Aetna Agrees to $118 Million Settlement Over Medicare Advantage Upcoding Allegations

Aetna has agreed to pay $118 million to resolve allegations that it deliberately inflated patient illness scores to secure higher payments from Medicare Advantage programs, federal prosecutors announced Tuesday.

The settlement stems from a whistleblower lawsuit filed in 2015 by Olivia Hauser, a former Aetna Medicare Advantage division clinical manager, who claimed the insurance giant conducted inappropriate medical chart reviews to boost patient risk scores. This practice, commonly known as “upcoding,” artificially increases the severity of patient conditions, resulting in larger reimbursements from the federal government.

According to the U.S. Attorney’s Office for the Southern District of New York, Aetna submitted inaccurate diagnostic codes for Medicare Advantage beneficiaries in New York between 2011 and 2015. Prosecutors alleged the company failed to delete inaccurate diagnosis codes identified during chart reviews conducted by its vendors.

“Aetna’s settlement is the latest example of health insurers facing consequences for inflating risk scores to improperly boost their Medicare revenue,” said Damian Williams, U.S. Attorney for the Southern District of New York, in a statement. “Insurers who participate in Medicare Advantage must play by the rules and ensure that the diagnosis codes they submit for risk adjustment are accurate.”

Under the whistleblower provisions of the False Claims Act, Hauser will receive approximately $21 million from the settlement amount. The law allows private individuals to file lawsuits on behalf of the government and receive a percentage of any recovered funds.

Aetna, now a subsidiary of CVS Health after a $69 billion acquisition in 2018, denied any wrongdoing as part of the settlement agreement. A company spokesperson stated Aetna “remains committed to compliance with all applicable laws, regulations, and program requirements.”

This settlement highlights the ongoing scrutiny of Medicare Advantage plans, which have experienced explosive growth over the past decade. Currently, more than 30 million seniors – representing about 51% of eligible Medicare beneficiaries – are enrolled in Medicare Advantage plans, according to the Kaiser Family Foundation.

Medicare Advantage, also known as Medicare Part C, allows private insurers to offer Medicare benefits while receiving fixed payments from the government based on regional averages and patient risk scores. The risk adjustment system provides higher payments for enrollees with more serious health conditions, creating financial incentives for insurers to document as many conditions as possible.

The Justice Department has increasingly targeted alleged upcoding practices in Medicare Advantage plans. Several major insurers, including UnitedHealth Group, Elevance Health (formerly Anthem), and Humana, have faced similar allegations in recent years.

In 2023, UnitedHealth Group agreed to pay $60 million to settle allegations that its subsidiary submitted inflated risk scores. Elevance Health reached a $5.1 million settlement with the DOJ in 2021 over comparable allegations.

Healthcare policy experts have long raised concerns about the Medicare Advantage payment system. A 2023 report from the Medicare Payment Advisory Commission (MedPAC) estimated that Medicare Advantage plans received approximately $27 billion more in 2022 than the same beneficiaries would have cost under traditional Medicare.

“The risk adjustment system creates perverse incentives,” explained Dr. Jennifer Kent, healthcare policy professor at Georgetown University. “While the goal is to compensate insurers fairly for covering sicker patients, the current model rewards aggressive documentation and coding practices rather than actual improvements in patient care.”

The Centers for Medicare and Medicaid Services (CMS) has implemented several reforms to address these issues, including enhanced audit procedures and adjustments to the risk adjustment model. However, critics argue more comprehensive reforms are needed.

As Medicare Advantage enrollment continues to grow and government spending on the program increases, industry analysts expect continued regulatory scrutiny and potential additional settlements in the coming years.

For beneficiaries, these settlements highlight the complex behind-the-scenes financial arrangements that drive the Medicare Advantage market but rarely translate to improved care outcomes or lower out-of-pocket costs.