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Kaiser Foundation Health Plan and other Kaiser affiliates have agreed to pay $556 million to resolve allegations that they violated the False Claims Act by submitting invalid diagnosis codes for their Medicare Advantage Plan enrollees to receive higher payments from the government.
The settling Kaiser Permanente affiliates are Kaiser Foundation Health Plan, Kaiser Foundation Health Plan of Colorado, The Permanente Medical Group, Southern California Permanente Medical Group and Colorado Permanente Medical Group.
The claims resolved by the settlement with the Department of Justice are allegations only, and there has been no determination of liability, the DOJ said.
The settlement contains no admission of wrongdoing and addresses historical Medicare Advantage documentation practices, Kaiser said.
"The agreement resolves a False Claims Act lawsuit and has no admission of wrongdoing or liability," Kaiser said. "We chose to settle to avoid the delay, uncertainty and cost of prolonged litigation."
WHY THIS MATTERS
Kaiser said the case was about the interpretation of the Medicare risk adjustment program's documentation requirements.
"Multiple major health plans have faced similar government scrutiny over Medicare Advantage risk adjustment standards and practices, reflecting industrywide challenges in applying these requirements," Kaiser said. "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."
This week, Sen. Chuck Grassley, R-Iowa, chairman of the Senate Committee on the Judiciary, released a majority staff report that claimed UnitedHealthcare has been gaming the Medicare Advantage system by capturing a higher number of diagnoses and diagnosis codes than other Medicare Advantage organizations, resulting in higher payments.
In July 2025, UnitedHealth acknowledged a DOJ probe into its Medicare Advantage practices.
In the case of the Kaiser affiliates, the United States alleged that there was systematic pressure put on 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 Centers for Medicare and Medicaid Services rules, the DOJ said.
The allegations raise questions over what is allowed when AI is used both to transcribe physician notes to ease documentation burden and to mine the information for missed diagnoses.
THE LARGER TREND
The Centers for Medicare and Medicaid Services pays Medicare Advantage Organizations more for sicker beneficiaries as these members are expected to incur higher healthcare costs. These risk adjustments are submitted to CMS as diagnosis codes that are supported by the medical record.
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, the DOJ alleged.
Kaiser developed various mechanisms to mine a patient's past medical history to identify potential diagnoses that had not been submitted to CMS 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, the DOJ said.
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.
The United States 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.
Kaiser knew that its addenda practices were widespread and unlawful, the DOJ said. Kaiser ignored numerous red flags and internal warnings, including concerns raised by its own physicians, officials said.
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. Their share of the recovery will be $95 million, according to the DOJ.
The complaint was filed in the Northern District of California in October 2021. The United States alleged that Kaiser engaged in a scheme in California and Colorado to improperly increase its risk adjustment payments.
ON THE RECORD
"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 (HHS-OIG). "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."
Email the writer: SMorse@himss.org