Two Payers Liable for $32.5M in Medicare Advantage Fraud Suit

Insurers Freedom Health and Optimum Healthcare have agreed to pay $32.5 million to avoid further litigation in a whistleblower lawsuit which alleges systemic Medicare Advantage fraud.   

The insurers will pay the federal government $16.7 million to resolve allegations of risk gaming fraud and $15 million for the alleged fraudulent expansion of their service areas, for a total settlement amount of $31.7 million. 

In addition, Siddhartha "Sidd" Pagidipati, Freedom's former chief operating officer, will pay $750,000 to the federal government for the alleged fraudulent expansion of service areas. 

The whistleblower lawsuit was initiated by Dr. Darren D. Sewell, MD, who passed away in 2014.  

"This is the largest whistleblower settlement involving health insurers' manipulation of their members' risk scores," said Mary Inman, an attorney for the Sewell whistleblower suit.

"A $16.7 million recovery sends an important signal to health insurers that the government is serious about risk adjustment fraud. I wish my client were here to see it."

Dr. Sewell was an employee of Freedom and Optimum from 2007 to 2012, eventually serving as their chief medical officer and then vice president in charge of the Medicare Revenue Management Department.

During this time, Sewell became familiar with the various schemes to defraud the government.  In 2009, he filed the whistleblower lawsuit and cooperated with a successful undercover investigation.

Freedom Health and Optimum Healthcare are based in Tampa, Florida and run by Dr. Kiranbhai "Kiran" C. Patel, and Siddhartha "Sidd" Pagidipati.

The original whistleblower complaint accused Freedom and Optimum of perpetrating a billing fraud known as risk gaming.

Risk gaming occurs when payers inflate patient risk scores and subsequently request higher payments from the government.   A patient’s risk score is determined by their diagnosis and treatment requirements, which in the case of gaming is either inflated, unsubstantiated or false. 

The suit alleges that up to 80 percent of the payment codes submitted by the payers were unsubstantiated, in addition to unnecessary office visits for members designed to look for ways to inflate risk scores.  

Additionally, the lawsuit alleges that the insurers, aided by Mr. Pagidipati, fraudulently convinced CMS to allow expansion of their healthcare services into counties in Florida and the Carolinas. 

Despite claiming to CMS that they had a sufficient network of doctors, clinics, and hospitals to expand into the coverage area, there was no provider network in place. 

The gaming of Medicare Advantage has been the focus of multiple lawsuits, and action in Congress, with calls to increase audits and aggressively seek repayment of fraudulently collected funds. 

The current chairman of Freedom and Optimum, Dr. Kiranbhai "Kiran" C. Patel, had previously created another Medicare Advantage Organization named WellCare HMO, which he sold in 2002 for $200 million. 

Dr. Patel purchased Freedom and Optimum in 2007 and served as president and CEO for both companies.  Dr. Patel’s brother, Rupesh Shah, has since been appointed acting CEO of Freedom Health and Optimum Healthcare.  Both men were named as defendants in the whistleblower complaint. 

Both Freedom Health and Optimum Healthcare maintain their innocence in the matter.

“With this settlement, we have agreed to resolve disputed claims without any admission of liability in order to avoid delay and the expense of litigation, so that we can focus on providing quality care, member service and maintaining the highest Medicare Star Ratings,” said Freedom and Optimum corporate counsel Bijal Patel.

As a whistleblower, Dr. Sewell’s estate is entitled 15 to 25 percent of the $32.5 million recovered for the government.