Ismail J. Ramsey, U.S. Attorney | U.S. Attorney for the Northern District of California
Affiliates of Kaiser Permanente have agreed to pay $556 million to resolve allegations that they violated the False Claims Act by submitting invalid diagnosis codes for Medicare Advantage Plan enrollees, which led to higher payments from the federal government. The settlement involves 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.
Medicare Advantage, also known as Medicare Part C, allows beneficiaries to enroll in private health plans offered by insurance companies called Medicare Advantage Organizations (MAOs). The Centers for Medicare & Medicaid Services (CMS) pays these organizations a fixed monthly amount per enrollee, adjusted based on risk factors that affect expected healthcare costs. Diagnosis codes submitted by MAOs must be supported by medical records from face-to-face visits and should reflect conditions that required or affected patient care at those visits.
According to a complaint filed in the Northern District of California in October 2021, the United States alleged that Kaiser pressured physicians in California and Colorado to alter medical records after patient visits. These alterations added diagnoses not considered or addressed during the visit, violating CMS rules.
“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. “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.”
U.S. Attorney Craig H. Missakian for the Northern District of California stated: “Medicare Advantage is a vital program that must serve patients’ needs, not corporate profits. 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. We have an obligation to protect the American taxpayer from waste, fraud, and abuse and we will relentlessly pursue individuals and organizations that compromise the integrity of the Medicare program.”
U.S. Attorney Peter McNeilly for the District of Colorado commented: “The federal government supports the health care of millions of beneficiaries by paying hundreds of billions of dollars every year to Medicare Advantage Plans. Medicare relies on the accuracy of the information submitted by those plans. This resolution sends a clear message that we will hold health care plans accountable if they seek to game the system and pad their profits by submitting false information.”
Acting Deputy Inspector General for Investigations Scott J. Lampert at HHS-OIG said: “Deliberately inflating diagnosis codes to boost profits is a serious violation of public trust and undermines the integrity of the Medicare Advantage program. This outcome demonstrates HHS-OIG’s commitment to protecting Medicare through a unified approach — leveraging the expertise of our investigators, auditors, and counsel, alongside our law enforcement partners. We will continue to hold accountable any entity that seeks to compromise the integrity of the risk adjustment program.”
Special Agent in Charge Sanjay Virmani of FBI San Francisco Field Office added: “Healthcare programs funded by the public are meant to support patients, not pad corporate bottom lines. False claims and the submission of fraudulent information weaken the Medicare system and place an unfair cost on American taxpayers who expect honesty and accountability. This settlement reflects the FBI's continued commitment to holding accountable those who put profits over patients and abuse federal healthcare programs.”
The settlement resolves allegations covering conduct from 2009 through 2018 where Kaiser allegedly increased its reimbursements by urging physicians to add diagnoses after patient visits using addenda—sometimes months or more than a year later—often unrelated to actual patient encounters as required by CMS regulations.
It was further alleged that Kaiser set specific goals for adding risk adjustment diagnoses at both physician and facility levels, singled out underperformers, linked financial incentives with meeting these goals, ignored internal warnings about noncompliance with CMS rules—including concerns raised by its own physicians—and failed audits identifying inappropriate addenda practices.
Part of this civil settlement resolves claims brought under whistleblower provisions by former employees Ronda Osinek and Dr. James M. Taylor; together they will receive $95 million as part of their relator share.
The investigation involved coordination between multiple agencies including Justice Department’s Civil Division Fraud Section; U.S. Attorneys’ Offices for Northern District of California and District of Colorado; HHS-OIG; HHS-Office of Audit Services; and FBI.
Officials noted this case highlights ongoing efforts against healthcare fraud using tools like the False Claims Act.
The claims resolved are allegations only; there has been no determination of liability.
