Oak Street Health Pays $60M To Settle Allegations Of Kickback Scheme

Dive Brief:

• CVS unit Oak Street Health has agreed to pay $60 million to settle allegations it paid kickbacks to insurance agents to recruit seniors to its primary care clinics.
• Starting in 2020, Oak Street used a program called the Client Awareness Program to build membership, according to the Department of Justice, which announced the settlement on Wednesday. In the program, third-party agents reached out to Medicare-eligible seniors to market Oak Street’s services, and handed off seniors who expressed interest to Oak Street employees. Agents were paid around $200 for each Medicare beneficiary they referred, the DOJ said.
• The scheme incentivized agents to direct seniors to Oak Street for their own financial gain, regardless of the seniors’ needs, the DOJ said. Oak Street did not have to admit liability as part of the settlement, while a spokesperson for CVS noted the medical network discontinued the Client Awareness Program over two years ago.

Dive Insight:

Companies in the fast-growing Medicare Advantage space — including value-based care providers like Oak Street — are incentivized to chase as many Medicare seniors as possible, according to industry experts.

Federal law and Medicare marketing rules are meant to dissuade schemes like Oak Street’s Client Awareness Program. Yet as more Americans join the health insurance program, concerns have also increased about duplicitous or aggressive marketing to convince seniors — who can be more vulnerable to such tactics than other demographic groups — to sign up for a plan or provider that might not be in their best interest.

Such tactics stem from the huge financial incentive for such companies to bring on new members. The government pays plans a set rate of around $12,000 per enrollee per year.

Between September 2020 and January 2022, Oak Street made more than 20,000 payments to agents under the Client Awareness Program, totaling more than $4 million in kickbacks, according to the settlement. Under federal law, it’s illegal to offer or pay anyone for referring patients to their business for items or services covered by Medicare, Medicaid or other federal programs.

After being handed off through the program, thousands of Medicare beneficiaries (and a small number of Medicaid beneficiaries in Illinois) received care at Oak Street. Oak Street then submitted thousands of claims to federal programs for those beneficiaries, in violation of the False Claims Act, the DOJ said.

Oak Street operates roughly 200 value-based primary care clinics across the U.S. directed at Medicare seniors. The company isn’t a traditional Medicare plan itself, but enters into full-risk contracts with Medicare Advantage plans, and via CMS’ direct contracting program, in which it assumes full responsibility for patients’ medical expenses in exchange for a fixed per-member, per-month payment.

Oak Street disclosed in 2021 that it was being investigated by the DOJ for its relationship with third-party marketing agents. The medical group’s kickback program dates back to before Oak Street was acquired by CVS for $10.6 billion last year, a spokesperson for CVS said.

“We worked cooperatively with the U.S. Department of Justice in this matter and agreed to a settlement to avoid protracted litigation. There was no admission of – and we expressly deny – any wrongdoing,” the spokesperson said. “We are pleased to put this matter behind us.”

CVS has acquired a handful of care delivery businesses in a bid to capture more care delivered in home and community settings, while better managing costs through its health insurance arm by nudging beneficiaries toward low-cost, CVS-owned sites of care.

It’s a strategy being pursued by a number of other heavy hitters in the healthcare space, including UnitedHealth and Humana. For CVS, which bought health insurer Aetna in 2018, it’s also an opportunity to further diversify revenue away from its legacy retail pharmacy business.

The healthcare conglomerate now operates a major health insurance business, a network of 9,000 retail pharmacies, a massive pharmacy benefit manager and a growing health services division, including Oak Street and home health business Signify.

Oak Street has continued to grow under CVS ownership, increasing the number of its at-risk lives to 235,000 in the second quarter, up almost 30% year over year. The division’s revenue grew by one-third in the quarter.

Initiatives like co-branded Aetna and Oak Street plans have helped drive membership growth, and CVS plans to introduce more such plans for the 2025 enrollment year, executives told investors in August.

Yet, the $60 million settlement comes as CVS struggles with rising costs from MA seniors using more healthcare services than expected. Last month, the Rhode Island-based company announced a plan to cut $2 billion in costs over the next few years, after its net income fell 7% in the second quarter on a year-over-year basis.