Whistle-Blower Lawsuit Claims Companies Defrauded $1 Billion From Medicare Advantage

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A former George W. Bush administration health official filed a whistleblower lawsuit against two Medicare Advantage health plans Wednesday, claiming the companies defrauded the federal government out of over $1 billion.

The lawsuit filed in a U.S. district court in California alleges that two Puerto Rico-based health plans owned by New Jersey-based Aveta Inc. perpetrated a scheme between at least January 2007 and December 2010 to falsely rank patients as higher-risk than they actually were, in order to swindle higher payments out of the federal government’s Medicare Advantage program.

The Obama administration’s oversight over the program, which is expected to cost over $150 billion this year, has been hit by a journalism non-profit fighting for access to audits and records. (RELATED: Award-winning Investigative Journalists Sue Obama Admin Over Medicare Advantage Transparency)

Josh Valdez, a former regional director of the Department of Health and Human Services under the Bush administration and a health policy adviser to Mitt Romney’s 2012 campaign, was a board member of Aveta and president of a related subsidiary, MSO of Puerto Rico, when he discovered the widespread fraud. He was dismissed in December 2010.

The two health plans, MMM Healthcare and PMC Medicare Choice, were paid between $1 billion and $1.8 billion annually over the four years Valdez was associated with the company. He claims that up to $350 million a year was paid on bills that were “improperly inflated” by the health plan and their doctors.

The health plans issue scores that represent the sickliness of patients and therefore the expense of their care, but the scores “were false or fraudulent because they were based on diagnosis codes that were not substantiated by the medical records or by the medical conditions of the Medicare beneficiaries served by the plans,” according to the lawsuit.

Physicians themselves also have an incentive to falsely rank patients as “high risk” — as part of a profit sharing arrangement, doctors are paid 50 percent to 60 percent of the extra funds the health plans received from Medicare Advantage. (RELATED: Medicare Doctors May Be Boosting Health Care Costs By Seeking Personal Financial Gain) 

At a 2010 meeting, according to Valdez, the company’s chief operating officer Penelope Kokkinides allegedly said Aveta would be “screwed” if audited by the federal government. Valdez also notes that the company failed to take “corrective measures to delete or filter out” inaccurate scores, despite doctors having a clear incentive to inflate them.

The two embattled health plans told the Center for Public Integrity, a Pulitzer Prize-winning journalism outlet currently suing the Obama administration for stonewalling the release of Medicare Advantage rates, that the claims are untrue and that Valdez is simply a “former disgruntled employee.” 

CPI has been fighting the Obama administration for over a year over the release of Medicare Advantage audits, billing data and the names of health insurance plans suspected of overcharging the federal government for Medicare Advantage patients, as Valdez alleges that the Aveta health plans did. The outlet sued the Obama administration in late May over its refusal to release the public records. 

CPI has noted several cases of potential Medicare Advantage fraud similar to the Aveta cases. In Las Vegas, a private health care plan contracting with Medicare received over $100 million from the federal government in added charges due to contested claims that their patients were sicker than normal.

Medicare Advantage covers 16 million Americans and is expected to cost over $150 billion this year.

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