The Department of Justice (DOJ) announced this week that it has entered into a settlement agreement with Davita Medical Holdings (Davita) for $270 million dollars to resolve certain False Claims Act liability related to Medicare Advantage risk adjustment payments.

As the settlement agreement describes, Davita acquired HealthCare Partners (HCP), a large California based independent physician association in 2012. HCP, subsequently Davita Medical Group (or Davita), operated as a medical service organization (MSO) who contracted with Medicare Advantage Organizations (MAOs) to provide services and manage the care of its beneficiaries. Davita would provide beneficiary diagnostic information to its MAOs which would be used by the Centers for Medicare and Medicaid (CMS) to calculate the MAO’s risk adjusted capitated payments under the program’s risk adjustment payment methodology. Payments would then be made by MAOs to DaVita under the terms of its risk sharing arrangements.

The settlement resolved allegations raised in the qui tam action filed in District Court for the Central District of California, United States ex rel. Swoben v. Secure Horizons, et al., by James Swoben, a former employee of a MAO that contracted with HCP. Swoben alleged that HCP hired coding companies to perform “one-way” retrospective reviews of member records, whereby the MAO would submit additional diagnosis codes to CMS but not validate previously submitted codes.

The settlement further resolves allegations related to incorrect coding guidance, unsupported but un-retraced codes identified during audits, in-home assessments, incorrect diagnosis mapping to appropriate ICD-9 codes in its electronic medical record, and acute condition codes in the primary care setting.  In its press release, the DOJ emphasized that the failure by Davita to delete unsupported or undocumented diagnosis codes caused the MAOs to retain payments from CMS that they were otherwise not entitled.

Importantly, Davita as downstream provider to MAOs, did not directly submit claims to the Centers for Medicare and Medicaid. Accordingly, this settlement is extremely significant to downstream entities such as MSOs, IPAs, physician practices and risk adjustment vendors who can themselves potentially be subject to “causes to be submitted” and other theories under the FCA.