Humana will pay $90M for overcharging Medicare for drugs, in False Claims Act suit

Humana, a health insurer that contracts with the federal Medicare Part D Prescription Drug Plan, has agreed to pay $90 million to settle a whistleblower lawsuit by one of its former employees accusing the insurer of overcharging the U.S. government for prescription drugs, the whistleblower’s lawyers, Phillips & Cohen, announced on Friday.

The whistleblower, Steven Scott, a former actuary for Humana, said that since 2011, the insurer misrepresented its true costs in order to get a more lucrative contract. It is the first settlement with any insurer over allegations of fraud tied to Medicare’s prescription drug contracting process, according to the law firm Phillips & Cohen, which represents Scott.

“We have made the decision to enter into a settlement agreement without admitting any wrongdoing to avoid the uncertainty, distraction, inconvenience, and expense of a lengthy jury trial,” Humana said in a statement.

Scott’s 2016 lawsuit, originally filed in California and later transferred to Kentucky, centers on the Medicare Part D program, which helps beneficiaries pay for needed medications through private insurance plans that receive premiums from both enrollees and the government. Medicare contracts with private insurers like Humana to administer the program.

Contractors must submit bids about the level of benefits they will provide, and are in turn reimbursed by the government. Scott alleged that Humana overstated the level of benefits it was providing, pocketing the difference for itself.

The complaint alleges that Scott 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. However, shortly after Humana received the Civil Investigative Demand that the government issued when investigating this case, the practice of using separate sets of assumptions abruptly ended, reducing future harm to the government, Scott alleged.

He brought the Humana case under the federal False Claims Act, which allows whistleblowers to sue on behalf of the government and retain a portion of any recovery. The Department of Justice may or may not intervene, and chose not to in Scott’s case.

The False Claims Act imposes triple damages and penalties on those who knowingly and falsely claim or knowingly fail to pay money owed to the United States. In 1986, Congress increased incentives for whistleblowers to file lawsuits on behalf of the government alleging false claims.

Whistleblowers filed 712 lawsuits in fiscal year 2023, and this past year the Justice Department reported settlements and judgments exceeding $2.3 billion in these and earlier filed suits.

“I want to thank everyone who helped me with the pursuit of my whistleblower lawsuit over the past 8+ years …,” said Scott. “I’m extremely grateful to my team of attorneys from Phillips & Cohen … 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.”

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“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 attorney Edward Arens, a Phillips & Cohen partner who also represented the whistleblower.  “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.”