Medicare Advantage: District Court Addresses What Matters (or Doesn’t Matter) in False Claims Act Cases

Friday the 13th^t is not just bad luck. On September 13, 2024, the United States Court of Appeals for the Eighth Circuit released its long-awaited decision in United States ex rel. Holt v. Medicare Medicaid Advisors, affirming the Western District of Missouri’s dismissal of Medicare Advantage—a victory for managed care stakeholders, particularly insurers, insurance brokers, and insurance marketing organizations. This case demonstrates that not all regulatory violations give rise to liability under the False Claims Act (FCA).

For background, under Medicare Advantage, insurers are permitted to enter into contracts with licensed and designated brokers to sell Medicare Advantage plans. Insurers pay the broker a set fee—based on the Centers for Medicare & Medicaid Services (CMS) maximum approved commission limits—for each enrollment application the broker sends to the insurer. In turn, the insurer receives a payment from CMS for each beneficiary it enrolls. It is the insurer’s responsibility to ensure that any brokers it contracts comply with any regulations, such as certification requirements or marketing prohibitions.(1)

In this case, the Relator (the individual plaintiff under the FCA), a former insurance agent, alleged that Medicare Medicaid Advisors, Inc. (MMA), an insurance broker, and several insurers violated the FCA. The Relator alleged three schemes of marketing violations:

MMA violated Medicare Advantage Marketing Regulations by engaging in illegal business practices;(2)
MMA faked agent certificate;(3) and
MMA used a “star rating” program to avoid beneficiaries from filing complaints directly with carriers or CMS (which allegedly reduced the number of complaints CMS received against carriers, resulting in a higher star rating).

8^t The district court ruled against Relator and in favor of the carrier and broker defendants. The district court held that the alleged marketing violations were not material to CMS’s contracts with the carriers. The court also ruled, after brief discussion, that (i) the complaint did not meet the standard of particularity of Federal Rule of Civil Procedure 9(b), (ii) no claims were made to the government, and (iii) denied Relator’s motion for reconsideration—thereby dismissing the case once and for all.

None of the three alleged violations were material to the government’s decision to pay.

This case puts the Supreme Court’s ruling in Universal Health Servs., Inc. v. United States ex rel. Escobar579 US 176 (2016) front and center. Under EscobarRelators must prove that minor, technical, or potentially even serious violations of the rules were material to the Government’s payment decision in order to maintain their case. In determining whether the violations were material to the Government’s payment decision, 8^t The Circuit adopted the three non-exhaustive factors contained in 3^rd and 6^t Circuits:

Whether the Government has expressly identified the disputed legal requirement as a condition of payment (a “payment condition factor”);
Whether the alleged breach is minor or immaterial, or goes to the substance of the contract between the contractor and the Government (the “substance of the contract”); and
Whether the government continued to make payments, or did it do so as part of a series of incidents, despite actual knowledge of the breach.

On all three counts, the District Court found the third factor to be “neutral” because Relator was unable to provide examples of the government’s actions after discovering the alleged violations. The District Court further found that the “essence” of the agreement between CMS and the carriers is provide healthcare services to people who meet the criteriaand therefore evaluated the second factor in this context.

Alleged marketing scheme

The District Court found that there was no payment condition requiring the carrier or its agent to comply with Medicare marketing regulations in order to receive payment. Therefore, the payment factor condition was inconsistent with the materiality of the alleged marketing scheme.

As regards the second factor, the Court also found that MMACMS’s failure to comply with marketing regulations is not the “essence” of the contract with CarriersThe court noted that the applicable regulations do not require CMS to impose sanctions on a carrier because the carrier’s agent engages in marketing violations; instead, CMS has discretion to impose sanctions on carriers based on a “material” violation of the requirements. See 42 CFR § 422.510(a)(4)(vii) (providing that CMS may terminate a contract with a carrier if the carrier “(substantially does not meet the requirements (marketing and supervisory)” (emphasis added)).

The combination of CMS’s discretion and the use of the term “substantial” in the regulations indicated to the District Court that the regulations did not address the substance of the carriers’ agreements with CMS — that is, the marketing scheme did not address the substance of the carriers’ agreement to provide health care services to eligible individuals.

Because two of the three factors militated against materiality, the District Court held that MMA’s alleged marketing violations were not material to CMS’s contract with the carriers.

