After a protracted battle, Kaiser Foundation Health Plan, Inc. (Kaiser) recently settled a False Claims Act (FCA) qui tam case alleging that it falsely certified compliance with Medicare Advantage (MA) bidding instructions that relator claimed resulted in billions of dollars in damages to the United States. Crowell & Moring represented Kaiser in the litigation.

Kaiser’s former employee, Chris McGowan filed his initial complaint in 2009, but changed his theory of liability through a number of amendments as the case proceeded. Ultimately, he alleged that for its 2008 and 2009 MA bids Kaiser failed to comply with the CMS Office of the Actuary (OACT) “gain/loss margin” guidance directing that an MA plan’s proposed margin requirement be within a “reasonable range” of the margin requirements for its “other lines of business.” McGowan alleged that Kaiser’s certifications of compliance with MA bid instructions for 2008 and 2009 were false.

The case is one of the first FCA actions against a Medicare Advantage plan, and the only case so far that has raised issues related to the development of the plan’s bids, which are subject to annual guidance issued by OACT. The “gain/loss margin” proximity guidance in question was first issued in 2007, and has been modified repeatedly since then. Relator’s case was based on his contention that Kaiser’s community benefit programs, such as Medicaid  managed care plans, should be considered “lines of business” for purposes of determining if the margin requirements for those lines were within a reasonable range of Kaiser’s Medicare bid margins. McGowan contended that Kaiser’s MA bid margins for 2008 and 2009 were too high compared to the margins for what he argued were Kaiser’s “other lines of business”. McGowan alleged that Kaiser’s failure to reduce its MA bid margins to be within a reasonable range of the margins of what he contended to be its “other lines of business” resulted in billions of dollars of damages to the government.

As a non-profit, Kaiser devotes substantial resources to providing care and coverage to indigent and underserved populations, and receives less revenue in return compared to its employer group coverage products, for example. A comparison of Kaiser’s community benefit program expense with the revenue those programs generate produces large negative margins. Relator argued that Kaiser should have included those negative margins in the calculation of the margins for its other lines of business for purposes of comparison to Medicare Advantage. Kaiser understandably does not view or treat its community benefit programs as standalone, self-supporting lines of business. Kaiser interpreted the OACT “gain/loss margin” guidance to call for a comparison between the two businesses for which it had margin requirements — Medicare and commercial. And the margin requirements for those two lines were within a reasonable range of one another.

The Department of Justice (DOJ) spent a year investigating McGowan’s allegations including meeting with Kaiser representatives and Crowell and Moring. After that meeting, DOJ informed the court that it was declining to intervene in the case. After a DOJ declination, a Relator is entitled to proceed with the case, and McGowan went forward.

Crowell and Moring submitted a request under the Touhy regulations for testimony from CMS to validate Kaiser’s interpretation of OACT’s margin proximity guidance.Although CMS often declines to comply with Touhy requests, it agreed to provide Kaiser a declaration from the Chief Actuary at OACT. In his declaration, the Chief Actuary stated that Kaiser’s interpretation of the MA bid instructions to call for a comparison of its Medicare and commercial margins alone was a permissible one, and that the margins set forth in Kaiser’s 2008 and 2009 bids complied with the guidance. Kaiser submitted the declaration in support of its motion for summary judgment. McGowan objected to the declaration arguing that it did not necessarily represent the government’s official position.  Before argument and at Kaiser’s request, DOJ filed a statement of interest with the court endorsing OACT’s position and expressly stating that Kaiser did not submit any false claims or make any false statements.

At argument on summary judgment the court deferred ruling and directed that the parties participate in a settlement conference scheduled several months later.  Prior to the conference, Kaiser asked DOJ to consider using the rights granted it under the FCA to dismiss the case. The FCA provides that “The Government may dismiss the action notwithstanding the objections” of the relator if the relator is notified of the motion and given an opportunity for a hearing on it. DOJ rarely does this, but here it utilized its prosecutorial discretion and moved to dismiss the case. There does not appear to be any record of such of motion ever being denied. The court declined Kaiser’s request to postpone the settlement conference until after a ruling on the DOJ motion, and re-directed the parties to participate in it. At the conference, in order to avoid further litigation costs and distraction to its employees Kaiser successfully resolved the case in reliance on the OACT declaration, the DOJ statement of interest and its motion to dismiss.