Did the Wall Street Journal Implicate Molina Healthcare in a Fraud Scheme?

Many of the readers of RACmonitor deal with Molina Healthcare, a national insurer who does a lot of work in Medicare Advantage and Medicaid managed care.

What may not be known is that Molina Healthcare was started by Dr. C. David Molina in 1980 in California, initially as a clinic that accepted Medi-Cal, the state Medicaid plan. In 1985, Molina Healthcare entered the insurance business, forming a health maintenance organization (for those too young to remember, a “HMO” is what we used to call an Accountable Care Organization). Eventually, his sons took over, with Dr. J. Mario Molina appointed chief executive officer and John Molina appointed chief financial officer. The company went public in 2003.

Molina Healthcare expanded rapidly, including into the health insurance exchanges, which came about because of the Patient Protection and Affordable Care Act. But there was trouble brewing at Molina, and in early May of this year, the Board of Directors voted to remove both of the sons from the Board.

Why? According to an article in the Wall Street Journal published on June 1, 2017, poor financial performance was the driver. The article went on to shed some light on the events that led up to what the Molina brothers call a “coup.”

The article quoted a former Molina Healthcare executive who said that, along with the elder Molina, the driver of the care was the patient – and his sons continued the mindset of operating “often at less than optimum profitability.” The article also stated that “when a medical director suggested setting targets for rejecting a certain share of requested hospital stays, a move which would save the company money,” one of the sons rejected it.

While this sentence was buried in the story, it actually deserves a story of its own. Read it again: a medical director suggested arbitrarily denying payment for a set percentage of inpatient admissions in order to hit financial goals. No review for medical necessity of hospital care, no review for proper admission status, just arbitrarily denying claims.

Some might surmise that this is so outrageous that it must have been a statement made in jest in a meeting, but if that was the case, would it have been enough to warrant mention in a Wall Street Journal article? With the ouster of the Molina brothers from the leadership team, did this medical director’s idea get adopted? And most importantly, is further action warranted?

A look back in the past provides an answer. In the olden days of the 1990s, when the Centers for Medicare & Medicaid Services (CMS) was called the Health Care Financing Administration (HCFA) and there were fiscal intermediaries handling part A claims and carriers paying Part B claims, there was a scandal involving several of the Blue Cross/Blue Shield (herein referred to as Blue Cross) plans acting as fiscal intermediaries and carriers.

In a 1999 report issued by the General Accounting Office to the U.S. Senate titled “Improprieties by Contractors Compromised Medicare Program Integrity,” it was noted that six Blue Cross plans and/or some of their employees pleaded guilty to various criminal charges and agreed to pay criminal fines and/or civil penalties.

The report included a laundry list of illegal activities performed to circumvent HCFA claim processing requirements, but relevant to this discussion was the systematic destruction of tens of thousands of claims submitted for payment by providers. In most cases, this was done because the plan could not meet HCFA processing deadlines, and destruction of claims allowed them to meet their targets.

These two situations do differ. The Blue Cross plans committed Medicare fraud to avoid losing their lucrative government contracts. Molina Healthcare reportedly considered systematically denying claims to directly increase profits. Nonetheless, if Molina Healthcare did go ahead with the proposal and put into place such a process, either directly with the wholesale denial of claims or developing an incentive program for their reviewers to be “rewarded” for denying more admissions, the end result is the same: fraud committed against a federal program, an intentional falsification, or deceit to obtain a federal healthcare payment.

Because the report of this medical director’s suggestion is published in a newspaper, there is no opportunity for me to become a whistleblower, but there seems to be ample information for the U.S. Department of Health and Human Services (HHS) Office of the Inspector General (OIG) or the U.S. Department of Justice (DOJ) to look into Molina Healthcare’s operations and determine if this proposal was operationalized. I suspect that there would be few tears shed at any hospital around the country if the DOJ sanctioned Molina, or even excluded them from participation in federal programs. It may also inspire other payors to think twice before putting profits before providers and patients.


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