In the largest Medicare Advantage fraud settlement to date, Kaiser Permanente has agreed to pay $556 million to settle Justice Department allegations that it billed the government for medical conditions patients didn’t have.
The settlement, announced Jan. 14, resolves whistleblower lawsuits that accused the giant health insurer of mounting a years-long scheme in which it overstated how sick patients were to illegally boost revenues.
“Medicare Advantage is a vital program that must serve patients’ needs, not corporate profits,” said U.S. Attorney Craig Missakian for the Northern District of California, in announcing the settlement.
“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,” he said.
Medicare Advantage plans offer seniors a private alternative to original Medicare. The insurance plans have grown dramatically in recent years and now enroll about 34 million members, more than half of the people eligible for Medicare. About 2 million Medicare members are enrolled in KP plans.
Attorney Max Voldman, who represents whistleblower James Taylor, said the case shows the need for a “continued effort to fight fraud in health care.”
“It’s important to send a signal to the industry, and this number hopefully does that,” he said.
Taylor, a longtime Kaiser Permanente physician, filed his suit against the company in October 2014.
“It was a long, hard-fought case,” Voldman said.
The Justice Department took over his case, bundled with others, in July 2021. In court filings, the government argued the health plan “pressured” doctors in Colorado and California to add diagnoses “regardless of whether these conditions were actually considered or addressed by the physician during the patient visits,” policies that violated Medicare requirements.
From 2009 through 2018, KP added roughly half a million diagnoses that generated about $1 billion in improper payments to the health plan, according to the complaint.
The government pays Medicare Advantage plans higher rates to cover sicker patients. But over the past decade, dozens of whistleblower lawsuits, government audits, and other investigations have alleged that health plans exaggerate how sick patients are to pocket payments they don’t deserve, a tactic known in the industry as “upcoding.”
The Justice Department alleged that Kaiser Permanente officials knew its practices were “widespread and unlawful” but that the company “ignored numerous red flags and internal warnings that it was violating” Medicare rules. In settling the case, KP did not admit any wrongdoing.
In a statement posted on its website, the company said it settled the case “to avoid the delay, uncertainty, and cost of prolonged litigation.”
The company noted that other health plans had “faced similar government scrutiny” over Medicare Advantage billing practices. It said the whistleblower cases “involved a dispute about how to interpret” Medicare’s billing requirements.
The civil suits were filed under the False Claims Act, a federal law that permits private citizens to sue on behalf of the government and share any money collected as a result.
In all, six whistleblowers filed cases against Kaiser Permanente. In June 2021, the District Court for the Northern District of California consolidated the cases into two, one brought by Taylor and the other by Ronda Osinek, also a former KP employee.
Osinek, who trained physicians on medical coding guidelines, filed her case in August 2013. In her suit, she alleged that Kaiser Permanente inflated claims submitted to Medicare by having doctors amend medical files, often months after a patient’s visit, to slap on diagnoses that were not treated at the time or didn’t exist.
Under the settlement, the whistleblowers, known as “relators,” are set to receive a combined $95 million, according to the Justice Department.
The KP settlement comes on the heels of a Senate report this month that accused UnitedHealth Group of “gaming” the Medicare Advantage payment system, which is called “risk adjustment.”
“My investigation has shown UnitedHealth Group appears to be gaming the system and abusing the risk adjustment process to turn a steep profit,” Sen. Chuck Grassley (R-Iowa) said in a statement accompanying the report’s release.
Grassley, who chairs the Senate Judiciary Committee, said his findings were based on a review of more than 50,000 pages of internal company documents. UnitedHealth Group disputed the findings and has long denied that its coding practice triggers improper payments.
The report cited several medical conditions that have repeatedly been linked to overbilling by Medicare Advantage plans, such as coding for opioid dependence disorder in patients who are taking their medications as directed for pain.
The Senate report also alleged that Medicare Advantage plans have improperly diagnosed dementia.
The report said that Medicare removed dementia from its list of codes in 2014 partly due to concerns over upcoding. After the Centers for Medicare & Medicaid Services reintroduced the code in 2020, researchers found that “annual incident dementia diagnosis rates in MA increased by 11.5%” relative to traditional Medicare, the report said.
“Medicare Advantage is an important option for America’s seniors, but as the program adds more patients and spends billions in taxpayer dollars, Congress has a responsibility to conduct aggressive oversight,” Grassley said. “Bloated federal spending to UnitedHealth Group is not only hurting the Medicare Advantage program, it’s harming the American taxpayer.”