San Francisco, August 16, 2024 – Humana, a healthcare insurance company that contracts with Medicare to provide Medicare Part D Prescription Drug Plans, agreed to pay $90 million to the federal government to settle a whistleblower lawsuit filed by Phillips & Cohen LLP under the False Claims Act. The lawsuit alleges that Humana submitted fraudulent bids to the Centers for Medicare & Medicaid Services (CMS) for lucrative Medicare Part D prescription drug contracts from 2011-2017, significantly overcharging the government. This is first case of its kind to resolve allegations of fraud in the Part D contracting process.
Medicare Part D is the Government’s voluntary prescription drug program under which CMS contracts with private insurance companies to cover prescription drug benefits for people enrolled in Medicare. By law, the insurance companies must offer plans that cover a minimum required portion of drug costs, with the government and Medicare beneficiaries covering the rest. CMS requires insurance companies to submit annual bids in which they report the benefits they propose to cover and confirm that those benefits meet Part D’s minimum coverage level. The complaint in this case alleged that Humana committed to providing the required level of coverage, but in fact planned to provide less, with the government and beneficiaries unknowingly picking up more than their share.
“The Part D program depends on insurance companies paying their minimum share of drug costs. We argued that Humana shirked its responsibility by telling the government that its plan would cover drug costs that Humana did not actually plan to cover. Our complaint detailed how the government and beneficiaries were left with paying tens of millions of dollars more than Congress intended for years, while Humana pocketed the money as ‘savings,’” said Claire Sylvia, a whistleblower attorney and Phillips & Cohen partner who filed the case.
“We alleged that Humana kept two sets of books – one set that its actuaries prepared for bids Humana submitted to the government and a separate internal set that Humana’s actuaries prepared with Humana’s actual anticipated costs, which Humana used for all its business dealings including its internal budgeting,” said Edward Arens, a Phillips & Cohen partner who also represented the whistleblower. “This practice would never have come to light if our brave client, Steven Scott, had not stepped forward to report it.”
Steven Scott, the whistleblower who filed the lawsuit in 2016, is a former actuary for Humana. The complaint alleges that he discovered that Humana had accurately predicted internally each year the costs for its Part D “Walmart Plan,” while basing its bids to the government on different and unsupported assumptions that were used for no other purpose. The complaint alleged that every year Humana’s internal assumptions proved accurate and those underlying its bids were wildly off, and always in Humana’s favor, benefitting the insurance company by hundreds of millions of dollars. In papers filed with the district court, the Relator alleged that in 2017, shortly after Humana received the Civil Investigative Demand that the government issued when investigating this case, the alleged practice of using separate sets of assumptions abruptly ended, reducing future harm to the government.
“I want to thank everyone who helped me with the pursuit of my whistleblower lawsuit over the past 8+ years,” said Mr. Scott. “In particular, I want to express my immense gratitude to my wife Lindsay for her incredible sacrifice and support. Additionally, I’m extremely grateful to my team of attorneys from Phillips & Cohen LLP and from Kellogg, Hansen, Todd, Figel & Frederick, PLLC for their time, expertise, and resources in taking a novel, complex case all the way from initial filings to the eve of trial and settlement.”
“Although Humana asserted in court papers that the predictions underlying its bids were merely estimates about future behavior, they worked in Humana’s favor 100% of the time over seven years and for 245 bids,” said Edward Arens. “The odds that a big insurer would ‘miss’ on an important assumption in the same way that many times in a row are too small to measure.” He added that “in contrast to the predictions used for its bids, Humana’s internal predictions about drug costs were very accurate.”
DOJ did not intervene in Mr. Scott’s case after the district court declined further extensions of time to investigate. The case was litigated by Mr. Scott’s counsel, led by Andrew Shen and James Webster of Kellogg, Hansen, Todd, Figel & Frederick, PLLC. After extensive motion practice, the district court denied both parties’ motions for summary judgment, notably rejecting Humana’s argument that its bids represented opinions that are insufficient to prove falsity. The court observed that the Sixth Circuit has explained that an opinion can be false if the speaker knows facts that would preclude such an opinion and held there was evidence in the record from which a jury could conclude that “Humana made statements and presented records that it knew were false.” The case then proceeded to trial, settling in principle just before the start of the trial.
George Collins of Phillips & Cohen and Katherine Cooper, Bethan Jones, Caroline Schechinger, and Thomas Schultz of Kellogg Hansen were instrumental in achieving this result.
A copy of the complaint.
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