In the largest Medicare Advantage fraud settlement to date, Oakland, Calif.-based Kaiser Permanente agreed to pay $556 million to resolve allegations it violated the False Claims Act by submitting unsupported diagnosis codes to Medicare Advantage.
The government alleged the scheme occurred between 2009 and 2018 in California and Colorado, according to a complaint filed in 2021.
Here are 10 things that ASCs and physicians need to know:
1. The case centers on Medicare Advantage risk adjustment. Under Medicare Advantage, CMS pays health plans a fixed monthly amount per enrollee, adjusted based on diagnosis codes that reflect patient severity. Higher-risk patients generate higher payments.
2. Physicians were allegedly pressured to add diagnoses after visits. Federal prosecutors alleged Kaiser pressured physicians to retroactively add diagnoses through medical record addenda, even when those conditions were not evaluated or treated during the original visit, according to a blog post from law firm Brown, which specializes in whistleblower protection.
3. Post-visit addenda were a key enforcement issue. The Justice Department alleged diagnoses were sometimes added months or more than a year after encounters, and were unrelated to the care provided, violating CMS documentation rules.
4. Data mining and physician targets were part of the allegations. Prosecutors said Kaiser used internal tools to identify diagnoses from patients’ historical records that had not been submitted to CMS, set aggressive coding targets, flagged underperforming physicians and tied incentives to diagnosis submission, according to Brown.
5. The government alleged roughly $1B in improper payments. According to court filings the government alleged Kaiser added roughly 500,000 diagnoses, generating about $1 billion in improper Medicare Advantage payments.
6. Six whistleblowers triggered the case. The settlement resolves multiple qui tam lawsuits filed under the False Claims Act by former Kaiser physicians and employees. Whistleblowers will collectively receive about $95 million, the Justice Department said.
7. Kaiser said it settled to avoid prolonged litigation. Kaiser called the case a dispute over how Medicare risk-adjustment documentation requirements should be interpreted and noted that other plans have faced similar scrutiny.
“We chose to settle to avoid the delay, uncertainty and cost of prolonged litigation,” the health system said in a Jan. 14 statement. “Multiple major health plans have faced similar government scrutiny over Medicare Advantage risk-adjustment standards and practices, reflecting industrywide challenges in applying these requirements. The Kaiser Permanente case was not about the quality of care our members received. It involved a dispute about how to interpret the Medicare risk-adjustment program’s documentation requirements.”
8. Why this matters for ASCs and physicians. The case underscores the department’s continued focus on risk adjustment, documentation standards and post-visit coding, according to Brown. For physicians, it highlights exposure tied to addenda, peer pressure around coding targets and compensation linked to diagnoses, even when care is delivered in lower-cost outpatient settings.
9. The Justice Department framed the case as a warning to the industry. According to Brown, the case sends a clear message that submitting false information to CMS, even through retroactive documentation, jeopardizes program integrity and will be aggressively pursued.
10. Other major health plans are also under scrutiny. The settlement comes amid broader investigations into Medicare Advantage billing practices. A recent U.S. Senate report accused UnitedHealth Group of similarly inflating risk scores to boost revenue, and several other insurers are facing whistleblower lawsuits or audits over upcoding and risk-adjustment abuse.
