Kaiser Permanente Affiliates to Pay $556 Million in False Claims Act Settlement

Kaiser Permanente affiliates have agreed to a $556 million settlement with the federal government to resolve allegations of Medicare Advantage fraud, marking one of the largest healthcare fraud settlements in recent years.

The Oakland-headquartered healthcare consortium was accused of violating the False Claims Act by systematically submitting invalid diagnosis codes for Medicare Advantage Plan enrollees to receive higher government payments. The settlement resolves claims brought by whistleblowers Ronda Osinek and Dr. James M. Taylor, both former Kaiser employees, who will receive $95 million of the recovery under the act’s provisions.

According to federal investigators, Kaiser engaged in a widespread scheme between 2009 and 2018 to artificially increase its Medicare reimbursements. The organization allegedly pressured physicians to add diagnoses after patient visits through “addenda” to medical records, often months or even more than a year after the actual appointments.

“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.”

The government claimed Kaiser developed mechanisms to mine patients’ past medical histories to identify potential diagnoses that had not been submitted to Medicare for risk adjustment. Queries were then sent to providers urging them to add these diagnoses to records, even when they had nothing to do with the patient visit in question—a direct violation of Centers for Medicare & Medicaid Services (CMS) requirements.

Kaiser reportedly established aggressive physician- and facility-specific goals for adding risk adjustment diagnoses, with financial incentives tied to meeting these targets. Underperforming physicians and facilities were singled out, with emphasis placed on how failure to add diagnoses cost money for Kaiser, its facilities, and the physicians themselves.

The settlement is particularly significant given Kaiser Permanente’s prominent position in the healthcare industry. As a non-profit integrated care provider, Kaiser operates the largest managed care organization in the United States with more than 9,470 staffed beds in California alone. Its closed network system serves members of the Kaiser Foundation Health Plan across multiple states including Hawaii, Washington, Oregon, Colorado, Maryland, Virginia, and Georgia.

The Kaiser Permanente affiliates included in the settlement are Kaiser Foundation Health Plan Inc.; Kaiser Foundation Health Plan of Colorado; The Permanente Medical Group Inc.; Southern California Permanente Medical Group; and Colorado Permanente Medical Group P.C.

The case highlights growing concerns about practices in the Medicare Advantage program, also known as Medicare Part C, which allows beneficiaries to opt out of traditional Medicare and enroll in private health plans offered by insurance companies. More than half of the nation’s Medicare beneficiaries are now enrolled in such plans.

Under the program’s risk adjustment system, CMS pays Medicare Advantage organizations a fixed monthly amount for each enrolled beneficiary, adjusted for risk factors affecting expected health expenditures. Plans receive higher payments for sicker beneficiaries expected to incur greater healthcare costs. These adjustments rely on diagnosis codes that must be supported by the medical record of a face-to-face patient visit.

“Today’s resolution sends the clear message that the United States holds healthcare providers and plans accountable when they knowingly submit or cause to be submitted false information to CMS to obtain inflated Medicare payments,” said Assistant Attorney General Brett A. Shumate of the Justice Department’s Civil Division.

The settlement resulted from coordinated efforts between the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section, the U.S. Attorneys’ Offices for the Northern District of California and District of Colorado, with assistance from HHS Office of Inspector General, HHS Office of Audit Services, and the FBI.