Osinek v. Kaiser Permanente

Background

This consolidated litigation concerns allegations that Kaiser entities submitted false claims for payment under Medicare Part C, also called Medicare Advantage. The United States’ complaint in intervention alleged that Kaiser entities retrospectively added diagnoses to patient records, sometimes months or more than a year after medical visits, and submitted those diagnoses to the Centers for Medicare and Medicaid Services (CMS) to obtain increased risk-adjustment payments.

The government asserted three False Claims Act (FCA) theories: submitting false claims, making or using false records or statements material to false claims, and conspiracy. It also asserted claims for payment by mistake and unjust enrichment. The order addressed only Kaiser’s motion to dismiss the United States’ complaint in intervention. Other motions concerning the remaining consolidated cases were not decided in this order.

Pleading standard

The court applied Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not plead enough facts to state a legally plausible claim. At this stage, the court accepted the complaint’s factual allegations as true and drew reasonable inferences for the government, while requiring more than conclusory statements.

False Claims Act theories

The court recognized two principal theories. First, the government alleged that Kaiser added diagnoses for conditions that did not exist. The court treated this as factual falsity because a claim based on a nonexistent condition would literally describe the patient’s condition inaccurately. Second, the government alleged that Kaiser added diagnoses for conditions that existed but did not require or affect patient care, treatment, or management during the relevant visit. The court concluded that this theory could involve both factual falsity and legal falsity. Legal falsity means falsely representing, expressly or implicitly, compliance with a legal, regulatory, or contractual requirement.

Clinically inaccurate diagnoses

The court found that three specific examples of allegedly inaccurate diagnoses were not enough, by themselves, to plausibly establish a general systemic scheme covering nonexistent diagnoses. The court did, however, find the allegations sufficient to support a specific systemic scheme involving cachexia. The complaint alleged that Kaiser used data-mining tools and physician queries to add cachexia diagnoses, including for patients who were merely thin; that cachexia diagnoses were added far more often in Northern California than in other identified regions; and that audits found many such diagnoses invalid or inadequately documented.

The court also found that the government adequately pleaded knowledge, or scienter, for the cachexia theory. Under the FCA, reckless disregard for whether information is true or false can satisfy the knowledge requirement. The court relied on allegations that Kaiser personnel had warned responsible officials about inappropriate cachexia diagnoses, that physicians criticized the queries, and that Kaiser did not change the relevant process after an audit showed a high error rate.

The court did not find sufficient allegations of a broader systemic scheme involving all clinically inaccurate diagnoses. It granted the government leave to amend if it wanted to expand those allegations. The court’s ruling at this stage did not decide whether the alleged conduct actually occurred or whether Kaiser would ultimately be liable.

Diagnoses unrelated to the medical visits

The court rejected Kaiser’s argument that the government had not adequately pleaded falsity for diagnoses that were unrelated to the doctors’ visits. The court concluded that submitting inaccurate diagnosis codes could constitute factual falsity because the codes inaccurately described the valid codes for the patient visit. Even if considered only as legal falsity, the theory was adequately pleaded because the CMS-Kaiser contract and applicable regulations plausibly required compliance with the International Classification of Diseases (ICD) Guidelines.

The court held that the contract incorporated the Medicare Managed Care Manual and that the Manual required Medicare Advantage organizations to ensure the accuracy and integrity of risk-adjustment data, document diagnosis codes in the medical record following a face-to-face visit, and code diagnoses according to the ICD Guidelines. The court also concluded that applicable regulations required compliance with the Guidelines, although it stated that the contract ruling made it unnecessary to reach that issue and addressed it as an additional matter.

The court further held that the government adequately pleaded materiality. Materiality under the FCA asks whether the alleged misrepresentation had a natural tendency to influence, or was capable of influencing, the government’s payment decision. The court cited allegations that CMS based risk-adjustment payments directly on submitted diagnosis codes, that Kaiser’s own materials recognized the importance of the Guidelines, and that the alleged inaccurate codes affected substantial payments.

Timing of the claims

Kaiser argued that the FCA’s time limits barred claims based on conduct occurring before October 25, 2011. The court rejected that argument. It held that the FCA’s relation-back provision could apply to the government’s claims and concluded that relation back identifies when a claim was filed without extending or suspending the applicable time period. The court therefore ruled that the government’s claims were not time barred on the argument presented.

Payment by mistake and unjust enrichment

The court allowed the government’s claims for payment by mistake and unjust enrichment to proceed. Kaiser argued that those claims were derivative of the FCA claims and unavailable because express contracts governed the Health Plans’ relationship with CMS. The court rejected the first argument because most FCA claims survived. It also found the second argument insufficient at the pleading stage, reasoning that the government alleged violations of federal regulations as well as the contract and asserted an independent government right to recover money wrongfully or mistakenly paid from the public treasury.

Disposition

The court granted in part and denied in part Kaiser’s motion to dismiss the United States’ complaint in intervention. It granted the motion only as to the government’s claim of a general or systemic scheme to add clinically inaccurate diagnoses, except for the specifically alleged cachexia scheme. The court allowed the cachexia FCA theory, the FCA theory involving clinically accurate diagnoses unrelated to patient visits, and the claims for payment by mistake and unjust enrichment to proceed. The government could file an amended complaint by December 12, 2022; if it did not, Kaiser was required to answer the original complaint by January 3, 2023. The order disposed of Docket No. 178.