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Insurers to Pay Record $32.5 Million for Claims of Risk-Scoring Fraud

News  |  By Gregory A. Freeman  
   June 05, 2017

Two large healthcare plans in Florida will pay millions to settle allegations triggered by a whistleblower's complaint that they gamed the Medicare and Medicaid systems by providing inaccurate risk scores for reimbursement.

Two large health insurers based in Tampa, FL, are paying $32.5 million to resolve a federal and state investigation into claims they defrauded Medicare and Medicaid by submitting risk adjustment scores that improperly inflated their reimbursements.

The settlement is the largest ever for risk adjustment fraud. The allegations were made by a physician who took his concerns to state and federal investigators.

The late Darren D. Sewell, MD, aided the United States government and the State of Florida in their case against Freedom Health and Optimum Healthcare, his attorneys from the San Francisco law firm Constantine Cannon reported. Both health plans are controlled by Kiranbhai C. Patel, MD, and Siddhartha Pagidipati, MD, Freedom's former chief operating officer.

The whistleblower complaint, which was unsealed recently, alleges that Freedom and Optimum improperly gamed the risk adjustment feature of the Medicare Advantage program, also known as risk scoring, which allows Medicare to make additional payments to managed-care plans based on the plan members' health-risk scores. The health-risk scores are calculated using patients' medical diagnoses.

Higher risk scores should reflect treatment of sicker patients, resulting in higher reimbursement to offset increased costs associated with treating these patients. Freedom and Optimum fraudulently inflated their members' risk scores and the corresponding risk adjustment payments they received from CMS, the complaint alleges, by claiming their members were treated for conditions they either did not have or for which they were not treated.

The complaint also alleges that Freedom and Optimum fraudulently induced the Centers for Medicare & Medicaid Services to allow them to expand their health insurance offerings into new counties in Florida and the Carolinas by falsely representing that they had a sufficient network of doctors, clinics, and hospitals available to serve their enrollees in the expanded service area when they had no such networks in place.

The Department of Justice announced a settlement agreement in which Freedom Health and Optimum Healthcare will pay the government $16.7 million to resolve the allegations of risk adjustment fraud and $15 million for the allegedly fraudulent expansion of their service areas, for a total settlement amount of $31.7 million.

In addition, Pagidipati will pay the United States $750,000 to resolve allegations regarding his role in the allegedly fraudulent expansion of Freedom's and Optimum's service areas.

Sewell, the whistleblower, worked at Freedom and Optimum from 2007 to 2012 and rose through the ranks to become chief medical officer before transferring to the Medicare Revenue Management Department and assuming the role of vice president of special projects. His attorneys say that through his various roles Sewell became familiar with the defendants' schemes to bilk money from Medicare and Medicaid.

He filed his whistleblower lawsuit in 2009 and played an important part in the FBI's undercover investigation. Sewell's estate will receive a portion of the money recovered in the settlement, but the DOJ says the amount has not been determined.

Gregory A. Freeman is a contributing writer for HealthLeaders.


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