Kaiser Permanente Affiliates to Pay $556 Million to Settle Medicare Advantage False Claims Case

Key Takeaways

• Inflated Diagnosis Coding Allegations: Federal prosecutors alleged that Kaiser Permanente affiliates improperly increased Medicare Advantage payments by pressuring physicians to add diagnosis codes after patient visits, even when those conditions were not evaluated or treated.
• Risk Adjustment Under Scrutiny: The case highlights how Medicare Advantage risk adjustment relies on accurate, visit-supported diagnosis data and how deviations from CMS rules can trigger significant False Claims Act exposure.
• Physician Incentives Raised Red Flags: The government alleged that Kaiser tied diagnosis submission targets to physician and facility performance goals, including financial incentives, amplifying compliance concerns.
• Whistleblowers Played a Central Role: The settlement resolves qui tam claims brought by former Kaiser employees, underscoring the continued importance of internal reporting and whistleblower protections in healthcare enforcement.
• Clear Enforcement Signal: Federal authorities framed the resolution as a warning to Medicare Advantage plans that inaccurate coding practices, even if embedded in internal workflows, will draw aggressive scrutiny.

Deep Dive

Affiliates of Kaiser Permanente have agreed to pay $556 million to resolve federal allegations that they improperly inflated Medicare Advantage payments by submitting unsupported diagnosis codes, the Justice Department announced Wednesday.

The settlement closes a long-running False Claims Act case alleging that Kaiser affiliates pressured physicians to add diagnoses to patient records after visits had already taken place, sometimes months or even more than a year later, in order to boost risk-adjusted payments from the federal government.

The case centers on Medicare Advantage, also known as Medicare Part C, which allows beneficiaries to enroll in privately administered health plans rather than traditional Medicare. Under the program, the Centers for Medicare & Medicaid Services pay insurers a fixed monthly amount for each enrollee, adjusted to reflect how sick or healthy that patient is expected to be.

Those adjustments depend heavily on diagnosis codes submitted by the plans. Federal rules require that diagnoses be supported by a face-to-face visit and, for outpatient encounters, that the condition must have affected patient care, treatment, or management during that visit.

According to the government’s complaint, filed in the Northern District of California in October 2021, Kaiser violated those rules by systematically encouraging physicians in California and Colorado to add diagnoses after the fact. Prosecutors alleged that Kaiser used internal tools to mine patients’ historical records for conditions that had not been submitted to CMS and then sent “queries” urging providers to add those diagnoses through addenda to medical records.

In many cases, the United States alleged, the added diagnoses had little or nothing to do with the visit in question, placing them outside CMS requirements.

Pressure, Targets, and Incentives

Federal authorities also alleged that the practice was not isolated or accidental. Kaiser was accused of setting aggressive, physician- and facility-specific targets for adding risk-adjustment diagnoses and singling out doctors and locations that fell short.

According to the complaint, Kaiser emphasized that failing to add diagnoses cost money, not just for the organization, but for facilities and physicians themselves. Financial incentives and bonuses were allegedly tied, at least in part, to meeting diagnosis-submission goals.

The government further claimed that Kaiser was aware the practices were unlawful. Prosecutors pointed to internal warnings from physicians who raised concerns about false claims, as well as compliance audits that flagged the use of inappropriate addenda. Despite those red flags, the United States alleged, the conduct continued for years, from 2009 through 2018.

Government Sends a Warning to Medicare Advantage Plans

Federal officials framed the settlement as a clear signal to the rapidly growing Medicare Advantage market.

“More than half of our nation’s Medicare beneficiaries are enrolled in Medicare Advantage plans, and the government expects those who participate in the program to provide truthful and accurate information,” said Brett A. Shumate, Assistant Attorney General for the Justice Department’s Civil Division.

Craig H. Missakian, U.S. Attorney for the Northern District of California, said fraud in Medicare Advantage harms everyone involved, from beneficiaries to taxpayers, while U.S. Attorney Peter McNeilly of the District of Colorado stressed that the program depends on the accuracy of information submitted by participating plans.

Officials from the Department of Health and Human Services Office of Inspector General and the FBI echoed that message, warning that deliberately inflating diagnosis codes to increase reimbursement undermines public trust and the integrity of federally funded healthcare programs.

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