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

In a significant legal settlement, five Kaiser Permanente affiliates will pay $556 million to resolve allegations they submitted false diagnosis codes to inflate Medicare payments from the federal government. The settlement, announced Wednesday by the U.S. Department of Justice, closes two whistleblower lawsuits that accused the healthcare giant of violating the federal False Claims Act.

The accused Kaiser affiliates, operating in California and Colorado, allegedly pressured physicians to add diagnosis codes to patients’ medical records for conditions that were never actually considered during patient visits. This practice, which reportedly occurred between 2009 and 2018, artificially boosted payments received through Medicare Advantage programs.

“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,” said Craig Missakian, U.S. Attorney for the Northern District of California, in a statement addressing the settlement.

The affiliates involved in the settlement include Kaiser Foundation Health Plan, Kaiser Foundation Health Plan of Colorado, Colorado Permanente Medical Group, Permanente Medical Group, and Southern California Permanente Medical Group. While agreeing to the substantial payment, Kaiser Permanente did not admit wrongdoing, characterizing the settlement as a way to avoid prolonged litigation with its associated uncertainty and costs.

Kaiser further suggested that the case reflected “industrywide challenges” in applying Medicare Advantage risk adjustment standards and practices, indicating that the issues extend beyond their organization.

At the heart of the case is Medicare Advantage, also known as Medicare Part C, which allows beneficiaries to opt out of traditional Medicare and enroll in private health plans. Under this system, Medicare Advantage Organizations (MAOs) like Kaiser receive higher payments for sicker patients, with diagnosis codes serving as the mechanism for determining payment levels.

The Justice Department alleged that Kaiser engaged in several improper practices to maximize these payments. These included having doctors “mine” patients’ medical histories for potential diagnoses to add to records and establishing bonus structures tied to meeting diagnosis goals – effectively creating financial incentives for physicians to add more diagnostic codes.

The settlement rewards two whistleblowers who brought the allegations to light: Ronda Osinek, a former Kaiser medical coder, and James Taylor, a physician who previously oversaw risk adjustment programs and coding governance at the organization. Under provisions of the False Claims Act, which allows individuals to sue on behalf of the government and share in recoveries, the pair will receive approximately $95 million from the settlement.

This case highlights ongoing concerns about Medicare Advantage billing practices. As enrollment in Medicare Advantage plans continues to grow – now covering over 30 million Americans, or roughly half of all Medicare beneficiaries – scrutiny of payment practices has intensified. The Justice Department has pursued similar cases against other major healthcare organizations in recent years, suggesting systematic issues with how risk adjustment payments are handled across the industry.

For Kaiser Permanente, one of the nation’s largest integrated health systems serving nearly 12.7 million members, the settlement represents one of the largest Medicare Advantage fraud settlements to date. The organization continues to expand its Medicare Advantage offerings despite this legal challenge.

Healthcare experts note that these types of settlements may ultimately lead to stricter oversight of Medicare Advantage billing practices and potentially reforms to how risk adjustment payments are calculated and verified. The case also underscores the critical role that whistleblowers play in exposing healthcare fraud and protecting public funds.

The settlement comes at a time when healthcare costs remain a significant concern for both policymakers and the public, with Medicare spending accounting for a substantial portion of the federal budget.