Prima Facie Evidence of Moda Health Fraud and Violation of Antitrust Laws: The Need for Guardrails and Firewalls

Mentor Research Institute, 501c3
October 1, 2024

Summary

A detailed analysis of Moda Health’s contracting practices reveals a complex pattern of behaviors that may constitute fraud, antitrust violations, and unethical contracting. Addressing these issues requires a combination of legislative reforms, regulatory oversight, and provider advocacy. By implementing the recommended strategies, stakeholders can promote transparency, fairness, and accountability in value-based contracting, ultimately protecting both purchasers, providers and patients from unfair, unethical, and illegal contracting practices. 

Introduction

This discussion paper presents a comprehensive analysis of evidence of unethical, fraudulent practices and antitrust violations by Moda Health. The focus is on identifying behaviors that may undermine fair market competition and ethical contracting practices, particularly within the context of mental and behavioral health services. By applying a rule-of-reason analysis and utilizing prima facie evidence, this discussion paper aims to outline the regulatory and legal implications of Moda’s contracting strategies, as well as recommend actionable reforms to ensure compliance and protect providers and consumers.  This discussion paper is not an indictment.

Overview of Prima Facie Evidence and Rule of Reason Analysis

Prima facie evidence refers to sufficient evidence that, unless rebutted, establishes a fact or raises a presumption of legality and or illegality. It provides an initial basis for claims that require further examination. In this context, the rule-of-reason analysis is used to assess whether Moda Health’s practices promote or suppress competition in the healthcare market. This analysis was guided by Federal Trade Commission (FTC) and Department of Justice (DOJ) examples, and practice commonly used by certified internal auditors in order evaluate the overall impact of business practices on market dynamics, pricing, and consumer welfare.

Rule of Reason Argument Suggesting Moda Health May Have Committed Fraud and Violated Antitrust Laws

The rule-of-reason analysis defined by the FTC assesses whether a business practice promotes or suppresses market competition. In the case of Moda Health, there is a plausible argument that their behavior almost certainly violated antitrust laws and FTC regulations through deceptive practices and unfair competition tactics. To do this accurately, there must be a reliable and useful declarative fact pattern, which can be used to reach a valid conclusion that is also independently judged to be truth-bearing for a specific regulation. MRI can provide an analysis based on fact pattern but is not qualified to associate the fact pattern case precedent and FTC findings.

Declarative Fact Pattern Supporting Antitrust and Fraud Allegations

1.       Health Plan Context and Market Dynamics in Oregon:

1. Moda Health is a major player in the Oregon health insurance market, holding a dominant share of public sector contracts with the Oregon Education Benefits Board (OEBB), Public Employees Benefits Board (PEBB), and Oregon Health and Science University (OHSU). This dominance allows Moda to exert substantial influence over provider networks and service pricing, impacting the delivery of psychotherapy and other mental health services.

2. Despite the presence of multiple competitors, such as Regence, Providence, and PacificSource, Moda’s outsized share of key public contracts has created a quasi-monopoly in certain segments, leading to concerns about reduced provider choice and limited competition.

3. Moda’s position in the market is further solidified by its ability to enter into long-term contracts that restrict provider mobility and foreclose opportunities for other health plans to compete on equal terms, particularly in the context of value-based payment arrangements.

2.       Contracting Practices and Asymmetrical Information:

1. Moda Health has engaged in opaque and coercive contracting practices. Providers, especially smaller independent practices, have encountered contracts that are presented as “take-it-or-leave-it,” a form of contract of adhesion that limits the ability to negotiate terms.

2. These contracts include ambiguous language, allowing Moda to modify terms unilaterally, such as reimbursement rates, performance metrics, and service inclusion, without prior notice or mutual agreement.

3. Such practices contribute to a significant information asymmetry, where Moda maintains control over critical data points, such as risk adjustment methodologies and cost projections, leaving providers unable to accurately assess the financial and clinical risks involved.

4. Providers have cited specific instances where key contract terms, such as risk, risk-sharing requirements or performance benchmarks, were intentionally withheld or misrepresented, raising concerns about Moda’s commitment to fair dealing and transparency.

3.       Risk Adjustment Manipulation and Financial Deception:

1. Moda has been accused of manipulating risk adjustment scores to inaccurately reflect patient health conditions, thereby artificially lowering reimbursements. This practice distorts the shared risk model fundamental to value-based contracts, placing a disproportionate financial burden on providers.

2. Evidence suggests that these manipulations are designed to benefit Moda financially while creating misleading reports for regulators, payers, and even providers themselves. Such actions undermine the accuracy of performance evaluations and may violate regulations related to accurate reporting and fraud prevention.

3. Providers have experienced financial instability due to these practices, as risk scores that underestimate patient needs result in lower payments, making it difficult to sustain high-quality care. Smaller, independent practices are particularly vulnerable, as they lack the financial reserves to absorb unexpected reductions in revenue.

