Kaiser affiliates agree to $556M settlement over billing practices

Federal authorities say the resolution addresses allegations tied to diagnosis coding used for risk-adjusted payments.

What happened

Affiliates of Kaiser Permanente have agreed to pay $556 million to resolve allegations that they violated the False Claims Act by submitting unsupported diagnosis codes for Medicare Advantage enrollees. According to the U.S. Department of Justice, the government alleged that Kaiser entities in California and Colorado improperly increased risk adjustment payments by pressuring physicians to add diagnoses to patient records after visits, even when those conditions were not assessed or treated during the encounter. The settlement resolves claims covering conduct from 2009 through 2018 and includes Kaiser Foundation Health Plan entities and affiliated medical groups.

Going deeper

Under the Medicare Advantage program, the Centers for Medicare and Medicaid Services adjusts payments to private plans based on diagnosis codes that reflect a beneficiary’s health status. Federal prosecutors alleged that Kaiser used internal processes to mine patient histories and prompt clinicians to add diagnoses through record addenda long after visits occurred. The government also alleged that Kaiser set performance targets and financial incentives tied to adding risk adjustment diagnoses, and that internal warnings about compliance risks were not adequately addressed. The settlement resolves civil allegations only, and Kaiser did not admit liability.

What was said

U.S. Department of Justice officials said the settlement sends a clear message that the government will hold healthcare plans accountable when they “knowingly submit or cause to be submitted false information to CMS to obtain inflated Medicare payments.” Assistant Attorney General Brett A. Shumate noted that more than half of Medicare beneficiaries are in Medicare Advantage plans and that those plans are expected to provide truthful and accurate information. U.S. Attorney Craig H. Missakian for the Northern District of California added that Medicare Advantage “is a vital program that must serve patients’ needs, not corporate profits” and that when a health plan submits false information, everyone from beneficiaries to taxpayers loses. Another U.S. Attorney, Peter McNeilly, for the District of Colorado, said that Medicare relies on the accuracy of information submitted by plans and that the resolution makes clear that plans are accountable if they seek to game the system.

Acting Deputy Inspector General for Investigations Scott J. Lampert at the U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG), said that “deliberately inflating diagnosis codes to boost profits is a serious violation of public trust and undermines the integrity of the Medicare Advantage program.” The HHS-OIG press release also outlines its commitment to protecting Medicare through unified investigations alongside DOJ partners. The FBI’s Special Agent in Charge, Sanjay Virmani of the San Francisco Field Office, said the settlement reflects the FBI’s continued commitment to holding accountable those who abuse federal healthcare programs and put profits over patients.

In the know

The settlement follows increased scrutiny of Medicare Advantage billing practices after a recent Senate report accused UnitedHealth Group of exploiting the program’s risk adjustment system. Senator Chuck Grassley, who chairs the Senate Judiciary Committee, said his investigation reviewed more than 50,000 pages of internal documents and found evidence that the company appeared to be “gaming the system and abusing the risk adjustment process to turn a steep profit.” UnitedHealth Group has disputed the findings and maintains that its coding practices do not result in improper payments.

The report pointed to specific diagnostic categories frequently associated with overbilling, including opioid dependence diagnoses for patients taking prescribed pain medication as directed, as well as dementia. Medicare removed dementia from its risk adjustment codes in 2014 due to upcoding concerns, but after the code was reinstated in 2020, researchers observed that annual new dementia diagnoses in Medicare Advantage plans rose by 11.5% compared to traditional Medicare. Grassley said the findings raise broader concerns about taxpayer impact, stating that while Medicare Advantage remains a valuable option for seniors, rapid growth and escalating federal spending require “aggressive oversight” to prevent abuse of the program.

FAQs

What is risk adjustment in Medicare Advantage?

Risk adjustment is a payment mechanism that increases or decreases plan payments based on the documented health conditions of enrolled beneficiaries.

Why are diagnosis codes closely regulated?

Codes must be supported by face-to-face visits and reflect conditions that affected care, treatment, or management, because they directly influence federal payments.

Does this settlement involve criminal charges?

No. The resolution addresses civil allegations under the False Claims Act, and there was no determination of liability.

Who brought the allegations to the government?

The case included claims filed under the False Claims Act’s whistleblower provisions by former Kaiser employees, which allow private parties to sue on behalf of the government.

What should Medicare Advantage organizations review after this case?

They should assess coding workflows, provider incentives, documentation practices, and compliance oversight to ensure diagnoses submitted to CMS are accurate and supported by medical records.