Aetna Pays $117.7 Million to Settle Medicare Advantage Fraud Allegations

The Department of Justice and Department of Health and Human Services have secured a significant victory in their renewed effort to combat healthcare fraud, as Aetna agreed to pay $117.7 million to resolve allegations of Medicare Advantage fraud. The settlement, announced earlier this month, stems from accusations that the insurance giant deliberately manipulated diagnosis codes to increase government payments.

Federal authorities alleged that Aetna violated the False Claims Act by submitting inaccurate diagnosis data for Medicare Advantage enrollees, artificially inflating the risk-adjusted payments it received from the Centers for Medicare and Medicaid Services (CMS).

Under the Medicare Advantage program, which now covers more than half of all eligible Medicare beneficiaries, CMS pays insurers a fixed monthly amount per enrollee. These payments are adjusted based on the health status of each patient, with higher payments allocated for sicker individuals. This risk-adjustment mechanism, while designed to fairly compensate insurers for taking on higher-risk patients, has become vulnerable to manipulation.

According to government investigators, Aetna exploited this system through two distinct schemes. For the 2015 payment year, the company operated an internal “chart review” program where it hired coding specialists to examine patient medical records. When these reviews uncovered diagnoses that could generate additional payments, Aetna promptly submitted them to CMS. However, when the same reviews revealed previously submitted codes were unsupported—meaning Aetna had been overpaid—the company allegedly failed to delete those codes or return the excess payments.

In a separate scheme spanning payment years 2018 through 2023, Aetna submitted or failed to withdraw incorrect diagnosis codes for morbid obesity in patients whose body mass index (BMI) did not meet the clinical threshold for that diagnosis.

The morbid obesity allegations emerged thanks to a whistleblower—a former Aetna risk-adjustment coding auditor who filed the case under the qui tam provisions of the False Claims Act. These provisions allow individuals with knowledge of fraud against the government to file lawsuits on the government’s behalf and share in any resulting recovery. For their role in exposing the alleged fraud, the whistleblower received approximately $2 million from the settlement.

“This settlement highlights the critical role that insiders play in uncovering healthcare fraud,” said a healthcare compliance expert familiar with the case. “Companies need to recognize that employees who observe potential fraud have both legal protections and financial incentives to come forward.”

The Aetna case represents one of the most significant achievements of the recently relaunched DOJ-HHS False Claims Act Working Group, which specifically identified Medicare Advantage risk adjustment fraud as one of its top enforcement priorities last summer. The working group has been leveraging advanced data analytics and artificial intelligence to identify suspicious billing patterns that warrant further investigation.

Healthcare analysts note that the settlement carries important implications for healthcare providers of all sizes. While this case targeted a major insurer, physicians and medical practices that bill Medicare Advantage should take note of several key lessons.

First, diagnosis coding must be supported by thorough documentation. Whether providers are submitting codes directly or working with Medicare Advantage plans that conduct chart reviews, the diagnoses billed to CMS must be accurate and clinically supported.

Second, knowing about an error and failing to correct it creates liability. The False Claims Act does not require proof of intentional fraud; reckless disregard or deliberate ignorance of known problems is sufficient to trigger violations.

The Aetna settlement is unlikely to be the last major enforcement action in this area. With Medicare Advantage accounting for over $530 billion in annual federal spending, the financial incentives for both fraud and enforcement remain substantial.

“The risk-adjustment model creates a direct financial reward for diagnosing patients with more serious conditions,” explained a healthcare policy analyst. “While most providers and insurers operate ethically, the system’s structure has created vulnerabilities that both fraudsters and prosecutors are actively exploiting.”

As the Medicare Advantage program continues to grow, industry watchers expect increased scrutiny from federal authorities determined to protect the program’s fiscal integrity and ensure that taxpayer dollars are properly spent on legitimate healthcare needs.