based on erroneous data they report to the federal government, striking down a key regulation. In a recent article in Law360, summarized below, Manatt Health explains why MA plans would be prudent to maintain their compliance programs, in spite of the decision. (The Law360 article went to press at the same time the government published a proposed rule that undermines the court decision. That rule is therefore not discussed in the article, but the rule confirms the article’s conclusion that the court decision gives plans little reason to relax their compliance programs.) To download a free copy of the full article, click here.


In 2014, the Centers for Medicare & Medicaid Services (CMS) published a rule instructing MA plans to use “reasonable diligence” to make sure the diagnosis data they submit to CMS is correct. CMS pays MA plans a fixed monthly premium to provide Medicare benefits to patients. Through “risk adjustment,” CMS increases the amount of the monthly premium based on how sick particular beneficiaries are. CMS’s main data source is the diagnostic codes that plans themselves report—but this data often contains errors. The 2014 CMS rule concluded that even if a plan did not have actual knowledge of an error, it could violate the False Claims Act (FCA) if it submitted an incorrect diagnostic code that it could have discovered through “reasonable diligence.”

Typically, to constitute fraud, businesses have to act with actual knowledge of a deception or reckless disregard or willful ignorance of the truth. The difference is meaningful since FCA violations carry triple damages and substantial civil monetary penalties.

This issue is also consequential for health systems and provider organizations that MA plans increasingly contract with on a risk basis, where provider payments improve when CMS pays the plans more. Therefore, providers’ claims practices also can be the basis for FCA suits. Further, the FCA’s whistleblower provisions give anyone with knowledge of a violation an incentive to bring suit, increasing the likelihood that both plans and providers may find themselves defendants in MA litigation.

The Federal Court’s Decision—and What It Means for Compliance Programs

In 2016, UnitedHealthcare sued to overturn the 2014 rule. Last month, the federal court concluded that the rule had inappropriately deemed as fraud what should have been treated as simple negligence. Does that mean that plans should ratchet back the more rigorous compliance programs they implemented after the 2014 CMS rule?

The answer is…not so fast. The CMS regulation is not the only legal principle that required MA plans to use reasonable diligence in reporting risk adjustment data. Since 2000, MA plans have been required to certify “the accuracy, completeness and truthfulness” of their data. Two years ago, the federal appeals court for the Ninth Circuit, in the Swoben case, concluded that this certification “has always required due diligence and good faith”—and that the court and the 2014 CMS regulation were describing the same standards. Critically, the Ninth Circuit reached its conclusion based on standards it said existed before the 2014 regulation.


Even with the 2014 regulation invalidated, the Ninth Circuit’s holding appears to remain valid, and MA plans should continue to exercise due diligence. Admittedly, the Ninth Circuit’s Swoben decision appears to be in direct conflict with last month’s D.C. district court opinion. Should the district court’s opinion be affirmed on appeal, it may be more likely the Supreme Court would hear the case to resolve the important conflict between the Ninth Circuit and the D.C. Circuit. In the meantime, MA plans would be wise to maintain their rigorous compliance programs.



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