Kaiser Medicare Fraud Whistleblowers Receive $95 Million Award

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

In one of the largest healthcare fraud settlements of the year, affiliates of Kaiser Permanente have agreed to pay $556 million to resolve allegations that they violated the False Claims Act by submitting inaccurate diagnosis codes to inflate Medicare reimbursements.

The Oakland, California-based healthcare consortium, one of the nation’s largest integrated managed care organizations, allegedly engaged in systematic efforts to manipulate diagnosis codes for Medicare Advantage Plan enrollees, according to the Department of Justice announcement released this week.

The settlement stems from a whistleblower lawsuit filed by two former Kaiser employees, Ronda Osinek and James M. Taylor, M.D., who will receive $95 million of the recovery amount under the qui tam provisions of the False Claims Act. These provisions allow private citizens to file lawsuits on behalf of the government and share in any financial recovery.

“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.”

At the heart of the case is the risk adjustment payment system used by the Centers for Medicare & Medicaid Services (CMS), which pays Medicare Advantage Organizations higher reimbursements for patients with more severe health conditions who are expected to require more costly care. Prosecutors allege Kaiser systematically exploited this system by pressuring physicians to alter medical records and add or enhance diagnoses to secure larger payments from the government.

According to investigators, Kaiser ignored numerous internal warnings about potential violations. The DOJ claims that both Kaiser physicians and its own compliance office raised red flags about practices that appeared to violate CMS rules, but company leadership allegedly disregarded these concerns and continued the problematic coding practices.

The case highlights growing scrutiny of the Medicare Advantage program, which has expanded dramatically over the past decade and now covers more than 30 million Americans, or roughly half of all Medicare beneficiaries. The program has become increasingly lucrative for insurers, with federal spending on Medicare Advantage plans reaching approximately $427 billion in 2023.

Healthcare fraud experts note that this settlement is part of a broader enforcement trend targeting Medicare Advantage plans. The Justice Department has recently pursued similar cases against other major healthcare providers and insurers, signaling intensified oversight of the program.

“Deliberately inflating diagnosis codes to boost profits is a serious violation of public trust and undermines the integrity of the Medicare Advantage program,” said Acting Deputy Inspector General for Investigations Scott J. Lampert at the U.S. Department of Health and Human Services, Office of Inspector General. “This outcome demonstrates HHS-OIG’s commitment to protecting Medicare through a unified approach.”

The settlement comes at a challenging time for Kaiser Permanente, which has faced financial pressures and labor disputes in recent years. The organization serves approximately 12.6 million members across eight states and the District of Columbia and reported operating revenue of $95.4 billion in 2022.

Industry analysts suggest the settlement may prompt other healthcare organizations to review their Medicare Advantage coding practices. Heightened regulatory scrutiny could potentially reshape how insurers approach risk adjustment and documentation in the rapidly growing Medicare Advantage market.

Despite the significant settlement amount, Kaiser has not admitted liability, and the Justice Department noted that the claims resolved by the agreement remain allegations only, with no determination of legal liability having been made.