4.       Antitrust Concerns and Market Foreclosure:

1. Moda’s contracting strategies may amount to violations of the Sherman Act and FTC Act by employing exclusionary tactics that prevent new entrants and limit competition among existing health plans. These practices include restricting access to key contracts, using exclusionary clauses, and imposing onerous administrative requirements that deter smaller providers.

2. Market foreclosure is evident in Moda’s efforts to prevent smaller, independent providers from competing fairly by creating an uneven playing field. This is achieved through selective contract offers, non-standardized definitions of terms, and misleading incentive structures that distort the competitive landscape.

3. Moda’s manipulation of performance metrics and misrepresentation of compliance with value-based care principles has also been cited as a means to undermine competitors, particularly in the mental and behavioral health space, where smaller providers already face significant challenges.

5.       Impact on Mental and Behavioral Health Providers:

1. The impact of Moda’s practices is particularly severe for mental and behavioral health providers. Value-based contracts offered by Moda often include stringent administrative requirements, arbitrary performance metrics, and punitive clauses that reduce reimbursement for non-compliance.

2. Moda will be accused of covertly setting arbitrary limits on session length and imposing rigid documentation standards that detract from therapeutic effectiveness.

3. These barriers undermine Oregon’s goals of expanding access to high-quality mental health services, particularly for vulnerable populations who may require intensive, ongoing support that is not conducive to rigid value-based models.

6.       Fraud and Misrepresentation in Contracting:

1. Moda’s actions may constitute fraud if they involve deliberate misrepresentation of contract terms or value-based care benefits to providers and purchasers. The false portrayal of risk-sharing agreements as beneficial, while concealing the true financial risks, diverts taxpayer funds and undermines public trust.

2. Misleading performance data and manipulated incentive structures can also violate federal laws, such as the False Claims Act, if they result in deceptive billing practices or false reporting to government payers.

3. Moda’s refusal to provide clear and transparent answers to provider inquiries, coupled with stalling contract negotiations for over 1.5 years, further indicates a pattern of bad faith contracting designed to suppress competition and limit provider options.

7.       Ethical and Compliance Implications:

1. Moda Health’s contracting behaviors raise serious ethical and compliance concerns. Providers have reported a lack of transparency, unfair competitive advantage, and coercive contract terms that undermine the integrity of the healthcare system.

2. The creation of power imbalances through information asymmetry, coercive tactics, and unilateral contract changes suggests that Moda’s actions are not only unethical but may also violate professional standards and fiduciary responsibilities.

3. Implementing independent oversight mechanisms, such as anonymous Ethics Point portals and independent certified internal auditors, is critical to addressing these concerns and ensuring that Moda’s contracting practices align with legal and ethical standards.

8.       What are Guardrails and FireWalls?

A. Guardrails:  Guardrails are predefined policies, standards, or procedures put in place to prevent undesirable behaviors or outcomes. In a contracting framework, guardrails outline the boundaries and ethical considerations that parties must adhere to. They serve as proactive measures to guide decision-making and prevent conflicts of interest, fraud, or non-compliance before they occur. For example, in value-based contracting, guardrails might include requirements for transparent reporting, limitations on changes to performance metrics, or specific terms that protect patient care quality from being compromised for cost-saving measures.

B. Firewalls:  Firewalls are more stringent barriers designed to separate or restrict the flow of sensitive information and operations between different parties or departments. In the context of contracts and compliance, firewalls help prevent conflicts of interest, undue influence, or unethical decision-making. For instance, a firewall in a healthcare organization might ensure that financial incentives for cost reduction are separated from clinical decision-making to prevent compromising patient care. Another example could be a firewall between departments managing quality reporting and those overseeing financial performance to ensure unbiased measurement and compliance.

These terms work together to create a structured and ethical environment, where guardrails set the boundaries for acceptable practice and firewalls enforce separation to maintain integrity and accountability.

Detailed Analysis of Key Allegations and Recommended Strategies

9.       Risk Adjustment Manipulation and Financial Deception

A.      Allegation: Moda Health is accused of manipulating risk adjustment scores to artificially lower reimbursements, disproportionately transferring financial risk to providers. This tactic distorts the shared risk model foundational to value-based contracts and may result in misleading reports for regulators and payers.

B.      Impact: Such manipulation creates a deceptive portrayal of the provider’s financial and clinical risk, leading to underfunding for patient care. This can destabilize smaller practices, limit treatment options, and ultimately undermine the quality of care for patients.

C.     Legal Implications: Manipulating risk scores to misrepresent patient needs could qualify as fraudulent behavior under the False Claims Act if it results in false or misleading reporting to federal programs. Additionally, this practice may violate the FTC Act by engaging in deceptive business practices that distort competition.

