United States ex rel. Silingo v. Wellpoint, Inc.

Citation: 904 F.3d 667Docket: No. 16-56400

Court: Court of Appeals for the Ninth Circuit; July 9, 2018; Federal Appellate Court

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Anita Silingo appeals the dismissal of her False Claims Act suit against various Medicare Advantage organizations, with the court partially reversing and affirming the decision and remanding the case. Medicare Advantage, a modern evolution of the traditional Medicare program, operates on a capitation payment model, where fixed monthly fees are paid to private insurers per enrolled individual, regardless of healthcare use. This design aims to enhance care quality while controlling costs, but also creates a potential incentive for organizations to inflate capitation rates through misrepresentation of enrollees' health statuses, driven by profit motives. Capitation rates are determined based on risk adjustment data, primarily derived from medical diagnoses reported by healthcare providers after patient visits. These organizations must submit diagnosis codes to the Centers for Medicare and Medicaid Services (CMS) for risk adjustment in capitation calculations. CMS accepts these codes without immediate verification, conducting audits post-submission to ensure compliance with medical documentation standards. The system relies on annual updates of diagnosis codes to maintain accurate risk assessments and capitation rates.

Audits have identified a significant increase in excess payments due to unsupported diagnoses within Medicare Advantage programs, totaling approximately $16.2 billion in 2016, which is nearly 10% of all payments to these organizations. To mitigate potential over-reporting of diagnoses, Medicare regulations mandate that risk adjustment data must adhere to specific best practices, including that every diagnosis code must be supported by a documented face-to-face visit. Medical records must include valid physician signatures and credentials, and electronic records must meet stringent requirements to prevent modifications. Additionally, Medicare Advantage organizations are required to certify the accuracy of the risk adjustment data they submit, with the understanding that certification is false if the organization knows the data is untrue or acts with reckless disregard or deliberate ignorance regarding its truthfulness.

Organizations must also implement effective compliance programs to prevent and address non-compliance with Medicare requirements, including written standards of conduct and the appointment of a compliance officer. Accurate data certifications are crucial, as inflated diagnoses can lead to excessive capitation payments. The capitation payment system is governed by the False Claims Act, which allows individuals to file lawsuits on behalf of the government for fraudulent claims, with liability established regardless of whether the government incurred actual damages.

Anita Silingo, a former Compliance Officer and Director of Provider Relations at Mobile Medical Examination Services, Inc. (MedXM), alleges that from 2010 to 2014, MedXM engaged in fraudulent practices to increase capitation payments from Medicare Advantage organizations. Silingo's initial complaint under the False Claims Act was filed in August 2013, followed by an amended complaint in May 2014 and a second amended complaint in January 2015 after the U.S. declined to intervene. 

The core of Silingo's allegations is that MedXM used improper software to modify health assessment reports, exaggerating medical diagnoses to inflate risk scores. These reports, prepared in unprotected Microsoft Word templates and electronically signed inappropriately, were altered to remove low-risk information and insert high-risk data. Silingo claims that over half of these reports violated CMS requirements for electronic medical records, with evidence of tampering.

Additionally, Silingo argues that MedXM’s healthcare providers, primarily nurse practitioners and physician assistants, were not authorized to make definitive medical diagnoses, and that prior to 2012, MedXM contracted with them without adequate physician supervision. From 2012 to 2014, it is alleged that contract physicians fraudulently signed agreements without properly overseeing non-physician providers. Silingo points to systematic fabrication of complex diagnoses that could not be confirmed during in-home assessments, highlighting specific ailments that require invasive procedures unfeasible in a home setting. 

Moreover, Silingo notes that MedXM’s examiners often reported conducting more assessments than was realistically possible. In-home assessments, taking approximately 45 minutes each plus travel, could realistically allow for only 13 assessments per day, yet many examiners claimed to have completed over 15, with some reporting as many as 25.

Silingo alleges that MedXM examiners inflated assessment numbers by submitting identical vital statistics for numerous enrollees and later "correcting" these entries only when prompted by Medicare Advantage organizations. This manipulation aimed to provide more profitable diagnosis codes, resulting in excessive capitation payments from Medicare. Silingo claims that the Medicare Advantage organizations filed false claims to CMS based on MedXM's altered risk adjustment data, either knowingly or with reckless disregard for its validity, violating the certification requirements under 42 C.F.R. § 422.504(l)(2). Furthermore, the organizations' failure to identify MedXM's fraud suggests inadequate compliance programs, contrary to 42 C.F.R. § 422.503(b)(4)(vi).

Silingo asserts six liability theories under the False Claims Act, citing violations of 31 U.S.C. § 3729(a)(1)(A) for factually false claims, defined as claims that are literally false or fraudulent. She also alleges violations for legally false claims through express and implied false certifications. A false records claim under § 3729(a)(1)(B) is raised, which addresses knowingly making or using false statements material to fraudulent claims. Additionally, Silingo invokes the "reverse false claim" provision under § 3729(a)(1)(G), which pertains to retaining government funds without entitlement. Lastly, there are accusations of conspiracy to violate the False Claims Act under § 3729(a)(1)(C).

In February 2015, the defendants filed motions to dismiss Silingo's claims, which she opposed, except for her count related to reverse false claims. The district court determined that her factually false claim against MedXM met the pleading standards of Federal Rules of Civil Procedure 8 and 9(b), as she sufficiently alleged that MedXM caused false claims to be submitted to CMS. However, the court dismissed her reverse false claim and conspiracy claims with prejudice and dismissed four remaining claims against the Medicare Advantage organizations without prejudice due to improper group-pleading. Silingo subsequently filed a third amended complaint in October 2015, where she detailed her allegations against the Medicare Advantage organizations individually. The defendants moved to dismiss this new complaint, and while those motions were pending, MedXM settled. The district court ultimately dismissed Silingo's claims against the Medicare Advantage organizations with prejudice, citing that the allegations were still undifferentiated.

