Kaiser Permanente Affiliates to Pay $556 Million to Settle False Claims Act Allegations

Kaiser Permanente Agrees to $556 Million Settlement Over Medicare Fraud Allegations

Kaiser Permanente, the Oakland-based healthcare giant, has agreed to pay $556 million to resolve allegations that it systematically submitted false diagnosis codes to increase payments from Medicare Advantage plans. The settlement, announced by the U.S. Attorney’s Office for the Northern District of California, concludes a years-long investigation into the organization’s documentation practices from 2009 to 2018.

Federal investigators alleged that Kaiser pressured physicians to retroactively add medical diagnoses to patient records, sometimes months or even more than a year after visits occurred. These added diagnoses, according to the Department of Justice, often had no connection to the actual patient encounters and violated Centers for Medicare & Medicaid Services (CMS) requirements.

“More than half of our nation’s Medicare beneficiaries are enrolled in Medicare Advantage plans, and the government expects those who participate in the program to provide truthful and accurate information,” said Assistant Attorney General Brett A. Shumate of the Justice Department’s Civil Division.

Under the Medicare Advantage program, also known as Medicare Part C, CMS pays private health plans a monthly amount for each enrolled Medicare beneficiary. These payments are risk-adjusted based on diagnoses, with higher payments allocated for sicker patients expected to require more expensive care. For diagnoses to qualify for risk adjustment, they must be documented during face-to-face visits and, for outpatient services, must have required or affected patient care during that specific encounter.

The government’s complaint, filed in October 2021, detailed how Kaiser allegedly created a systematic approach to maximize reimbursements. The organization reportedly developed mechanisms to identify potential diagnoses from patients’ medical histories that had not been submitted to CMS. Physicians would then receive “queries” urging them to add these diagnoses to medical records through addenda.

According to the allegations, Kaiser established aggressive goals for adding risk adjustment diagnoses and linked physician and facility financial incentives to meeting these targets. The Justice Department claimed Kaiser ignored numerous internal warnings about the practice, including concerns raised by its own physicians and compliance audits that identified inappropriate addenda.

U.S. Attorney Craig H. Missakian for the Northern District of California emphasized the broader implications of such practices: “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 settlement resolves claims brought in whistleblower lawsuits by Ronda Osinek and Dr. James M. Taylor, former Kaiser employees. Under the False Claims Act’s qui tam provisions, these whistleblowers will receive $95 million of the recovery.

Despite the substantial settlement, Kaiser Permanente has not admitted wrongdoing. In a statement on its website, the organization characterized the agreement as resolving a dispute over “historical Medicare Advantage documentation practices.”

“We chose to settle to avoid the delay, uncertainty, and cost of prolonged litigation,” Kaiser stated. “Multiple major health plans have faced similar government scrutiny over Medicare Advantage risk adjustment standards and practices, reflecting industrywide challenges in applying these requirements.”

Kaiser emphasized that the case did not involve questions about the quality of care provided to members but rather centered on interpreting documentation requirements for the Medicare risk adjustment program.

The investigation involved coordinated efforts between the Justice Department’s Civil Division, the U.S. Attorney’s Offices for the Northern District of California and the District of Colorado, with assistance from the Department of Health and Human Services Office of Inspector General and the FBI.

The settlement includes five Kaiser affiliates: 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.

This case highlights the government’s ongoing emphasis on combating healthcare fraud, particularly in Medicare Advantage, which has grown to cover more than half of all Medicare beneficiaries nationally.