Former state officials file Medicaid fraud ‘whistleblower’ lawsuit against insurers, hospitals

Two former state officials filed a “whistleblower” lawsuit that alleged several Indiana hospital systems and managed care entities committed “tens, likely hundreds” of millions of dollars of Medicaid fraud.

The former officials filed the lawsuit in early 2021 when they obtained access to analysis from Indiana’s “fraud and abuse detection system” contractor, IBM Watson Health. The case was sealed until earlier this year.

The lawsuit alleges four companies in charge of managing Indiana Medicaid “knowingly and improperly” misused millions in Medicaid funds to pay claims that violate billing requirements. It also said six hospital systems obtained millions in funds by submitting thousands of false claims to Medicaid.

The complaint was filed on behalf of the state and the federal government by John McCullough, the former director of program integrity for Indiana Medicaid; and James Holden, the former chief deputy and general counsel in the Office of the Indiana State Treasurer.

McCullough served in that role from 2014 to 2017 and attended regular meetings with the managed care entity defendants and the hospital defendants. The lawsuit said the Program Integrity team and IBM Watson regularly met with the defendants and reminded them of their obligation to detect, prevent and recoup improper Medicaid payments from false claims. It also said they were advised on how to do so.

The lawsuit focuses on false claims related to three specific areas.

The first area is false claims related to re-admissions, hospital transfers and 24-hour stays. These included claims where two separate in-patient claims were filed when a patient was re-admitted within 72 hours for the same condition.

Another type of claim in this area is when a claim did not have a transfer status for patients that went to another hospital. The transferring hospital is supposed to receive a “prorated daily rate” rather than the full amount the receiving hospital gets.

It also includes claims when a patient was marked as “in-patient” for a hospital stay under 24 hours. The out-patient rate is lower.

The second area is false claims that were “clearly unallowable” due to the claim being for services marked as being provided after a patient has died or a duplicate claim.

The third area is false claims for chiropractic, dental and opioid treatments. In these cases, a separate claim might be submitted for a service that should be included in another service. For example, a dental extraction is expected to have sutures, but a false claim might be filed for the sutures separate from the extraction.

These areas applied to both the managed care entities defendants that were misusing Medicaid funds for these false claims and the hospitals that were obtaining the Medicaid funds for these false claims.

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The lawsuit said the defendants were aware of their obligation to prevent or deny claims that “violate basic hospital billing rules.”

The IBM reports that the lawsuit is based on are not available to the public, but are provided directly to Indiana Medicaid’s Integrity team. The complaint said between 2011 and 2020, less than 1 percent of recoupment demands based on IBM Watson’s analysis were overturned on appeal.

Starting in late 2017, the lawsuit said a senior executive at Indiana Medicaid “improperly directed the Program Integrity team to significantly curtail its efforts to utilize IBM Watson’s analysis and findings to recoup improper Medicaid overpayments” by the defendants. The lawsuit pointed to political pressure from lobbyists for the health insurers and the hospitals.

It also said this misconduct contributed to last year’s $1 billion budget shortfall.

The managed care entity defendants include Anthem, MDwise, Caresource and Coordinated Care, which operates as Managed Health Services or MHS. The hospital defendants include IU Health, Ascension, Community Health, Lutheran Health, Parkview Health, and Eskenazi – which is the public hospital division of the Health and Hospital Corporation of Marion County.

If the lawsuit is successful, the state and federal government could recover three times the total amount of damages.

Abigail is our health reporter. Contact them at aruhman@wboi.org.