Osinek v. Kaiser Permanente

Background

This consolidated litigation involves allegations that Kaiser entities submitted false claims for payment to the federal government. This order addresses only the defendants’ motion to dismiss the first amended complaint filed by relators Gloryanne Bryant and Victoria Hernandez.

Bryant worked for Kaiser entities in auditing and coding positions and retired in October 2017 as managing director of Kaiser’s Health Information Management program for the Kaiser Foundation Health Plan’s Northern California region. Hernandez worked for Kaiser entities in coding and auditing positions and was, according to the complaint, constructively discharged in October 2015 while serving as regional director of auditing and coding services for the Northern California medical group.

The remaining claims in Bryant and Hernandez’s complaint concerned alleged fraud in the Affordable Care Act risk-adjustment program and Hernandez’s retaliation claims. Claims concerning the Medicare Advantage program had already been dismissed under the court’s earlier ruling on the first-to-file bar.

The relators alleged that Kaiser entities increased government-related payments by improperly coding medical conditions, including aortic atherosclerosis and ventilator dependence. They alleged that Kaiser used practices such as leading queries, internal coding guidance, clinical-documentation programs, data mining, computer-assisted coding, and financial incentives tied to capturing diagnoses and revenue.

False Claims Act claims

The defendants argued that the complaint did not adequately plead falsity, materiality, or a conspiracy under the False Claims Act. The court agreed that the complaint had deficiencies concerning falsity and materiality.

For falsity, the court stated that the relators needed to allege that false payment claims were actually submitted to the Department of Health and Human Services, the relevant agency for the Affordable Care Act program. The court found that the operative complaint had not clearly done so. The court also found that the complaint needed greater specificity about whether the alleged upcoding scheme extended beyond the two diagnoses discussed in detail and how the differing circumstances involving those diagnoses supported a broader scheme.

For materiality—which asks whether the alleged false statements could have mattered to the government’s payment decision—the court found that the relators had not plausibly alleged that HHS, rather than the Centers for Medicare & Medicaid Services, would have considered the claims material. The court also rejected reliance on an Affordable Care Act provision concerning eligibility to participate in an Exchange because that issue was not presented in this case.

The court further found merit in the defendants’ argument that the complaint improperly grouped the Kaiser entities together without clearly identifying which allegations applied to which defendant. Because the court was already dismissing the False Claims Act claims and allowing amendment, it permitted the relators to supplement their allegations concerning the entities other than The Permanente Medical Group, Inc. The court did not separately rule on the defendants’ challenge to the alleged False Claims Act conspiracy, stating that the amendment could affect that claim. It directed the relators to clarify whether they alleged one overarching conspiracy or multiple bilateral conspiracies.

The court dismissed the False Claims Act claims based on the Affordable Care Act, with leave to amend.

Retaliation claims

Hernandez asserted retaliation claims under the False Claims Act, California Labor Code sections 1102.5 and 98.6, and the Fair Labor Standards Act. She agreed to voluntarily dismiss the Fair Labor Standards Act retaliation claim, and the court’s conclusion states that claim was dismissed.

The defendants argued that Hernandez could not establish that The Permanente Medical Group knew she was engaging in activity protected by the False Claims Act because investigating and reporting coding errors were part of her job. The court described the issue as a close call but held that Hernandez’s allegations were sufficient at the motion-to-dismiss stage. In particular, she alleged that she and Bryant repeatedly advocated for proper coding of aortic atherosclerosis, worked together on proper ventilator-dependence coding, and sought guidance from the American Hospital Association’s Coding Clinic. The complaint also alleged that Kaiser leadership questioned the outside inquiry, warned them not to make outside inquiries without approval, and viewed such inquiries as creating risk for Kaiser.

The court concluded that these allegations, viewed in Hernandez’s favor, could show that The Permanente Medical Group knew she was investigating conduct that could reasonably lead to a False Claims Act case. Hernandez’s False Claims Act retaliation claim therefore survived. The court also allowed her California retaliation claims to proceed for the same reasons, noting that California Labor Code section 1102.5 protects disclosures even when making them is part of an employee’s job duties.

Disposition

Judge Edward M. Chen granted in part and denied in part the motion to dismiss the Bryant first amended complaint. The court dismissed the Affordable Care Act-based False Claims Act claims with leave to amend, dismissed the Fair Labor Standards Act retaliation claim, and allowed the other retaliation claims under the False Claims Act and California Labor Code to proceed. The amended complaint was due December 12, 2022, and the defendants’ response was due January 3, 2023.