Independent Health to pay up to $98 million in settlement for allegedly defrauding Medicare

One of Western New York’s largest health insurers will pay at least $34.5 million – and possibly up to $98 million – in a settlement with the federal government to resolve claims that a former subsidiary defrauded Medicare by submitting inaccurate patient health data that generated millions of dollars in inflated reimbursements.

Independent Health

The federal government says that a former subsidiary of Independent Health defrauded Medicare by submitting inaccurate patient health data that generated millions of dollars in inflated reimbursements.

The settlement with Amherst-based Independent Health, now-defunct affiliate company DxID and DxID’s former CEO Betsy Gaffney caps off a 12-year whistleblower lawsuit that shows how exaggerating the illnesses of Medicare Advantage beneficiaries can inflate risk-adjustment payments from the federal government to health plans.

“To protect the integrity of Medicare and other federal health care programs, my office is committed to ensuring that each and every dollar meant for Medicare beneficiaries is spent appropriately and in accordance with the law,” said U.S. Attorney Trini E. Ross for the Western District of New York. “As this settlement makes clear, we will diligently pursue those who defraud government programs.”

In the settlement, the health plan must pay $34.5 million in up to five installments from 2024 through 2028. Annual and supplemental contingency payments from 2025 to 2029 could total up to $63.5 million, but those payments are not required unless Independent Health surpasses certain financial performance barometers.

“The assertions by the DOJ are allegations only, and there has been no determination of liability,” Independent Health spokesperson Frank Sava said in a statement. “This settlement is not an admission of any wrongdoing; it instead allows us to avoid the further disruption, expense, and uncertainty of litigation in a matter that has lingered for over a decade. This dispute had nothing to do with the quality of care or services our members received, or our payment of member claims. We worked collaboratively with the DOJ to resolve this matter, and we now move forward with our focus remaining on always meeting the health care needs of our members.”

Tied to the settlement, Independent Health entered into a five-year corporate integrity agreement with the government, which includes requirements to hire an independent review organization to annually review a sample of the insurer’s Medicare Advantage patients’ medical records and associated internal controls to help ensure appropriate risk adjustment payments.

Gaffney will pay $2 million in the settlement agreement.

Gaffney’s attorneys, Timothy W. Hoover and Spencer L. Durland, said in a statement that Gaffney “believes she has defenses and responses to the government’s allegations” but entered into a settlement “to avoid the delay, uncertainty, inconvenience and expense of protracted litigation.”

It’s a sizable settlement and a big blow to Independent Health, which recorded a net loss in 2023 of about $193 million on revenues of $2.3 billion. Sava said the settlement’s guaranteed payment of $34.5 million was accounted for in Independent Health’s 2023 financials. The insurer this fall eliminated 66 jobs, or about 4% of its workforce, as it trimmed costs in a difficult operating environment.

Teresa Ross

Teresa Ross, a former employee of Group Health Collaborative, filed a whistleblower lawsuit in 2012 against Group Health, Independent Health and DxID, among others.

There have been several developments in this case since it was filed in 2012, when Teresa Ross, a former employee of Group Health Collaborative, blew the whistle and sued her employer as well as Independent Health, DxID and two DxID executives, including Gaffney. The suit was filed under whistleblower provisions of the False Claims Act, which allows private parties to sue on behalf of the government for false claims for government funds and to receive a share of any money recovered.

Kaiser Foundation Health Plan, which acquired Group Health Collaborative in 2017, agreed in November 2020 to pay $6.375 million to settle allegations that it submitted invalid diagnoses to Medicare for its Medicare Advantage beneficiaries. Of that amount, about $1.5 million went to Ross.

In the settlement with Independent Health, Ross will receive at least $8.2 million.

In its complaint filed in 2021, the government said Independent Health, DxID and Gaffney implemented a risk-adjustment program that made it appear enrollees in Medicare Advantage plans that DxID serviced “were sicker than was documented by the enrollees’ health care provider in their medical records.” In addition, the government claimed DxID nudged health care providers to sign addenda forms to retroactively add diagnoses up to a year after a patient visit. Then DxID would use the addenda as substantiation for adding risk-adjusting diagnoses that were not documented during a patient encounter, which violates Medicare requirements.

Group Health connects with DxID

Group Health Collaborative, a Seattle nonprofit that operated Medicare Advantage plans in 20 counties in Washington, saw its financial performance dwindling by 2010.

From 2008 to 2010, the company went from income of $57 million to a loss of $60 million, according to Ross’ complaint.

Needing to turn things around, the lawsuit claims, Group Health’s CEO and chief financial officer looked for ways to generate revenue.

Then in late 2011, Group Health’s CEO attended a conference held by the Alliance of Community Health Plans. There, the complaint claims, the CEO spoke with an Independent Health official.

The Independent Health official told the Group Health executive about a new Independent Health subsidiary, DxID, and how the health plan was making money “using DxID’s risk adjustment methodology and algorithms to conduct a retrospective review of its risk adjustment claims,” the lawsuit claims.

By late 2011, Group Health hired DxID to do a risk-adjustment data review for dates of service in 2010.

Risk-adjustment payments

To understand what DxID was accused of doing, it’s important to first understand Medicare Advantage.