Alleged Fake Certification Scheme

As to the false certification allegations, the District Court did not clearly address how to weigh the payment factor condition. Instead, the Court held that there were two ways to weigh the factor: whether CMS’s payment to the carrier was contingent upon a rule requiring the carrier’s broker to use certified agents, or whether there was a rule that prevented the carrier from using money received from CMS to pay a broker that used an uncertified agent (e.g., whether the payment condition was based on a direct or indirect recipient of government funds) and adopted a payment factor condition that favored materiality.

However, when it comes to the essence of the bargaining factor, the District Court quickly established that the regulations required, carrier stop paying funds to a broker using uncertified agents while CMS continues to pay the carrier despite its reliance on uncertified agents. See 42 CFR § 422.2274(d)(1)(i).

Having found one factor in favor, one factor against, and one neutral factor, the District Court concluded that the agent certification program was irrelevant under the FCA.

Alleged star rating scheme

In the briefest part of the opinion, the Court found that the alleged star rating system was irrelevant to CMS’s payment decisions because (1) the Court was unaware of any provision that conditioned CMS’s payments to carriers on the carrier’s compliance with the star rating rules and (2) the star rating system did not go to the heart of the carrier’s contract to provide health care services to eligible individuals.

Why is this issue important?

This case provides a roadmap for how materiality should be analyzed in Medicare Advantage cases. Because the government has not and apparently will not stop paying carriers to provide health care services in the face of minor, insignificant, and immaterial violations of the Medicare Advantage regulations, such violations cannot provide a basis for FCA liability. This does not mean that these violations simply go unpunished; instead, CMS has ample enforcement authority to impose sanctions on carriers, such as suspending enrollment in future plans; suspending payments to beneficiaries who were enrolled after notification; suspending communications; and imposing monetary penalties. View in general 42 CFR § 422.750(a). However, because CMS has these tools and can choose when and how to use them, Relators must do more than simply point out a violation to meet the materiality standard under the FCA and Escobar.

We are closely monitoring the developing case law in this area to see how the courts reconcile the practicalities of Medicare Advantage with the elements of the FCA. We will keep clients and friends informed of these developments at Health Care Law Today.

We are also closely monitoring the cases in the Northern District of Texas described in the footnote above, which will impact broker-agent compensation, and our Health Care Practice Group is awaiting guidance on the Medicare Advantage Industry Sector Compliance Program from the U.S. Department of Health and Human Services’ Office of Inspector General (OIG), which the OIG stated is expected to be released in 2024.

(1) The latest changes to CMS regulations contained in the April 2024 final rule on agent-broker compensation have been put on hold pending a decision by the United States District Court for the Northern District of Texas. See Americans for Beneficiary Choice vs. HHSNo. 4:24-cv-00439 and Medicare Choice Board vs. HHSNo. 4:24-cv-00446. Specifically, on July 3, 2024, the court issued temporary orders that suspend the effective date of the changes to §§ 422.2274(a), (c), (d), and (e) and 423.2274(a), (c), (d), and (e) during the pendency of the proceedings.. See 89 Fed. Reg. 30,448 (April 23, 2024). For additional information, see the July 18, 2024, memorandum from the Medicare Drug and Health Plan Contract Administration Group regarding agent and broker compensation rates for contract year 2025, reporting, and training and testing requirements, available in https://www.cms.gov/about-cms/information-systems/hpms/hpms-memos-archive-weekly/hpms-memos-wk-3-july-15-19.

(2) The alleged unlawful business practices included: (1) cold calling and direct selling of Medicare Advantage plans; (2) using false contact sheets to induce or justify a sales call; (3) misleading beneficiaries; (4) using the White Pages mobile application to find retiree-age Medicare beneficiaries in the same area as other contacts; (5) “rotating” or encouraging beneficiaries to change plans in order to generate commissions; (6) “steering” beneficiaries to MMA-preferred Medicare Advantage plans; (7) enrolling beneficiaries outside the annual enrollment period; and (8) enrolling individuals in the federally subsidized Extra Help program without verifying that enrollees met income limits.

(3) MMA allegedly falsely represented that its agents had full authority to sell Medicare Advantage plans when it knew its agents did not.

(See source.)