Long Beach managed care firm under investigation

April 4, 2012 12:35:13 PM PDT

by Christina Jewett for California Watch

A Long Beach-based health plan seeking new contracts to serve 54,000 Southern California low-income seniors has set aside $125 million to resolve claims by state and federal authorities that it overbilled Medi-Cal and Medicare.

In applications submitted in February to California's Medi-Cal agency, the SCAN Health Plan detailed the course of civil and criminal investigations by the California attorney general's office, saying they could lead to "substantial financial payments." Federal authorities from the Health and Human Services and Justice departments also are investigating, the reports say.

Investigators are examining whether SCAN drew funds from both health care programs to care for the same pool of patients and intentionally hid the matter from overseers. At worst, the cases could conclude with the company banned from serving Medi-Cal or Medicare patients, the document says.

SCAN submitted applications to serve 36,000 seniors in Los Angeles County, 8,000 in San Diego County and 5,000 each in San Bernardino and Riverside counties. Medi-Cal is reviewing multiple bids from firms willing to work in each of those counties to coordinate care for patients, mostly seniors with low incomes, who receive both Medi-Cal and Medicare coverage.

Currently, the SCAN Health Plan, founded in 1977, runs a Medicare Advantage plan serving 130,000 people in California and Arizona. The firm says its members report very high satisfaction rates, and the Centers for Medicare & Medicaid Services recently awarded it 4 out of a possible 5 stars for its work in California.

California Watch reported in August that SCAN was under investigation after state Controller John Chiang audited the plan and said it "fleeced the state" out of a possible $339 million. In a financial evaluation [PDF], Medi-Cal confirmed that the health plan drew profit margins of 80 percent or more, in contrast to rates of 4 to 5 percent earned by similar plans.

The Medi-Cal Fraud Control Unit described the case in an annual report to federal funders, saying it involves "double billing."

"It is alleged that SCAN intentionally withheld relevant cost report information from the government to hide the enormous profits SCAN was making," the April 2011 report says.

The case "has the potential for obtaining one of the largest" financial recoveries as a result of a false-claims lawsuit by the attorney general's Medi-Cal Fraud Control Unit, the report says. The attorney general's office declined to comment further.

In a statement, SCAN spokesman Alan Maltun said: "Substantial progress has been made in working through these issues with the State and Federal governments, and we believe we will be able to resolve their concerns in a manner that is fair to all parties."

SCAN disclosed to Medi-Cal authorities in February that it received a subpoena for documents in March 2010 from the Department of Health and Human Services inspector general's office, which reports to the U.S. Department of Justice.

The company learned that the state attorney general's Medi-Cal fraud team also was conducting civil and criminal investigations of payments to the company from 2001 to 2009.

The disclosure says SCAN learned that federal authorities also are examining whether it earned excess payments by submitting improper ratings that describe how sick members are. Medicare Advantage plans, like SCAN, are paid a per-patient rate that is based on the plan's severity-of-illness ratings.

SCAN said that when its board of directors learned of the allegations, it appointed a special committee to lead an internal investigation. The report says the group "has not received any evidence suggesting intentional misconduct" by anyone at the company.

The company says it offered to pay $125 million to resolve claims, but government authorities said a counteroffer would be forthcoming. SCAN concluded that it "cannot predict whether or when a settlement will occur or whether criminal or civil court proceedings might be initiated."

In applying to serve additional seniors, SCAN said its mission is to find "innovative ways to enhance our members' ability to manage their health and control where and how they live."

The managed care company says 98 percent of its "nursing facility level of care" seniors in California are able to live at home, rather than in institutions. It said its members' rate of readmissions into hospitals is 24 percent lower than expected.

SCAN said that in 2011, 97 percent of its "dual eligible" -- or Medi-Cal and Medicare-qualified -- members were satisfied with the company.

The state Department of Health Care Services is reviewing applications from firms bidding to provide managed care services to seniors who tend to have many chronic conditions and receive care from a variety of providers.

The state is seeking to improve care and save money by giving care providers incentives to focus on healthy living and proactive management of chronic conditions. The move is meant to part ways with a system in which health providers are paid a premium for giving emergency care and performing invasive procedures.