Through Medicare Advantage, private health insurers set up managed care plans to cover Medicare beneficiaries. Then Medicare pays the insurer a monthly capitation rate to provide health services to that member. The insurer is then responsible to use that money to pay hospitals, physicians and other health care providers for the services that member uses.

But that monthly rate that Medicare pays insurers depends on the individual member. For instance, the Centers for Medicare and Medicaid Services (CMS) pays a higher monthly capitation rate for members who have been recently treated for one or more serious – and thus expensive – diseases or conditions. Those increased payments are known as risk-adjustment payments and, at the time Ross’ lawsuit was filed in 2012, the government paid a Medicare Advantage plan nearly $3,000 per year for each condition that a member had.

To receive those risk-adjustment payments, however, Medicare Advantage plans must submit data to CMS for each qualifying disease or condition for a member. And because submitting incorrect diagnosis codes can increase risk-adjustment payments, CMS requires Medicare Advantage plans to follow guidelines when submitting those codes.

‘These are not going to pass muster’

Ross worked at Group Health Collaborative for 14 years, serving as director of insurance and health data analysis and later as director of risk adjustment services. She was very familiar with diagnosis coding and risk-adjustment claims.

When Group Health hired DxID, the Independent Health subsidiary did a retrospective review of risk-adjustment claims for 2010.

According to the lawsuit, Ross and others became concerned early on that DxID’s review process didn’t comply with CMS rules. For one, the lawsuit claims, DxID proposed submitting risk-adjustment claims whenever a patient had a diagnosis, regardless of whether the patient had actually been treated for the condition during the year in question. DxID also used invalid sources such as problem lists, past medical histories and diagnostic and radiology tests to support new risk-adjustment claims.

From using DxID’s chart review process, Group Health submitted more than 4,900 new diagnoses codes to CMS for 2010, according to the government’s complaint. That was out of 17,000 charts reviewed, for a new diagnosis code capture rate of 29%.

Ross, who had overseen Group Health’s internal audit and review processes for risk-adjustment claims, knew the error rate was not as high as DxID found. Boiling it down, DxID had found a new diagnosis code for every three to four charts it reviewed.

“When they started popping up with these codes, I and others did some audits, and they’re like, ‘These are not going to pass muster,’ “ Ross told The News.

The lawsuit states that Ross and a physician partner initially looked at 117 of the charts that DxID reviewed and, of those charts reviewed, the two colleagues agreed with only 27, or 23%, of the codes submitted to CMS.

Ross’ lawsuit further claims that DxID’s contract with Group Health revolved around an incentive-based reimbursement, which called for DxID to be paid a portion of the value of the new risk-adjustment claims it found and submitted. The government’s complaint, meanwhile, said DxID received a share of up to 20% of the additional revenue that it generated for Medicare Advantage organizations.

“That right there created an odd incentive for folks at the vendor to do some things that were clearly against CMS guidelines,” Ross said.

The submission of more than 4,900 new diagnoses codes led to CMS paying more than $12 million in incremental revenue to Group Health, the government claims. Of that, Group Health paid DxID a 20% contingency fee of more than $2.4 million, according to the government’s complaint.

While Group Health used DxID’s chart review program for claims from 2010 and 2011, Independent Health participated in the retrospective chart review program for claims from 2010 to 2017, according to the government’s complaint.

In addition, DxID and Independent Health used a flawed addenda process to capture and submit over 125,000 diagnosis codes that resulted in CMS “paying millions of dollars more” to Independent Health than it would have otherwise paid.

‘There’s a lot of this going on’

Mary Inman, a partner at Whistleblower Partners LLP, which represents Ross, said the case underscores the importance of those willing to step up when they notice something is amiss.

“It’s really difficult to detect these alleged frauds without whistleblowers,” Inman said.

For Ross, who now lives in Texas, the case has taken up more than 12 years of her life. One of her main takeaways from the case is how the promise of money led to alleged fraud, whether it was an incentive-based contract between Group Health and DxID or when CMS put “a bounty on diagnoses.”

“There’s a lot of this going on in the industry,” Ross said. “I think this, at least from what I’ve seen, is one of the more aggressive vendors, but I know that there are other vendors that were doing some similar type things, just not to the same degree.”

She added that there were “lots of financial incentives that were inappropriate throughout the process.”

In a March report, the Medicare Payment Advisory Commission wrote that a “major overhaul” of Medicare Advantage was needed for several reasons, partly because Medicare is paying more for Medicare Advantage than for comparable beneficiaries in traditional Medicare. In fact, the commission found, Medicare spends 22% more – which equates to $83 billion this year – for Medicare Advantage enrollees than it would spend if those beneficiaries were in traditional Medicare.

The settlement with Independent Health and DxID isn’t the first time the government has cracked down on alleged fraud in Medicare Advantage. In September 2023, Cigna Group agreed to pay more than $172 million to resolve claims that it submitted inaccurate diagnosis codes from 2014 to 2019.

As for DxID, which was created in 2011 to provide risk-adjustment consulting services to Independent Health and other companies for their Medicare Advantage plans, the company no longer exists.

DxID ended operations June 30, 2021, and Independent Health decided to perform the subsidiary’s functions internally. Independent Health said that decision was made as part of its efforts to keep premiums affordable.

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