Silingo appealed the dismissal of her claims for factually false claims, express false certifications, false records, and reverse false claims. The appellate court reviews the district court's dismissal under Rule 12(b)(6) de novo, accepting all well-pleaded factual allegations as true. The court evaluates whether these allegations, along with reasonable inferences, present a plausible claim for relief. Rule 9(b) necessitates that fraud allegations be stated with particularity, requiring identification of the "who, what, when, where, and how" of the misconduct, as well as details about what was false or misleading. This heightened standard aims to inform defendants of the specific misconduct alleged and to prevent frivolous claims that impose unnecessary costs on the judicial system. In cases involving multiple defendants with different conduct, plaintiffs must differentiate their allegations against each. This principle is demonstrated in a related case where the complaint failed to specify which defendants committed which fraudulent acts.

In Destfino, it was established that defendants cannot be grouped together without specificity in fraud allegations. A complaint must detail the circumstances of fraud but does not need to differentiate between defendants acting in the same capacity. This principle is supported by United States ex rel. Swoben v. United Healthcare Ins. Co., where collective allegations were deemed sufficient when defendants engaged in identical conduct. The case involved Medicare Advantage organizations accused of submitting false certifications regarding risk adjustment data. The organizations' argument against collective allegations was rejected, affirming that a strong claim against one defendant does not weaken based on similar claims against others.

The excerpt likens the fraudulent scheme to a "wheel conspiracy," wherein MedXM acted as the "hub," and the Medicare Advantage organizations were the "spokes," each participating in similar wrongful conduct without the need for distinct identification. The organizations' claims of being unrelated and dissimilar were found unpersuasive given their common actions. Allegations regarding false claims and certifications should not have been dismissed due to collective phrasing. The organizations argue for affirmation of the dismissal based on two points: insufficient factual basis linking MedXM's misconduct to their claims and inadequacy in Silingo's allegations of their knowledge of the fraud. These arguments will be examined in detail.

Defendant Medicare Advantage organizations argue that the complaint lacks sufficient detail regarding the submission of false claims. For allegations of false claims, a plaintiff must present reliable evidence indicating a strong inference that claims were submitted. While the complaint does not need to provide specific examples of false claims, it must fulfill heightened pleading requirements. The district court agreed that the plaintiff, Silingo, met this burden, detailing her direct experiences with the defendant organizations' practices over four years, particularly regarding MedXM's in-home assessments for Medicare enrollees lacking risk adjustment data. This data is crucial for the organizations to avoid lower capitation payments, and overstating health issues in submitted diagnosis codes leads to higher payments. The Medicare Advantage organizations are mandated to certify the accuracy of submitted data. Silingo's allegations suggest ample circumstantial evidence that these organizations submitted MedXM's data and certified its validity to CMS, making it implausible that they would repeatedly pay for data they did not use. The organizations contend that Silingo failed to adequately plead the specifics of their false claims processes, but the complaint does not need to elucidate why the defendants committed fraud; it must detail the misconduct. Furthermore, the organizations challenge the plausibility of Silingo's claims regarding their knowledge of the alleged fraud under Rule 8. To establish knowledge under the False Claims Act, a relator must show that a defendant knew a claim was false or acted with reckless disregard for the truth. While fraud must be pleaded with specificity, knowledge can be stated more generally.

A complaint must present sufficient factual details indicating a defendant's knowledge of fraudulent activity. In this case, Silingo asserts that the Medicare Advantage organizations submitted false claims and certifications with actual knowledge, reckless disregard, or deliberate ignorance of their falsity. The complaint outlines various indicators of this knowledge, including the presence of typewritten signatures on health assessment reports, which violates medical record requirements for handwritten or electronic signatures. Additionally, the use of nurse practitioners and physician assistants, who are legally restricted in their diagnostic capabilities, raised suspicions. The alleged diagnosis codes from MedXM's assessments were deemed implausible given the nature of in-home evaluations, and duplicative patient data further suggested irregularities. Silingo argues that a sophisticated organization would notice anomalies in their contractor's output, such as receiving unusually favorable diagnostic information from patients who had not accessed healthcare services. The Medicare Advantage organizations had financial incentives to report inflated diagnoses, raising concerns about their motivations. Silingo's allegations collectively support a plausible claim of knowingly participating in fraud, despite the defendants being similarly situated. According to Rule 9(b), a group pleading can meet the notice standard of Rule 8, as the allegations imply that the defendants were aware of the fraudulent practices associated with MedXM's reports.

Medicare Advantage organizations are required to certify the validity of their data based on their best knowledge. This obligation supports Silingo's claim of express false certification. Silingo's appeal regarding the dismissal of her reverse false claim is unfounded, as she did not defend this claim during the motions to dismiss, rendering it abandoned on appeal. The district court acted within its discretion by denying leave to amend since amendment would not revive the claim. The case was incorrectly dismissed on the pleadings, with Silingo's group pleadings deemed sufficient for further proceedings. Although some discovery has occurred, Silingo is entitled to continue before her claims are resolved. The court does not determine that Silingo has sufficient evidence for trial, only that her complaint is sufficient to proceed to discovery. The court reverses part of the decision regarding Silingo's claims for factually false claims, express false certifications, and false records while affirming the dismissal of her implied false certification claim due to lack of argument in her appeal.