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March 27, 2020

New Paper Highlights Need for Changes in False Claims Act

What do access and affordability of health care, the False Claims Act, and Medicare Advantage plans have in common? Turns out, quite a lot.  

Not surprisingly, Americans consistently rank health care access and affordability as one of their top concerns. The Trump Administration has said it wants to develop innovative, efficient, and cost-saving health care solutions.  

Still, a new paper released by the Milken Institute School of Public Health at the George Washington University (GWSPH) describes how government enforcement of the False Claims Act against Medicare Advantage (MA) plans can undermine that goal.   

Health care wonks may know that MA plans incentivize efficiency and deliver quality health care while reducing costs by using what is known as a “capitated payment system.” For the rest of us, this is how it works: 

In a capitated payment system, the government pays health insurers a negotiated per-member monthly fee. It doesn’t matter how many times a patient enrolled in a MA plan visits a doctor in a given year; the government doesn’t pay more than the negotiated amount. Think of this as a bottomless brunch: you pay a flat fee that doesn’t increase, regardless of how many entrées you eat.  

A MA plan is different from traditional fee-for-service Medicare plans, where the government reimburses health care providers for each service they provide patients. Think of this as a traditional brunch: you pay for every entrée you order.  

As the study points out, in MA plans—and unlike in fee-for-service plans—the incentive to overbill for health care services does not exist since the health insurer negotiates a fixed monthly rate with the government with no cap on volume.  

This is where the False Claims Act (FCA) comes in. The FCA is a powerful—and punitive—enforcement tool used to weed out fraud against the government. However, in many cases, plaintiffs’ lawyers have transformed it into a profitable enterprise that hurts American businesses based on simple mistakes, technical non-compliance with Byzantine rules, or no violations of these confusing rules at all. That can be the case, particularly in the complex and highly regulated area of health care. 

In the health care space, the use of the FCA to address fraud in traditional, fee-for-service Medicare plans is, in theory, relatively straightforward, since it’s about the volume of health care services. The more services a health plan bills, the more money it is reimbursed from the government.  

The Department of Justice (DOJ) uses the FCA to go after MA plans where the capitated payment model is entirely different from traditional Medicare—and where the risk of overbilling for health care services shifts from the government to the private health plan. The study points out that this could happen even though the government “has long recognized Medicare Advantage plans should be treated differently under the fraud and abuse laws because they assume full financial risk for their enrollees.” 

As the GWSPH paper points out, the FCA could be modified to go after actual fraud and abuse without stifling health care innovation. The authors suggest two long term solutions:  

  • Amend the FCA to exempt MA plans that meet specific criteria from enforcement.   
  • Issue regulations “based on industry feedback to address the misalignment of FCA enforcement in the context of Medicare Advantage, particularly as it relates to the concept of overpayments and risk adjustments.” 

There are solutions the DOJ can enact now, however. It can follow the guidelines outlined in the Brand memo, and the two executive orders President Trump issued in October, and not pursue actions against MA plans based on sub-regulatory guidance. The DOJ also can use its authority under the Granston memo to dismiss qui tam cases that are based on similar theories. The memo notes that qui tam cases that are contrary to federal policy—in this context, those against MA plans that would serve to hamper innovation and thus lower costs in health care—should be considered for dismissal.  

Health care innovation is crucial to expanding access and lowering costs. The GWSPH paper lays out the case that as the Medicare program modernizes out of the fee-for-service model, the government’s use of the FCA to fight health care fraud should modernize as well.  

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