Kaiser Pays Record $556M to Settle Medicare Advantage False Claims Act Case -- Constantine Cannon Represented One of the Originating Whistleblowers

By the Constantine Cannon Whistleblower Team

Last Wednesday (January 14), the Department of Justice (DOJ) announced that several affiliates of Oakland-based Kaiser Permanente agreed to pay $556 million to settle allegations they violated the False Claims Act by submitting invalid diagnosis codes for their Medicare Advantage patients to secure inflated payments from the Government.[1]

It is the largest False Claims Act settlement to date involving alleged fraud on the Medicare Advantage program (also known as risk adjustment fraud).  It is also the fourth major Medicare Advantage fraud settlement in which Constantine Cannon represented one of the originating whistleblowers.

What is Medicare Advantage?

Under Medicare Advantage (Medicare Part C), Medicare patients may receive insurance coverage from private health plans known as Medicare Advantage Organizations (MAOs).  More than half the country’s Medicare patients are enrolled in the program.

The Centers for Medicare & Medicaid Services (CMS) pays MAOs a capitated per-patient monthly amount based on various “risk” factors affecting the patient’s expected healthcare costs.  CMS generally pays MAOs more for sicker patients with higher expected costs and less for healthier patients.  CMS makes these “risk adjustments” based on the medical diagnosis codes the MAOs provide, which must be supported by the patient’s underlying medical record.

What Was Kaiser’s Alleged Medicare Advantage Fraud?

According to the Government, Kaiser engaged in a scheme in California and Colorado to inflate its risk adjustment payments.  Specifically, Kaiser allegedly pressured its physicians to alter patient records to add diagnoses the physicians had not considered or addressed during patient visits.  The Government claimed Kaiser’s scheme involved:

• • Adding diagnosis codes after patient visits through “addenda” to the patient medical records.

• • Mining patient histories to identify potential diagnoses not already submitted to CMS for risk adjustment.

• • Sending “queries” to providers urging them to add these additional diagnoses to the patient medical records through addenda long after the patient visits and even when completely unrelated to the patient visit.

• • Setting aggressive physician and facility-specific goals for adding risk adjustment diagnoses, singling out underperforming physicians and facilities, and tying bonuses and other financial incentives to meeting risk adjustment goals.

The Government claimed Kaiser knew this coding conduct was widespread and unlawful and ignored numerous red flags and internal warnings that it was violating CMS rules.  Some of these warnings apparently came from Kaiser’s own physicians and from audits by Kaiser’s own compliance department.

Is Medicare Advantage Fraud a DOJ Enforcement Priority? 

In announcing the settlement, the Government reinforced its commitment to go after Medicare Advantage fraud and that this area of healthcare fraud remains a top DOJ enforcement priority.  DOJ Civil Chief Brett Shumate pointed to the settlement as sending a “clear message that [DOJ] holds healthcare providers and plans accountable when they knowingly submit . . .  false information to CMS to obtain inflated Medicare payments.”

U.S. Attorney Craig Missakian (Northern District of California) echoed this sentiment, stressing “we will relentlessly pursue individuals and organizations that compromise the integrity of the Medicare program.”  And Acting HHS Deputy Inspector General weighed in with the equally strong warning that “we will continue to hold accountable any entity that seeks to compromise the integrity of the risk adjustment program.”

This is just the latest False Claims Act settlement involving Medicare Advantage fraud.  Other recent settlements in this area include the December 2024 settlement under which Buffalo-based Independent Health agreed to pay up to $98 million, the August 2021 settlement under which San Francisco-based Sutter Health agreed to pay $90 million, and the May 2017 settlement under which Tampa-based Freedom Health and Optimum Healthcare agreed to pay $32.5 million.

What Role Can Whistleblowers Play in Reporting Medicare Advantage Fraud?

Whistleblowers play a critical role in reporting Medicare Advantage fraud given the difficulty of detecting these schemes without an inside window into the misconduct.  The False Claims Act provides a powerful vehicle for whistleblowers to report this fraud under the qui tam provisions of the statute.  These provisions authorize private parties to bring lawsuits on behalf of the Government against those that commit fraud against the Government.  In return, successful whistleblowers can receive up to 30% of the Government’s recovery.

Unsurprisingly, whistleblowers have originated most False Claims Act cases involving Medicare Advantage fraud.  That was the case with the Kaiser matter.  The allegations originated with several whistleblower lawsuits brought by former Kaiser employees under the False Claims Act.  They collectively will share a whistleblower award of $95 million from the proceeds of the Government’s recovery.  Constantine Cannon represented one of these whistleblowers, Dr. James Taylor, who had been a Kaiser physician and medical director, with medical billing compliance and coding responsibilities.

Whistleblowers also originated the Independent Health, Sutter Health, and Freedom Health/Optimum False Claims Act actions.  Constantine Cannon represented those whistleblowers too.  Each of them also received significant whistleblower awards from the proceeds of the Government’s recoveries in those cases.

Constantine Cannon whistleblower partner Gordon Schnell, who led the firm’s work on the Sutter Health matter, points to these whistleblower successes as a key reason why the Government continues to focus on Medicare Advantage fraud.  “Without the help of company insiders who witness the fraud firsthand and are privy to the company’s true motivation behind its coding practices, it is very difficult for the Government to make out a case of intentional fraud.”

Schnell expects the Government’s enforcement in this area to continue given the increasing number of Medicare patients enrolling in Medicare Advantage plans and the billions of dollars in annual Government payouts under the program.  “But only if whistleblowers continue to step forward,” he says.  “Given the complexity of these risk adjustment schemes and the difficulty of proving fraud more broadly — especially when medical judgment is at play — the Government is much less likely to pursue these cases without whistleblowers leading the way.”

Constantine Cannon Has Substantial Experience Representing Medicare Advantage Fraud Whistleblowers

So if you think you may have information relating to potential Medicare Advantage (risk adjustment) fraud, please do not hesitate to contact us.  We will connect you with an experienced member of the Constantine Cannon whistleblower team for a free and confidential consultation.  We have substantial experience and success representing whistleblowers bringing False Claims Act cases in this and other areas and can answer any questions you may have about risk adjustment fraud, other areas of healthcare fraud, the False Claims Act, and what it means to be a whistleblower more broadly.

Speak Confidentially With Our Whistleblower Attorneys

Sources:

[1]  See https://www.justice.gov/opa/pr/kaiser-permanente-affiliates-pay-556m-resolve-false-claims-act-allegations.

Tagged in: False Claims Act, Medicare Advantage Fraud, qui tam,