10.  Recommended Strategies

A.      Legislative Reform for Transparency

1)       Implement legislation requiring health plans to disclose the methodologies used for risk adjustment calculations in value-based contracts.

2)       Establish a standardized review process overseen by independent certified internal auditors to ensure the accuracy and transparency of these methodologies.

B.      Mandated Risk and Risk Adjustment Audits

1)       Introduce mandatory risk adjustment audits conducted by independent bodies to verify that patient risk scores accurately reflect clinical realities.

2)       Legislation should include provisions that empower state agencies to intervene when discrepancies in risk scoring are found, ensuring that health plans cannot engage in selective manipulation.

C.     Provider Advocacy and Collective Action

1)       Encourage provider groups to form associations that collectively negotiate contract terms, particularly those related to risk adjustments and shared financial responsibility.

2)       These associations could serve as a unified voice in advocating for regulatory reforms and could collaborate with legislative bodies to promote fair contracting practices.

11.  Contracts of Adhesion and Unilateral Modifications

A.      Allegation: Moda Health’s use of contracts of adhesion - “take-it-or-leave-it” agreements—leaves providers with no room for negotiation and exposes them to unilateral changes. Providers report being subjected to arbitrary term modifications, such as sudden alterations in reimbursement rates or service criteria.

B.      Impact: Contracts of adhesion create an imbalance of power, coercing providers into agreements that may be detrimental to their financial stability and clinical autonomy. The lack of mutual consent undermines the principle of good faith and fair dealing, leaving providers vulnerable to exploitation.

C.     Legal Implications: These contracts could be challenged under the Clayton Act, which addresses practices that restrict competition and create power imbalances. Additionally, if these contracts limit providers’ ability to participate in alternative networks or negotiate with other health plans, they may also violate antitrust laws.

12.  Recommended Strategies

A. Contract Standardization and Review Periods:

1)       Enact legislation mandating that all health plan contracts undergo a minimum 90- to 120-day review period, allowing providers and stakeholders to submit feedback before terms are finalized.

2)       Require health plans to use standardized contract templates that clearly outline key terms, such as performance metrics, financial risk-sharing arrangements, and allowable changes.

B. Whistleblower Protections and Ethics Point Portals:

1)       Introduce whistleblower protections for providers who report coercive or unethical contracting practices. Establish anonymous Ethics Point portals overseen by independent internal auditors to handle these reports and ensure transparency.

2)       Mandate that any unilateral changes to contract terms be communicated through a centralized, publicly accessible platform, allowing providers to track and respond to such changes in real time.

C. Independent Contract Review Panels:

1)       Form independent review panels comprising provider representatives, legal experts, and auditors to oversee the negotiation and implementation of value-based contracts.

2)       These panels would be empowered to assess whether contract modifications are in compliance with established legal and ethical standards and to recommend sanctions for non-compliance.

13.   Antitrust Violations and Market Foreclosure

A.      Allegation: Moda Health’s exclusionary tactics, such as restrictive network inclusion criteria and information asymmetry, suggest a deliberate strategy to limit competition among providers and health plans. Smaller provider groups are systematically excluded from value-based contracts, creating an uneven playing field.

B.      Impact: Market foreclosure results in reduced provider choice, stifled innovation, and higher costs for patients. By preventing smaller providers from competing fairly, Moda consolidates its market power, leading to decreased competition and potentially higher premiums.

C.     Legal Implications: Such practices may violate the Sherman Act, which prohibits monopolistic behavior and practices that unreasonably restrain trade. Moda’s refusal to share critical information with potential competitors could also fall under the FTC Act’s prohibition of unfair methods of competition.

14.  Recommended Strategies

A.      Mandated Disclosure of Contract Terms and Network Criteria:

1)       Introduce regulations requiring health plans to publicly disclose their network inclusion criteria, contract terms, and methodologies for determining provider eligibility.

2)       Health plans should be required to submit annual reports to state regulators detailing their provider inclusion and exclusion practices, including justifications for network changes.

B.      Strengthening Antitrust Enforcement:

1)       Empower state attorneys general and the Department of Justice (DOJ) to conduct independent investigations into health plan practices that may constitute antitrust violations.

2)       Establish a dedicated task force to monitor and enforce compliance with antitrust regulations in the healthcare sector, focusing on both provider and health plan practices.

15.  Deceptive Practices and Misrepresentation

A.      Allegation: Moda Health has been accused of engaging in deceptive practices by misrepresenting the value and risks of value-based payment contracts. Providers report that key contract terms, such as financial risk-sharing and performance metrics, were either concealed or misrepresented.

B.      Impact: Misleading providers into accepting contracts under false pretenses undermines trust and creates significant financial and operational risks. Such practices distort the competitive landscape and may result in wasted public funds if taxpayer-supported health plans are involved.

