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Family Health to Face Discrimination Claim

CHICAGO (CN) - A managed healthcare organization must face claims that it cherry-picks Medicaid applicants, rejecting those with high cost medical needs in violation of government contracts worth millions, a federal judge ruled.

Family Health is a managed care organization that contracts with the federal and Illinois government to provide services to Medicaid recipients.

Under the terms of these contracts, Family Health is required to accept every potential enrollee who requests membership, regardless of their medical history.

However, a group of plaintiffs brought an action under the False Claims Act alleging that Family Health "routinely refuses to enroll Illinois recipients who appear to have high-cost medical needs, and instead enrolls only those individuals who are unlikely to ever need Family Health's services."

According to the complaint, the government has lost "at least millions of dollars since 1998," due to Family Health's discrimination.

On Monday, U.S. District Judge Amy St. Eve denied Family Health's motion to dismiss the third amended complaint.

Plaintiffs' "allegations that defendants made promises, in both its contracts with the HFS [Healthcare and Family Services] and its quarterly certifications to the governments, that it had not been discriminating and would continue not to discriminate when enrolling new applicants, while knowing it had been and would continue to cherry-pick health applicants, sufficiently assert a fraudulent inducement theory under the Seventh Circuit's interpretation of the FCA," St. Eve said in a 14-page opinion.

The judge dismissed plaintiffs' second amended complaint because it did not cite the specific provisions to show that Family Health would have lost its government contracts had it truthfully reported its enrollment procedures.

"In the TAC, however, relators cite to specific statutory provisions which allow the government to terminate its contract with Health

Family based upon a breach of contract and required Health Family to sign a contract expressly forbidding discrimination," St. Eve said.

The judge continued: "Making all reasonable inferences in the relators' favor, Family Health's promises not to discriminate, and quarterly certifications that it was not discriminating, were therefore material to the government not terminating Family Health's contract, as well as to its willingness to sign new contracts with Family Health."

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