Insurance Company Cheated Medicare Out of $1 Billion, Says Lawsuit

Josh Valdez took an executive level job in April 2010 expecting to
improve medical services at two Puerto Rican Medicare Advantage health
plans owned by a subsidiary of New Jersey company: Aveta Inc.
But a few months after coming on board, the former
government health official claims, he discovered that the plans — MMM
Healthcare and PMC Medicare Choice — had been cheating Medicare out of
hundreds of millions of dollars for years, according to a whistleblower lawsuit he filed in federal court.
Valdez accuses the health plans of “rampant
fraud,” alleging they overcharged Medicare $300 million to $350 million a
year from 2007 through 2010. He claims that Aveta Chief Executive
Officer Richard Shinto fired him “in retaliation for his outspoken
opposition to these illegal practices.” Valdez filed the lawsuit in
Santa Ana, California, in April 2011, but it remained under court seal
until February of this year. The case is pending.
In a May 23 statement to the Center for Public Integrity, the health
plans called Valdez a “former disgruntled employee” and added that the
company “categorically denies the allegations in the former employee’s
lawsuit and is highly confident that it will prevail in the case.”

Valdez is a veteran health care executive and consultant who headed the
California regional office of the U.S. Department of Health and Human
Services from 2001 through 2003 under President George W. Bush. He also
was a health policy adviser to Republican Mitt Romney during the 2012
presidential race.
Valdez said in court papers that he served as president of MSO of
Puerto Rico, also owned by a subsidiary of Aveta, for eight months until
his dismissal in December 2010. MSO worked with local doctors to
coordinate coverage for some 230,000 elderly and disabled people then
enrolled in those two Aveta-related Medicare Advantage health plans. In a
press release touting his hire, Aveta said Valdez would enhance medical
care while “effectively managing healthcare costs.”
Aveta’s Puerto Rico health plans and MSO are now
operated by InnovaCare Health Solutions, according to the firm’s
website. InnovoCare has the same Fort Lee, New Jersey office and phone
number as Aveta. Several members of the Aveta board, including founding
principal investor Daniel E. Straus, have been affiliated with both
companies. Innovacare general counsel Christopher J. Joyce declined to
discuss the corporate structure.
Straus, a prominent investor in several
health-care businesses, also has worked with hedge funds and as a New
York City real estate developer. Joyce said Straus would have no
The whistleblower suit is significant not only for the magnitude of
overbilling it alleges. It also raises questions about federal oversight
of billing practices by health plans that contract with the government
to cover nearly 16 million Americans, at a cost expected to top $150
billion this year.
The federal government paid the two Puerto Rico
plans a total of between $1 billion and $1.8 billion annually from
January 2007 through December 2010, according to the suit. Up to $350
million a year was for bills that were “improperly inflated,” according
to Valdez.
Valdez argues that the health plans sought out
chronically ill patients, who command the highest Medicare payment
rates, but overcharged for them by manipulating a billing formula known
as a “risk score.” Medicare sets risk scores for all patients based on
medical data submitted by the health plans that indicates how sick
patients are. Sicker patients mean higher rates.
These 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,” the suit states.
Valdez said he was told by top executive Shinto in
May 2010 that an internal audit of medical records had confirmed that
two-thirds of patient risk scores could not be supported.
According to Valdez, the audit results were
discussed at several executive-level meetings, including some at which
top brass talked about setting up a reserve fund in case federal
officials should conduct their own review and demand refunds.
At a July 2010 meeting, Penelope Kokkinides,
Aveta’s chief operating officer, allegedly said the company would be
“screwed” if it was audited by the federal Centers for Medicare and
Medicaid Services (CMS), especially if the review reached back to 2007.
She said overcharges had been “particularly egregious” that year, as the
suit paraphrased her alleged remarks.
Kokkinides estimated the liability to the
government was as high as 20 percent of its total Medicare payment, or
about $350 million a year, Valdez alleges. Kokkinides declined to
comment on the suit.
During his tenure there, Valdez said, company
officials gave no indication they would “notify CMS of the problem or
return the improperly obtained funds to the government,” according to
the suit. CMS regulations not only require Medicare Advantage plans to
attest that risk data they present for payment are accurate but also
obligate them to return any overpayments they discover.
Still, CMS largely trusts the nation’s 700
Medicare Advantage plans to report risk scores accurately and honestly
— and conducts only a smattering of yearly audits.
There’s no indication that CMS officials reviewed the risk scores for
the two Puerto Rican plans. In its 2012 annual financial report to
insurance officials in Puerto Rico, MMM Healthcare stated that it had
not been subject to a CMS payment audit.
However, in late March of 2011, Valdez said he
took his allegations to the U.S. Attorney’s Office for the Central
District of California, which has since launched an investigation. That
investigation “has not been completed,” government lawyers wrote in a
January 2014 court filing.
Valdez blamed the faulty risk scores on errors in
“medical status visit” forms filled out by the plans’ doctors. The
visits were done to help identify “high risk” members and maximize
payments for them. Doctors participated in a profit sharing arrangement
that paid them 50 percent to 60 percent of surplus money that came in
from Medicare as a result of the annual visits, according to the suit.
The lawsuit alleges that company officials failed
to take “corrective measures to delete or filter out” inaccurate codes,
although they knew the doctors had an incentive to inflate them.
In July 2010, executives decided to hold onto
millions of dollars in these payments to the doctors in case CMS
auditors required the company to repay money, according to the suit.
That concern didn’t dissuade company officials
from borrowing $100 million, which was used to pay a dividend to
investors, “the largest of whom was founder and Chairman Daniel E.
Straus,” according to the suit. Valdez said he objected to paying the
dividend while the potential liability to the government “remained

Source: CNBC