C.     Legal Implications: These behaviors may violate the FTC Act’s prohibition on deceptive practices and could also constitute fraud under state and federal laws if providers or regulators are intentionally misled.

16.  Recommended Strategies

A.      Ethics Point Portals with Independent Oversight:

1)       Require all health plans to implement Ethics Point portals that are independently managed to handle complaints of deceptive practices.

2)       Auditors should be empowered to review complaints, conduct investigations, and recommend corrective actions without interference from health plan management.

B.      Legislative Reforms to Prevent Misrepresentation:

1)       Introduce reforms that mandate full disclosure of all performance metrics, risk-sharing terms, and financial arrangements in value-based contracts.

2)       Enforce remediation, penalties for health plans found to engage in misrepresentation, including mandated corrective action, fines, contract suspension, or termination of public sector agreements.

C.     Provider Education and Training:

1)       Establish definitions that will allow effective communication among and between providers, purchasers, patients, taxpayers, and other stakeholders.

2)       Establish educational programs for providers to better understand value-based contracting and identify potential red flags in contract terms.

3)       Offer resources for providers obtain legal and financial reviews of contract terms before entering into agreements with health plans.

Potential Counter-Arguments from Moda Health

Moda Health could respond to the allegations by emphasizing several key points. First, Moda may argue that it maintains a strong commitment to compliance and transparency in its contracting practices. The organization would likely assert that all contracts and business practices are fully aligned with federal and state regulations, including those set by the Federal Trade Commission (FTC), the Department of Justice (DOJ), and the Oregon Insurance Division. To support this, Moda may reference its established internal processes designed to ensure legal and ethical standards are consistently upheld.

Furthermore, Moda might highlight its support for value-based care models, arguing that the primary goal of these arrangements is to enhance patient outcomes and healthcare quality. The structure of these contracts, including risk adjustment methodologies and performance metrics, should be to align incentives around patient health outcomes, rather than to distort financial benefit or suppress competition. From Moda’s perspective, tey may argue that their models are meant to achieve cost-efficiency and quality improvement, which benefit both patients and the healthcare system as a whole.

In addressing concerns about its market position, Moda may contend that while it does hold a substantial share of public sector contracts in Oregon, this presence does not equate to a monopoly. The health plan may point to the existence of multiple competitors, such as Regence, Providence, and PacificSource, all of whom have opportunities to bid for public contracts. Moda might argue that its success in obtaining these contracts is due to its ability to offer competitive pricing and deliver quality services, rather than exclusionary practices. Thus, its position in the market is a result of legitimate competitive practices, not anti-competitive behavior.

Moda could also respond to claims of coercive contracting by arguing that many of the terms characterized as “contracts of adhesion” or “coercive” are, in fact, industry-standard terms commonly used in managed care agreements. The intention behind these terms, according to Moda, is not to disadvantage smaller providers but to ensure consistency and quality in its provider networks. The plan may argue that uniform contract terms are essential to maintaining network integrity and providing high-quality care to patients.

Additionally, Moda may defend its risk adjustment model by stating that these methodologies are based on established actuarial science and industry guidelines. That is highly unlikely and if it is true then it is further evidence of bad faith.  Moda might emphasize that the models are regularly reviewed by independent auditors to ensure accuracy and fairness. Any adjustments in reimbursement rates, Moda might argue, are the result of reflecting actual patient needs rather than an attempt to manipulate financial outcomes in favor of the health plan. This argument would likely be used to counter claims of financial manipulation and misrepresentation.

Another counterpoint Moda might raise is the assertion that providers are not compelled to participate in its contracts and have the freedom to choose whether to enter into specific agreements. Moda offers a range of contract options with varying risk levels, allowing providers to select the model that best suits their clinical and financial capacities. This, Moda may argue, refutes claims that providers are forced into disadvantageous agreements without alternatives.

Finally, Moda may underscore its commitment to continuous improvement and regulatory compliance. Any perceived delays in contract negotiations or responses to provider inquiries could be presented as a consequence of thorough internal reviews aimed at ensuring that all terms are legally sound and align with the overall goal of enhancing patient care. Moda might emphasize that these practices reflect its dedication to upholding the highest standards of integrity and compliance, rather than an effort to suppress competition or limit provider options.

For more information see:
https://www.mentorresearch.org/moda-discussion-paper

Good Faith Disclaimer and Purpose of Analysis

This discussion document is intended for training, education, legislation, and research purposes only. The information contained herein is based on the data and perspectives available at the time of writing. It is subject to revision as new information and viewpoints emerge. This is not an indictment of Moda Health, but rather an effort to highlight potential concerns, encourage education, and constructive dialogue to ensure that value-based contracting aligns with the best interests of providers, health plans, and patients.

For more information see: https://www.mentorresearch.org/disclaimer-and-purpose