Kaiser Affiliates Agree to Settlement Over Medicare Allegations

Kaiser Permanente to Pay $556 Million in Medicare Advantage Fraud Settlement

Kaiser Permanente affiliates have agreed to pay $556 million to settle federal allegations that they submitted improper diagnosis codes for Medicare Advantage enrollees, the U.S. Department of Justice announced this week. The settlement resolves claims that the healthcare giant manipulated patient records to increase government payments, with the alleged improper practices extending to Colorado-based operations.

Federal prosecutors claim that from 2009 to 2018, Kaiser entities nationwide artificially inflated Medicare Advantage payments by adding or altering diagnosis codes after patient visits had occurred. The problematic codes, according to the government, were not addressed during the face-to-face care that Medicare rules require to justify the coding.

“This settlement sends a clear message that healthcare plans will be held accountable if they submit false information to increase Medicare payments,” said U.S. Attorney Peter McNeilly for the District of Colorado. The case highlights ongoing federal scrutiny of Medicare Advantage, a program that has grown rapidly in recent years.

The agreement covers multiple Kaiser organizations, including Kaiser Foundation Health Plan of Colorado and Colorado Permanente Medical Group, both significant healthcare providers in the state. The settlement resolves claims brought under the False Claims Act but does not include a determination of liability.

At the heart of the case is how Medicare Advantage payments are calculated. Under the program, also known as Medicare Part C, private insurers receive monthly payments from the Centers for Medicare & Medicaid Services (CMS). These payments are adjusted based on patient risk factors, with higher payments for patients with more severe health conditions. These risk adjustments depend on diagnosis codes that must be supported by medical records and connected to care provided during specific visits.

According to federal investigators, Kaiser pressured physicians to add diagnoses to patient records through “addenda” submitted after visits had concluded—sometimes months or even more than a year later. In many instances, the government alleges, these added diagnoses bore no relation to the original appointment.

The Justice Department further claims that Kaiser established aggressive diagnosis targets and created financial incentives for physicians and facilities that met these goals. This occurred despite internal warnings and compliance concerns raised within the organization, prosecutors say.

The case came to light partly through whistleblower lawsuits filed by former Kaiser employees Ronda Osinek and Dr. James M. Taylor under the qui tam provisions of the False Claims Act, which allow private individuals to sue on behalf of the government in fraud cases. The whistleblowers will receive $95 million from the recovery, a substantial reward that underscores the government’s reliance on insider information to detect healthcare fraud.

Healthcare fraud experts note that this settlement is part of a broader pattern of increased enforcement in the Medicare Advantage space. As enrollment in Medicare Advantage plans continues to grow—now covering more than 30 million seniors, or about half of all Medicare beneficiaries—so too has scrutiny of how these plans operate.

“Protecting Medicare’s integrity is critical not just for beneficiaries but for all taxpayers,” said a Justice Department spokesperson. “This settlement represents our commitment to ensuring that healthcare companies follow the rules when they participate in federal programs.”

The Kaiser settlement is one of the largest Medicare Advantage fraud settlements to date, highlighting the financial stakes involved in the program. Industry analysts suggest the case may prompt other healthcare organizations to review their risk adjustment practices.

Federal authorities continue to encourage anyone with information about potential healthcare fraud to report it to the U.S. Department of Health and Human Services Office of Inspector General through their fraud hotline or website.