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In a significant development highlighting the complexities of healthcare finance and government oversight, SCAN Health Plan, a prominent California-based Health Maintenance Organization (HMO), has agreed to pay a staggering $323 million to both the state of California and the federal government. This settlement resolves claims of substantial overpayments related to Medicaid and Medicare, some of which date back to 1985, underscoring the long-standing nature of the issues at hand.
The terms of the settlement agreement stipulate that SCAN, also known as the Senior Care Action Network, a non-profit organization, will allocate $190.5 million to the state of California and $129.4 million to the federal government. Furthermore, a separate payment of $3.8 million is earmarked to settle a Medicare Advantage whistleblower lawsuit. This crucial lawsuit, initiated by a former SCAN employee, served as the catalyst that brought the broader overpayment issues to light and triggered the extensive investigations that followed.
The whistleblower, James Swoben, a former data encounter manager at SCAN, lodged formal complaints with California lawmakers in 2009. His accusations centered on fraudulent Medicare billing practices and the alleged failure of SCAN to disclose contractually mandated financial information to MediCal, California’s Medicaid program. Swoben’s allegations propelled state and federal investigations into motion, ultimately leading to a complex situation where the federal government and the state of California found themselves at odds, each pointing fingers regarding the responsibility for the overpayments. This case is anticipated to intensify scrutiny and potentially lead to more rigorous oversight of billing and payment processes within publicly funded health plans.
Justice Department officials have pointed towards the California Department of Health Care Services (DHCS) as being primarily responsible for the overpayments. They cite “actuarial errors” in the DHCS’s rate-setting methodologies between 1985 and 2008 for at-home, long-term care services. These rates were allegedly based on the considerably higher reimbursements associated with long-term care provided in nursing homes, leading to inflated payments for home-based care. Adding to the complexity, between 2001 and 2007, the state continued to pay SCAN for long-term care patients even after they were no longer under the company’s direct care, specifically those who had previously spent time in nursing homes. DHCS, in turn, has countered by blaming SCAN for not proactively reporting information that could have enabled state officials to identify and rectify these errors in a timely manner. It is important to note that as part of the settlement, SCAN has not admitted to any misconduct.
William Hanagami, the attorney representing whistleblower James Swoben, commented on the conflicting narratives emerging from government agencies, stating, “There’s certain truths and omissions in all of this stuff.” This remark encapsulates the intricate and often opaque nature of large-scale healthcare settlements.
SCAN, while not issuing a direct response to requests for comment, addressed the settlement through a statement on their website from CEO and president Chris Wing. Wing stated, “We played no role in how the state set rates for the population at issue, and we were previously unaware of the mistake the state made. Once we learned that the state made errors, we decided to refund all the money mistakenly paid.” This statement underscores SCAN’s position that the overpayments stemmed from state-level errors in rate-setting, and their commitment to rectifying the financial discrepancies once they were brought to light.
An investigation conducted by the U.S. Attorney’s Office of Central California appears to lend support to SCAN’s defense, seemingly placing the onus of blame on the state of California. Susan Hershman, an assistant U.S. attorney involved in the case, told the Los Angeles Times, “We did not develop any evidence that SCAN participated in the setting of the rate or that SCAN ever knew the rates exceeded the legal cap set by state statute and regulations. It was a mistake by the state of California.” This finding further complicates the narrative and highlights the difficulties in assigning definitive responsibility in such complex cases.
However, Dylan Roby, a healthcare policy professor at the University of California, Los Angeles, offers a more nuanced perspective, suggesting that determining definitive fault is challenging. Roby described the settlement as “a fairly complex case,” largely due to SCAN’s significant enrollment of “dual eligible patients.” These patients are eligible for both Medicare and Medicaid, leading to a dual stream of claims submitted to both the Centers for Medicare & Medicaid Services (CMS) for Medicare payments and DHCS for Medicaid reimbursements.
Roby elaborated on the inherent complexities, “When having both coverage sources, there is often confusion over which program/plan covers what. In Medicare fee-for-service, it ends up being easier, but with the Medicare Advantage HMO plans, where a private HMO is managing part of the care and they have to coordinate with fee-for-service MediCal or another MediCal managed care plan, it can be more difficult to navigate.” This intricate coordination between different payer systems adds layers of complexity to billing and reimbursement processes.
Roby further suggests that some of the confusion might originate from Medicare Advantage policy itself, which aims to adequately compensate health plans that assume responsibility for riskier and more costly members through the CMS-HCC risk adjustment reporting methodology. He explained, “In this case, it appears SCAN’s risk adjustment data vendor was not accurately reporting data to CMS on specific diagnosis codes that made payments higher for the plan enrollees than they should have been.” This points to potential issues within the data reporting and risk adjustment mechanisms designed to ensure fair compensation in Medicare Advantage programs.
Looking ahead, with an increasing proportion of public healthcare funding being channeled through private plans, particularly within state insurance exchanges, the SCAN case might serve as a catalyst for enhanced government monitoring strategies. Roby posits, “If health plans are engaged in systematic ‘upcoding’ to get higher risk adjustment payments, CMS and the state-based exchanges that run risk adjustment programs for the private insurers may play a more active role in policing and auditing the results to avoid situations like this one.” The potential for systematic “upcoding,” where healthcare providers may intentionally inflate billing codes to secure higher payments, is a significant concern within the healthcare industry.
Roby concludes, “These are very small coding details that require lots of data and computing to detect, but CMS may view it as a worthwhile area to invest in.” The ability to effectively detect and prevent upcoding and other forms of billing irregularities requires sophisticated data analysis and robust monitoring systems.
Hanagami, Swoben’s attorney, concurs with the need for heightened scrutiny, stating, “I think there will be greater scrutiny in connection with how retrospective reviews are performed and there’ll be greater scrutiny for how risk adjustment payments are calculated.” This suggests that the SCAN settlement could lead to significant changes in how retrospective reviews and risk adjustment payments are managed and overseen within the healthcare system.
The entire sequence of events, culminating in the $323 million settlement, was initiated by Swoben’s findings, which ultimately led to the $3.8 million Medicare Advantage whistleblower settlement. Swoben alleged that SCAN was deliberately manipulating the reimbursement system, which incorporated both a capitated rate and HCC diagnosis codes, by submitting claims based on retrospective reviews of medical charts. This data analysis was conducted by a vendor, and Swoben claimed the data submission was selective and biased.
Hanagami explained the intended purpose of retrospective reviews, stating, “The retrospective review process was developed for accuracy,” aimed at identifying and correcting both erroneous claims that should be deleted and legitimate claims that should be added. However, he alleged that SCAN was improperly utilizing retrospective reviews as a “revenue enhancement” strategy, rather than for ensuring billing accuracy.
According to Hanagami, Swoben “noticed there were only adds, no deletes,” in the retrospective reviews, raising serious concerns about the integrity of the process and SCAN’s billing practices. Following interventions from two state senators, Swoben’s complaints triggered an audit by California Controller John Chiang. Chiang’s review of the state DHCS’s contract with SCAN uncovered what he termed a “flawed methodology for setting contract rates.” Subsequently, DHCS conducted its own investigation, revealing that SCAN had achieved remarkably high profit margins, around 80 percent in 2007 and 2008, significantly exceeding the typical 4 percent profit margin for comparable managed care contracts. The agency also discovered that SCAN had “co-mingled” MediCal and Medicare capitation claims and data, which constituted a violation of its contract with the state. These findings further solidified the case against SCAN and contributed to the landmark settlement agreement.
