Affiliates of Kaiser Permanente, the healthcare consortium headquartered in Oakland, have agreed to pay $556 million to resolve allegations that they violated the federal False Claims Act by submitting invalid diagnosis codes for their Medicare Advantage Plan enrollees in order to receive higher payments from the government.
The civil settlement includes the resolution of certain claims brought in lawsuits under the whistleblower provisions of the False Claims Act by Ronda Osinek and Dr. James M. Taylor, former employees of Kaiser Permanente. Under those provisions, private parties are permitted to sue on behalf of the United States and receive a portion of any recovery. The whistleblowers’ share of the recovery will be $95 million.
Kaiser knew that fraudulent Medicare Advantage practices were widespread and unlawful, according to the government, and ignored numerous red flags and internal warnings that it was violating Medicare rules, including concerns raised by its own physicians about false claims and audits by its own compliance office.
Non-profit Kaiser Permanente, known for its integrated model of care delivery, has the most staffed beds of any healthcare system in California, with more than 9,470 beds. Kaiser Permanente also has facilities in Hawaii, Washington, Oregon, Colorado, Maryland, Virginia and Georgia and runs the largest managed care organization in the United States.
As a closed network system, Kaiser’s hospitals exclusively serve members of the Kaiser Foundation Health Plan.The Kaiser Permanente affiliates 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. (collectively Kaiser).
Under the Medicare Advantage program, also known as Medicare Part C, Medicare beneficiaries may opt out of traditional Medicare and enroll in private health plans offered by insurance companies known as Medicare Advantage organizations.
In a complaint filed in the Northern District of California in October 2021, the federal government alleged that Kaiser engaged in a scheme in California and Colorado to improperly increase its risk adjustment payments. Specifically, the United States alleged that Kaiser systematically pressured its physicians to alter medical records after patient visits to add diagnoses that the physicians had not considered or addressed at those visits, in violation of 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.”
“Medicare Advantage is a vital program that must serve patients’ needs, not corporate profits,” said U.S. Attorney Craig H. Missakian for the Northern District of California. “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.”
The federal Centers for Medicare & Medicaid Services pays the Medicare Advantage organizations a fixed monthly amount for each Medicare beneficiary enrolled in their plans. The federal agency adjusts these monthly payments to account for various risk factors that affect expected health expenditures for the beneficiary.
In general, the medicare advantage plans are paid more for sicker beneficiaries expected to incur higher healthcare costs and less for healthier beneficiaries expected to incur lower costs. To make these “risk adjustments,” Medicare collects medical diagnosis codes. These diagnoses must be supported by the medical record of a face-to-face visit between a patient and a provider, and for outpatient visits, must have required or affected patient care, treatment, or management at the visit.
The settlement announced Jan.14 resolves allegations that, from 2009 to 2018, Kaiser engaged in a scheme to increase its Medicare reimbursements by pressuring physicians to add diagnoses after patient visits through “addenda” to patients’ medical records.
Federal officials alleged that Kaiser developed various mechanisms to mine a patient’s past medical history to identify potential diagnoses that had not been submitted to Medicare for risk adjustment. Kaiser then sent “queries” to its providers urging them to add these diagnoses to medical records via addenda, often months and sometimes over a year after visits. In many instances, the United States alleged, the diagnoses added by the providers had nothing to do with the patient visit in question, in violation of CMS requirements.
They further alleged that Kaiser set aggressive physician- and facility-specific goals for adding risk adjustment diagnoses. It alleged that Kaiser singled out underperforming physicians and facilities and emphasized that the failure to add diagnoses cost money for Kaiser, the facilities, and the physicians themselves. It also alleged that Kaiser linked physician and facility financial bonuses and incentives to meeting risk adjustment diagnosis goals.
“The federal government supports the health care of millions of beneficiaries by paying hundreds of billions of dollars every year to Medicare Advantage Plans,” said U.S. Attorney Peter McNeilly for the District of Colorado. “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.”
“Deliberately inflating diagnosis codes to boost profits is a serious violation of public trust and undermines the integrity of the Medicare Advantage program,” said Acting Deputy Inspector General for Investigations Scott J. Lampert at the U.S. Department of Health and Human Services, Office of Inspector General. “This outcome demonstrates [our] 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.”
“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,” said Special Agent in Charge Sanjay Virmani of the FBI San Francisco Field OfficeThe resolution obtained in this matter was the result of a coordinated effort between the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section and the U.S. Attorneys’ Offices for the Northern District of California and the District of Colorado, with assistance from HHS-OIG, HHS-Office of Audit Services, and the FBI.
