Affiliates of Kaiser Permanente have agreed to pay $556 million to resolve allegations that the healthcare giant defrauded the federal government by submitting inaccurate diagnosis codes for Medicare Advantage enrollees, the Department of Justice announced on Wednesday.
The settlement resolves claims that the integrated healthcare consortium violated the False Claims Act by systematically altering patient medical records to make enrollees appear sicker than they actually were in order to secure higher reimbursement rates from the government.
The Alleged Scheme
Under the Medicare Advantage program (Part C), the Centers for Medicare & Medicaid Services (CMS) pays insurance organizations a fixed monthly amount per beneficiary. These payments are “risk-adjusted,” meaning the government pays more for patients with more severe medical conditions to cover expected higher healthcare costs.
According to the complaint, which covers conduct ranging from 2009 to 2018, Kaiser engaged in a concerted effort to artificially inflate these payments. The United States alleged that Kaiser pressured physicians to revisit closed medical records—often months or even a year after a patient visit—to add diagnoses via “addenda.”
Prosecutors claimed that in many instances, these retrospective diagnoses had no relation to the care provided during the initial visit, a direct violation of CMS rules.
The government further alleged that Kaiser utilized data mining to identify high-value diagnoses that had been missed and then sent queries to providers urging them to add these codes. To ensure compliance, Kaiser allegedly set aggressive goals for physicians and facilities, linking financial bonuses and incentives to the addition of these risk-adjustment diagnoses while singling out those who underperformed.
Whistleblowers to Receive $95 Million
The allegations were brought to light, in part, by two whistleblowers: Ronda Osinek and Dr. James M. Taylor, both former Kaiser employees. They filed lawsuits under the qui tam provisions of the False Claims Act, which allows private citizens to sue on behalf of the government and share in the recovery.
As part of the resolution, Osinek and Taylor will receive a combined share of approximately $95 million.
Government Response
Federal officials characterized the settlement as a significant victory for taxpayer accountability.
“Medicare Advantage is a vital program that must serve patients’ needs, not corporate profits,” said U.S. Attorney Craig H. Missakian for the Northern District of California. “Fraud on Medicare costs the public billions annually, so when a health plan knowingly submits false information to obtain higher payments, everyone — from beneficiaries to taxpayers — loses.”
Assistant Attorney General Brett A. Shumate of the Justice Department’s Civil Division added that the resolution sends a clear message that healthcare providers will be held accountable for knowingly submitting false information to obtain inflated payments.
The settling affiliates include Kaiser Foundation Health Plan Inc., Kaiser Foundation Health Plan of Colorado, and various Permanente Medical Groups in California and Colorado.
The settlement resolves the allegations without a determination of liability.
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