United States ex rel. Osinek v. Permanente Med. Grp., Inc.

601 F.Supp.3d 536

UNITED STATES of America EX REL. Ronda OSINEK, Plaintiff,

v.PERMANENTE MEDICAL GROUP, INC., et al., Defendants.

Case No. 13-cv-03891-EMC

Case No. 16-cv-01558-EMC

Case No. 16-cv-05337-EMC

Case No. 18-cv-01347-EMC

Case No. 21-cv-03124-EMC

Case No. 21-cv-03894-EMC

United States District Court, N.D. California.

Signed May 5, 2022

Eric H. Gibbs, Amy Marie Zeman, Dylan Hughes, Gibbs Law Group LLP, Oakland, CA, for Plaintiff Ronda Osinek.

Benjamin Joseph Wolinsky, Erica Blachman Hitchings, Shiwon Choe, United States Attorney's Office, San Francisco, CA, Gary R. Dyal, Laurie Oberembt, Michael D. Granston, Patricia L. Hanower, Vanessa I. Reed, United States Department of Justice, Civil Division, Washington, DC, for Plaintiff United States of America.

Michael James Ronickher, Edward Allan Baker, Pro Hac Vice, Max Voldman, Pro Hac Vice, Ronny Valdes, Constantine Cannon LLP, Washington, DC, Daniel Moore Twetten, Loevy & Loevy, Boulder, CO, Jessica Tien-Lai Moore, Mary Alice Inman, Constantine Cannon, LLP, San Francisco, CA, for Plaintiff James M. Taylor.

Janel Erin Quinn, Pro Hac Vice, R. Scott Oswald, Pro Hac Vice, The Employment Law Group, P.C., Washington, DC, J. Bernard Alexander, III, Alexander Morrison + Fehr LLP, Los Angeles, CA, for Plaintiff Michael Bicocca.

John Patrick Fisher, Office of the Attorney General, San Diego, CA, for Plaintiff State of California.

Peter Scott Rukin, Rukin Hyland & Riggin LLP, Oakland, CA, Matthew K. Organ, Roger A. Lewis, W. Kyle Walther, Goldberg Kohn Ltd., Chicago, IL, for Plaintiffs Gloryanne Bryant, Victoria M. Hernandez.

Abram Zinberg, The Zinberg Law Firm, APC, Huntington Beach, CA, William K. Hanagami, Hanagami Law, A.P.C., Incline Village, NV, for Plaintiffs Marcia Stein, Rodolfo Bone.

Mark Steven Hardiman, Aviva Rachel Morady, Salvatore John Zimmitti, Nelson Hardiman LLP, Los Angeles, CA, Jonathan Radke, Nelson Hardiman LLP, Los Angeles, CA, for Plaintiffs Naser Arefi, Ajith Kumar, Prime Healthcare Services, Inc.

David J. Leviss, Pro Hac Vice, K. Lee Blalack, II, Pro Hac Vice, O'Melveny and Myers LLP, Washington, DC, for Defendants Permanente Medical Group, Inc., Kaiser Foundation Health Plan Inc., Kaiser Foundation Health Plan of Colorado, Southern California Permanente Medical Group, Colorado Permanente Medical Group, PC.

David J. Leviss, K. Lee Blalack, II, O'Melveny and Myers LLP, Washington, DC, for Defendants Kaiser Foundation Health Plan of Georgia, Kaiser Foundation Health Plan of the Northwest, Permanente Federation, LLC, Kaiser Foundation Hospitals, Southeast Permanente Medical Group, Hawaii Permanente Medical Group, Mid-Atlantic Permanente Medical Group, PC, Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc., Kaiser Foundation Health Plan of Washington, Northwest Permanente, P.C., Washington Permanente Medical Group, P.C.

Stephen M. Sullivan, Dimitri Portnoi, Kelsey Chandrasoma, Jeffrey John Fowler, O'Melveny and Myers LLP, Los Angeles, CA, Anne Miller Steinberg, David Deaton, O'Melveny and Myers LLP, Newport Beach, CA, Caitlin Bair, O'Melveny and Myers LLP, San Francisco, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO DISMISS

Docket No. 141

EDWARD M. CHEN, United States District Judge The above cases are all predicated on allegations that various Kaiser entities¹ submitted false claims for payment to the federal government as part of the Medicare Part C program, which is also called Medicare Advantage. Osinek was the first-filed case and was followed by five other cases: Taylor, Arefi, Stein, Bryant , and Bicocca.² The cases were consolidated in June 2021. See Osinek , Docket No. 61 (order). In July 2021, the United States filed a notice that it was intervening in part and declining to intervene in part.³ See Osinek , Docket No. 64 (notice of election).

Currently pending before the Court is Defendants’ motion to dismiss based on the first-to-file bar in the False Claims Act ("FCA"). The relevant FCA provision states as follows: "When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action. " 31 U.S.C. § 3730(b)(5) (emphasis added). The purpose of the first-to-file bar is twofold: (1) "to promote incentives for whistle-blowing insiders" and (2) "[to] prevent opportunistic successive plaintiffs." United States ex rel. Lujan v. Hughes Aircraft Co. , 243 F.3d 1181, 1187 (9th Cir. 2001). Defendants argue that, with limited exceptions, the claims presented by the cases that follow Osinek are barred. The Arefi plaintiffs have filed a statement of nonopposition with respect to the motion to dismiss their case. See Docket No. 143 (nonopposition). The plaintiffs in all other cases have opposed dismissal.

