Aetna Settles Medicare Advantage Billing Fraud Claims for $117.7 Million

Aetna, the second-largest Medicare Advantage provider in the Philadelphia region, has agreed to pay $117.7 million to resolve allegations of fraudulent billing practices, according to an announcement Wednesday from the U.S. Attorney’s Office in Philadelphia.

Federal investigators determined that Aetna artificially inflated patient diagnosis codes in medical records to secure larger monthly payments from the government for enrollees in its private Medicare plans. Under the Medicare Advantage payment structure, insurers receive higher reimbursements for patients with more severe health conditions, creating a financial incentive to maximize diagnostic coding. This practice accounted for $106.2 million of the settlement amount.

The remaining $11.5 million stems from a whistleblower lawsuit filed earlier this year in Philadelphia by a former Aetna risk-adjustment coding auditor. The complaint specifically alleged that the insurer submitted “inaccurate and untruthful diagnosis codes for morbid obesity” to increase reimbursement rates.

Despite agreeing to the nine-figure settlement, Aetna maintains it committed no wrongdoing. “Aetna continues to disagree with the DOJ’s industry-wide allegations, and this settlement should not be seen as an acknowledgment of liability,” the company stated. “Instead, we are now able to avoid the uncertainty and further expense of prolonged litigation.”

This settlement is part of a broader federal crackdown on Medicare Advantage billing practices. Earlier this year, Kaiser Permanente reached a record $556 million settlement with the Justice Department over similar allegations. Cigna agreed to pay $172 million in 2023 to resolve comparable claims.

Medicare Advantage, which allows private insurers to offer government-funded healthcare plans to seniors, has grown exponentially over the past decade. Today, more than 30 million Americans—approximately half of all Medicare beneficiaries—are enrolled in these private plans, making billing accuracy a significant concern for federal healthcare spending.

The program has become increasingly lucrative for insurers, with the Medicare Advantage market now representing hundreds of billions in annual government spending. Critics argue that the current risk-adjustment payment model creates perverse incentives for insurers to exaggerate patient conditions.

Healthcare policy experts note that these settlements, while substantial, represent only a fraction of the potential overpayments in the Medicare Advantage system. A 2023 report from the Office of Inspector General estimated that improper payments to Medicare Advantage organizations may total tens of billions annually.

“These settlements signal the government’s growing commitment to address systemic issues in Medicare Advantage billing,” said Elizabeth Windom, a healthcare policy analyst at Georgetown University. “With Medicare funds under increasing pressure, ensuring accurate payments has become a top enforcement priority.”

For patients enrolled in Aetna’s Medicare Advantage plans, the settlement is unlikely to affect their coverage or benefits directly. However, industry observers suggest that increased regulatory scrutiny could eventually lead to changes in how insurers document patient conditions and determine risk scores.

The settlement comes at a challenging time for the healthcare industry, which faces increasing regulatory oversight alongside rising medical costs and staffing challenges. Major insurers like Aetna—a subsidiary of CVS Health since 2018—have been navigating these pressures while maintaining profitability.

Federal prosecutors have signaled that investigations into Medicare Advantage billing practices will continue across the industry. Several other major health insurers reportedly remain under investigation for similar allegations of diagnosis code manipulation.

As Medicare Advantage enrollment continues to grow, the government faces the dual challenge of ensuring the program remains accessible to seniors while implementing stronger safeguards against improper payments.