Long Beach-Based Health Plan Pays Nearly $320 Million to Settle Allegations that it Received Overpayments for Medi-Cal Patients

SCAN Health Plan Pays Another $3.82 Million to Resolve Claims of Inflated ‘Risk Adjustment Scores’ that Increased Reimbursements from Medicare Part C

LOS ANGELES – In the largest recovery ever obtained from a single Medi-Cal provider, a Long Beach-based managed care health plan has paid $319.85 million to resolve allegations that it received overpayments from Medi-Cal.

On August 10, 2012, SCAN Health Plan paid $129,380,632 to the federal government and $190,470,301 to the State of California to resolve an investigation into overpayments for services provided to long-term-care patients.

Medi-Cal, which is California’s Medicaid program, is jointly funded by the federal government and the State of California. The federal government’s investigation found that the State of California paid SCAN rates for long-term-care-certified (LTC) patients that were over the legal ceiling set by a California statute and regulations.

“This massive settlement demonstrates the commitment of the United States Justice Department to eradicate fraud, waste, and abuse in this nation’s public health care programs,” said United States Attorney André Birotte Jr. “We want the entire health care industry to know that we will use every tool at our disposal to ensure that the taxpayers are getting what they pay for when they finance public health programs.”

The overpayments to SCAN resulted from two actuarial errors made during the State of California’s rate-setting process. The first error, which spanned the period January 1, 1985 through December 31, 2008, caused Medi-Cal to pay for SCAN’s LTC patients, who were generally cared for at home, as though they were like Medi-Cal fee-for-service LTC patients, who were generally in nursing homes, where the cost of care is much greater. The second actuarial error, made between July 1, 2001 and December 31, 2007, failed to account for the fact that SCAN’s Medi-Cal contract authorized SCAN to terminate the memberships of LTC patients after they had spent a maximum of two months in a nursing home. Due to this error, Medi-Cal, in effect, kept paying SCAN for certain LTC patients even after SCAN was no longer obligated to provide services to them.

On August 10, 2012, SCAN also paid an additional $3.82 million to the federal government – bringing the total settlement in this matter to $323,670,650 – to settle a whistleblower lawsuit’s allegations that the company unlawfully caused an inflation of some of its patients’ “risk adjustment scores,” which then inflated Medicare payments to the company.

Under Medicare Part C’s managed care system, physicians for patients enrolled in a Medicare Advantage health plan report patients’ diagnosis codes to the plan, which then reports the codes to the federal Centers for Medicare and Medicaid Services (CMS), which then uses the codes to develop risk adjustment scores for the patients. Risk adjustment scores measure the health of patients and are used by Medicare Part C to determine how much to pay the plan as a monthly capitated rate for each patient.

A former SCAN employee, James M. Swoben, filed a federal “whistleblower” lawsuit in United States District Court in Los Angeles in July 2009. Mr. Swoben’s complaint alleged that SCAN improperly submitted diagnosis codes to CMS that led to higher risk adjustment scores and, therefore, higher monthly capitated rates to SCAN. The lawsuit alleged that after SCAN had reported to CMS the diagnosis codes for certain patients with severe illnesses, SCAN used outside companies to review the medical charts for those patients with the hope of finding additional diagnosis codes to report. While this practice was not illegal, Mr. Swoben alleged that in substituting the outside companies’ later judgment on diagnosis codes for the earlier judgment of the patients’ physicians, SCAN should have told CMS that some of the original diagnosis codes might need to be deleted. According to the lawsuit, SCAN, in order to increase risk adjustment scores, did not tell CMS that any of the original diagnosis codes might need to be deleted.

In settling both the Medi-Cal and Medicare allegations, SCAN did not admit wrongdoing. SCAN fully cooperated in the government’s investigation.

“This Medi-Cal settlement of over $319 million can be spent on many thousands of sorely-needed health care services for the State’s Medi-Cal enrollees,” said Glenn R. Ferry, Special Agent in Charge for the Los Angeles Region of the Office of Inspector General of the U.S. Department of Health & Human Services. “As for Medicare Part C, the OIG will continue its aggressive investigation and prosecution of new ways managed health care organizations may attempt to game evolving government payment systems.”

The global settlement was announced today after a federal judge unsealed portions of Mr. Swoben’s lawsuit, which was filed under the whistleblowerprovisions of the federal and state False Claims Acts. Pursuant to the settlement, the parties asked United States District Judge John Walter to dismiss the portions of the lawsuit that were unsealed.

The settlement with SCAN is the result of an investigation by the United States Attorney’s Office for the Central District of California; the United States Department of Health and Human Services, Office of the Inspector General; and the California Attorney General’s Bureau of Medi-Cal Fraud and Elder Abuse.

Release No. 12-112