Medicaid Whistleblower Leads to $137.5 Million Settlement

Tampa-based managed care company WellCare Health Plans, Inc. recently agreed to pay $137.5 million to settle allegations of fraud and other abuses, the Justice Department announced. The federal government will share the proceeds of the settlement with nine states: Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Missouri, New York and Ohio. The for-profit company served about 2.6 million Medicaid beneficiaries as of August 2011. The four relators who brought whistleblower suits against the company will receive about $25 million.

The alleged fraud, which the company has not admitted, included:

  • inflated reports of the amounts spent on medical care to avoid returning funds to state agencies
  • retention of overpayments
  • operation of a sham special investigation unit
  • cooperating with providers who overbilled for services
  • falsification of records of patients’ medical condition and treatments provided and
  • manipulation of grades of service in reports on the performance of its call center

The company also allegedly violated federal marketing requirements for Medicaid managed care organizations by “cherrypicking” potential members to keep costs down. It was reported that WellCare performed a study of its costs for certain patients and then encouraged patients to disenroll to shift the cost of their care to state Medicaid agencies. A relator who worked undercover to assist in the federal investigation alleged that the company dropped premature infants and terminally ill patients. Arguing that the company’s actions cost the government between $400 and $600 million, the relator initially objected to the settlement; he disbelieved the company’s claim that it could not possibly afford more than $137.5 million.

In 2009, the company paid $80 million—$40 million in restitution and forfeiture of another $40 million—and entered into a Deferred Prosecution Agreement for fraud against the Florida Medicaid program. Thus, according to DOJ, its total recovery against WellCare will exceed $200 million. And if the company is acquired or there is a change of control in the next three years, the company will have to pay an additional $35 million. In April, 2011, the company entered into a corporate integrity agreement with the HHS Office of Inspector General to come into compliance with the law.

In 2009, in a related enforcement action by the Securities and Exchange Commission (SEC), WellCare agreed to pay $10 million to the SEC and return another $1 million in profits. Top-level executives, including the former general counsel, were prosecuted for fraud. One pleaded guilty in 2007; three others are scheduled for trial in 2013. SEC brought a civil suit against the three in January 2012.

In 2011, the company also settled a class action brought by investors alleging misrepresentations in violation of federal securities laws. The $200 million settlement is to be paid with $87.5 million in cash and $112.5 million in bonds. As with the DOJ settlement, if the company is acquired or experiences a change in control within three years of the agreement, it must pay another $25 million.

Florida Health News reports that resolution of its legal difficulties makes WellCare an attractive target for a buyout. Because many states are moving toward mandatory managed care, there are many opportunities to grow its business. One analyst says that the company’s revenue could double. If the Supreme Court upholds the Affordable Care Act, the expansion of Medicaid eligibility will make contracts with Medicaid agencies even more valuable.

Even while the settlement was on hold, the company picked up a contract with the Kentucky Medicaid agency, which began in the fall of 2011. Problems with the roll-out of Kentucky’s managed care program were discussed in an earlier post.

Competition for those Medicaid managed care contracts is fierce. States usually must use competitive bidding. Bidders and their affiliates make large campaign contributions to state officials. In Missouri, Centene donated $50,000 to the governor’s campaign in the two years preceding the contract award and $175,000 to the Democratic governors Association. Centene is based in Missouri but did not have a Medicaid contract previously; Molina, which lost despite 16 years of managed care contracts with the state, sued and asked the court to enjoin the state’s open enrollment, set for April 19, 2012. The case is being litigated at this writing.

According to the Chicago Tribune, in November, 2005, WellCare and its affiliates contributed a total of $100,000 to the reelection campaign of then-Governor Rod Blagojevich. The local affiliate had given him $25,000 earlier in the year.

 According to the Orlando Sentinel, three Medicaid HMOs— Humana, United and WellCare—were among the top 100 spenders for lobbying the Florida legislature in 2011. Humana spent more than $300,000. United and WellCare each spent an amount in the mid-210’s. In addition, the Florida Association of Health Plans, which seeks to influence Medicaid policy, among other issues, spent more than $300,000 on lobbying. Blue Cross Blue Shield, which isn’t a Florida Medicaid contractor but plans to bid, spent just under $300,000.

All the money that any plan spends on fines, unlawful remuneration, campaign contributions or lobbying isn’t going to pay for health care. It’s not paying for quality review, patient education, or even upgrading electronic health record systems. Could these facts be related to the findings of the study described in an earlier post, showing poorer health outcomes for beneficiaries in publicly traded Medicaid managed care organizations?

Medicaid Costs Causing Illinois State Budget to Burst

The state of Illinois could be facing a $21 billion Medicaid bill by the end of its fiscal year in 2017, according to a report released from the Civic Federation, a nonpartisan policy group. The state is already predicted to spend approximately $14 billion, nearly half of its entire budget, on the program this year, with costs anticipated to go up 41 percent over the next five years. Illinois Governor Pat Quinn has only accounted for a 13 percent increase in budgetary spending, leaving Illinoisans wondering how the state is going to pay its bills.

