Kaiser Permanente to Pay $556 Million to Settle Medicare Advantage Fraud Claims

In a landmark settlement, five Kaiser Permanente affiliates have agreed to pay $556 million to resolve allegations of fraudulent Medicare Advantage risk adjustment submissions, the Department of Justice announced Wednesday. This represents the largest settlement in a Medicare Advantage case to date.

The DOJ alleged that Kaiser Permanente engaged in “systemic” practices that pressured physicians to retroactively add unrelated diagnoses to patients’ medical records, often months or even more than a year after their visits. These practices, which the government claims occurred between 2009 and 2018, allegedly resulted in approximately half a million additional diagnoses that generated “in the range of $1 billion” in improper Medicare payments.

According to federal investigators, Kaiser Permanente implemented various tactics to increase diagnosis codes, including what some employees referred to as the year-end “dash for cash.” The healthcare organization reportedly held “coding parties,” where physicians were gathered in rooms and expected to add diagnoses to patient records from previous visits.

“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 DOJ’s Civil Division in a statement. “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.”

The case initially stemmed from whistleblower claims filed by a former medical coder and doctor previously employed by Kaiser Permanente. These whistleblowers will receive $95 million from the settlement. Their allegations formed the basis of the DOJ complaint filed in October 2021.

The government’s complaint alleged that Kaiser Permanente routinely mined patients’ medical histories to find diagnosis codes for conditions unrelated to their visits or for conditions patients didn’t have at the time—both violations of Centers for Medicare & Medicaid Services guidelines. The DOJ further claimed that the organization established internal goals for adding diagnoses, with financial bonuses tied to meeting these targets.

Federal investigators stated that Kaiser Permanente “knew that its addenda practices were widespread and unlawful” and “ignored numerous red flags and internal warnings,” including concerns raised by its own physicians and compliance audits that identified inappropriate addenda.

While agreeing to the substantial settlement, Kaiser Permanente has not admitted wrongdoing or liability. In a statement, the organization said it “chose to settle to avoid the delay, uncertainty and cost of prolonged litigation,” characterizing the case as a dispute over “how to interpret the Medicare risk adjustment program’s documentation requirements.”

“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 Permanente added.

The healthcare giant’s $556 million settlement significantly exceeds other recent agreements in the Medicare Advantage space, such as Cigna’s $172 million settlement in 2023 for similar allegations.

This case highlights growing scrutiny of Medicare Advantage practices across the healthcare industry. It comes on the heels of a Senate report alleging that UnitedHealth Group has “turned risk adjustment into a major profit-centered strategy” by aggressively seeking additional diagnoses to increase payments.

The five Kaiser Permanente affiliates named 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.

As Medicare Advantage continues to grow—now serving more than half of all Medicare beneficiaries—federal authorities appear increasingly focused on ensuring that participating organizations adhere strictly to program requirements, particularly regarding risk adjustment practices that determine payment levels.