Having considered the parties’ briefs, as well as the oral argument of counsel, the Court hereby GRANTS in part and DENIES in part Defendants’ motion.

I. FACTUAL & PROCEDURAL BACKGROUND

A. United States’ Complaint-in-Intervention

Although the United States’ Complaint-in-Intervention is not at issue in the pending motion, the Court begins with this pleading as it provides a good overview of the Medicare background.

"Medicare is a federally operated health insurance program." U.S. Compl. ¶ 52. It has four parts:

• Part A covers inpatient and institutional care.

• Part B covers outpatient care.

• Part C is the Medicare Advantage program at issue in this case.

• Part D covers prescription drugs.

See U.S. Compl. ¶ 52.

Parts A and B are "traditional" Medicare.

[T]he Government reimburses healthcare providers using a fee-for-service system, in which providers submit claims to CMS [Centers for Medicare and Medicaid Services] for healthcare services actually rendered, such as a provider officer visit or hospital stay. CMS then pays the providers directly for each service based on payment rates predetermined by the Government.

U.S. Compl. ¶ 53.

A Medicare beneficiary can opt out of traditional Medicare and enroll instead in a Medicare Advantage plan managed by a Medicare Advantage Organization ("MAO"). See U.S. Compl. ¶ 54. "CMS reimburses [Medicare Advantage] plans differently than traditional Medicare." U.S. Compl. ¶ 58. Specifically, Medicare Advantage uses a " ‘capitation’ payment system." United States ex rel. Silingo v. Wellpoint, Inc. , 904 F.3d 667, 672 (9th Cir. 2018). Under that system, "private health insurance organizations provide Medicare benefits in exchange for a fixed monthly fee per person enrolled in the program – regardless of actual healthcare usage." Id. The fixed monthly fee for an enrollee is set as follows. First, there is a predetermined base payment for each enrollee in a Medicare Advantage plan. See U.S. Compl. ¶ 57. Second, the base payment is then adjusted "to account for (1) demographic factors such as age and gender (among others) and (2) health status. This is known as risk adjustment." U.S. Compl. ¶ 58.

Risk adjustment is accomplished by assigning each beneficiary a risk score, which "acts as a multiplier that is applied to the [Medicare Advantage] plan's base rate to determine the overall monthly payment for the beneficiary." U.S. Compl. ¶ 58. A beneficiary's risk score is determined through a model called the CMS Hierarchical Conditions Category ("CMS-HCC") model, which, as indicated above, is based on the patient's demographic factors and health status. See U.S. Compl. ¶ 59. With respect to health status, the model relies on diagnosis codes from the International Classification of Diseases ("ICD"). See U.S. Compl. ¶ 60. "ICD diagnosis codes are alphanumeric codes used by healthcare providers, insurance companies, and public health agencies to represent medical conditions; every disease, injury, infection, and symptom has its own code." U.S. Compl. ¶ 62.

The ICD diagnosis codes included in the CMS-HCC model are grouped into categories of clinically related medical diagnoses that comprise the HCCs (i.e., the categories). For example, various cancer diagnosis codes are grouped together (e.g., colorectal and bladder cancers ). The CMS-HCC model organizes related conditions into hierarchies based on disease severity and expected cost. For example, various cancer HCCs are in the same hierarchy, with the HCC associated with metastatic cancer diagnosis codes as the most severe. If a patient is diagnosed with conditions (diagnosis codes) that correspond to more than one HCC in a hierarchy, only the most severe HCC is kept and any lower-ranking HCCs are dropped.

U.S. Compl. ¶ 63.

Each HCC is assigned a coefficient. CMS calculates a beneficiary's risk score by adding the coefficients associated with each of the beneficiary's applicable demographic characteristics (such as age and gender) and the applicable HCCs, if any, that apply to the beneficiary. A risk score of 1.0 reflects the average expected Medicare-incurred expenses. A risk score of 0.75 reflects expected costs for a particular beneficiary that are 25% less than the estimated average costs for enrollees in the MA plan, and a risk score of 1.25 reflects expected costs that are 25% greater than the estimated average costs for enrollees in the MA plan.

U.S. Compl. ¶ 65.

The CMS-HCC model is prospective in the sense that it uses diagnoses made in a base year (the ‘service year’), along with demographic information (such as age and gender, among others), to predict costs for Medicare benefits and adjust payments for the following year (the ‘payment year’)." U.S. Compl. ¶ 60.

"To combat the ‘incentive for [Medicare Advantage] organizations to potentially over-report diagnoses,’ Medicare regulations require risk adjustment data to be produced according to certain best practices." Silingo , 904 F.3d at 673. For example,

the diagnosis codes that MA Organizations submit to CMS for risk-adjustment purposes must be:

a. established by a qualified physician;

b. based on a face-to-face medical visit between the patient and physician^[4];

c. documented in the

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