Illinois’ Medicaid program is one of the most vast out of all the states in the Union, with nearly $15 billion combined spending per year from the state and the federal governments. Twenty percent of state residents are on Medicaid, as well as one out of three children. Half of all births in Illinois are covered by the program. Statistics like these are not a surprise to those who find the Illinois income requirement lenient; those whose incomes do not exceed 200 percent of the federal poverty level, $44,700 for a family of four, are eligible for Medicaid.

In 2011, state lawmakers attempted to address the budgetary crisis by increasing personal income taxes by 67 percent and corporate income taxes by 48 percent. Despite the escalation in revenue, the Medicaid program was underfunded by nearly $1.5 billion in fiscal year 2012. Recently, the state’s inability to meet its financial obligations was acknowledged by credit rating agency Moody’s, which downgraded Illinois’ rating from A1 to A2.

Also last year, Illinois lawmakers attempted to cut costs by addressing fraud in the program by making eligibility requirements more stringent. The reform bill required Medicaid beneficiaries to provide proof of income by submitting a month’s worth of pay stubs instead of the current requirement of a single pay stub. Legislators rationalized that applicants could mislead the program by submitting one pay stub that was artificially low, when they actually earn more than the maximum income allowable. A month’s worth of stubs would present a more accurate picture of the individual’s income and residency. However, the federal government claimed that the bill was illegal and it was rejected.

Under the federal health care reform legislation, the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), states were prohibited from increasing Medicaid eligibility requirements after PPACA was enacted in 2010. The Centers for Medicare and Medicaid (CMS) concluded that Illinois’ bill was an eligibility restriction, and thus void.

PPACA further compounds Illinois’ Medicaid crisis by making the program accessible to more residents. At first, the federal government will completely cover the cost of Medicaid coverage for residents who newly qualify as a result of PPACA reforms; however, Illinois must pick up half of the bill for those beneficiaries beginning in 2016.

Other attempts have been made at cutting costs in the program, including Governor Quinn’s proposals to reduce provider and hospital reimbursement rates and to abolish a state-funded seniors’ supplemental prescription drug program. Both proposals were turned down by the General Assembly. Additional proposals have included the movement of developmentally disabled persons from state-run institutions to community settings and the enrollment of program beneficiaries in managed or coordinated care networks. The Civic Federation supports these proposals as well as the tightening of control over expensive prescription drug costs.

There is one thing that all parties can agree on: If Illinois does not stabilize its budget and control Medicaid costs in the very near future, economic recovery in Illinois is all but improbable.

Michigan, Missouri High Courts to Examine Caps on Noneconomic Damages

Is it constitutional to place a cap on noneconomic damages in a medical malpractice case? If not, how should that cap be calculated when one of multiple defendants settles prior to the trial?

These are questions soon to be decided by the Supreme Courts in Michigan and Missouri.

In the Missouri case of Sanders v. Ahmed, the plaintiff contends that the state’s noneconomic damages cap, which lowered a jury award of $9.2 million to $1.2 million, is in violation of the state’s constitution. The plaintiff’s attorney claims that the cap denies a plaintiff’s right to receive the “full and intended” effect of a jury’s determination of damages. However, counsel for the defendant argues that the constitutional right to a trial by jury does not translate into a right to a jury award, but a right to have a jury determine the case’s facts and make a judgment.

In Velez v. Tuma, the cap itself is not being challenged, but the method of calculating damages when a plaintiff receives a jury award as well as a pretrial settlement from a joint tortfeasor. In Velez, the jury awarded the plaintiff $1.4 million in noneconomic damages, which was reduced by the judge to $394,200 in compliance with the state’s cap. The defendant physician argues that the award should also have been offset by the $195,000 settlement that the plaintiff received from two other hospital defendants prior to trial. The physician’s position is supported by the American Medical Association, which is filing an amicus curiae brief.

The issue of caps on noneconomic damages has already been litigated in Illinois, where the state’s Supreme Court found a cap to violate the separation of powers between the judicial and legislative branches by limiting the ability of a judge to award damages. The court stated, “It is the province of the court system to determine damages and not the prerogative of the legislature to require judges to reduce damages to a predetermined level.”

Agreeing with the court’s rationale, the President of the American Bar Association, Carolyn B. Lamm stated that research showed that it is inappropriate to adopt statutory limits in medical malpractice compensation because “courts have inherent power to increase or reduce verdicts if they are…excessive or…inadequate.” However, one justice dissented, contending that the judiciary’s function is not to make law, but to utilize it to achieve justice and that the legislature’s function is to formulate “statutory solutions to social problems.”

Many believe that reining in jury awards in medical malpractice cases will lower medical malpractice insurance premiums, which had become so high in Illinois that physicians were allegedly leaving the state to practice. According to the American Medical Association, after the cap was passed in Illinois, liability costs stabilized, insurance competition increased, and more specialists were attracted to shortage areas. Only time will tell whether this progress will become undone as a result of the Lebron decision.

Do you believe that legislative caps on noneconomic damages are necessary for tort reform? Do they violate the concept of separation of powers?

Sanders v. Ahmed, Mo. Cir. Ct., Case No. 0516-CV12867, September 28, 2010.

Velez v. Tuma, Mich. Ct. App., Doc. No. 281136, April 16, 2009.