The Department of Justice (DOJ) on Wednesday announced the settlement with Kaiser Permanente over allegations that the organization's affiliates violated the False Claims Act by submitting invalid diagnosis codes for their Medicare Advantage plan enrollees to receive higher payments from the government.
The settlement is the largest False Claims Act settlement ever under Medicare Advantage and the largest settlement resolving allegations of risk adjustment fraud, according to Whistleblower Partners, which represented James M. Taylor, M.D., one of the whistleblowers in the complaint.
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The $556 million settlement involves affiliates of Kaiser Permanente, an integrated health care consortium headquartered in Oakland, Calif. The partners include 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.
In a statement, Kaiser Permanent said the settlement resolves a dispute over risk adjustment submissions between 2009-2018 and doesn't include an admission of wrongdoing or liability. "We chose to settle to avoid the delay, uncertainty, and cost of prolonged litigation," the organizaion said.
Under the Medicare Advantage program, the Centers for Medicare & Medicaid Services (CMS) pays insurers a fixed monthly amount for each Medicare beneficiary enrolled in their plans but adjusts the payment for sicker patients who incur higher health care costs. These risk adjustments are based on medical diagnosis codes that insurers submit to Medicare and must be supported in the patient’s medical record.
In October 2021, the federal government filed a complaint in the Northern District of California, alleging that Kaiser engaged in a scheme in California and Colorado systematically pressure 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.
The DOJ claimed that 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. In many instances, the complaint alleged, the diagnoses added by the providers had nothing to do with the patient visit in question, in violation of CMS requirements.
Furthermore, the complaint said 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 claimed that Kaiser knew that its addenda practices were widespread and unlawful. Kaiser ignored numerous red flags and internal warnings that it was violating CMS rules, including concerns raised by its own physicians that these were false claims and audits by its own compliance office identifying the issue of inappropriate addenda.
“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)., in the announcement.”
The civil settlement includes the resolution of certain claims brought in lawsuits under the qui tam or whistleblower provisions of the False Claims Act by Ronda Osinek and James M. Taylor, M.D., former employees of Kaiser. Their share of the settlement will be $95 million. Under the whistleblower provisions of the False Claims Act, private parties may sue on behalf of the government for false claims and to recieve a share of any recovery.
Dr. Taylor served as the medical director of revenue cycle/claims and physician director of coding at Kaiser’s Colorado Permanente Medical Group (CPMG). He received RISE’s quality award, formerly known as the Martin L. Block Award for Clinical Excellence and Innovation in 2015.
He filed his whistleblower complaint after Kaiser failed to address practices he had identified that allegedly inflated beneficiaries’ risk scores and increased Medicare reimbursements without corresponding clinical justification.
“Physicians are trained to document care truthfully and accurately,” said Dr. Taylor in a statement released by Whistleblower Partners. “When financial pressure overrides that principle, it undermines trust in the system. I stayed as long as I did because I believed the problems could be fixed internally. There were moments of progress, but too often the solutions were undone. Filing a complaint was a last resort, not a first step. I’m grateful to Whistleblower Partners for standing with me and helping ensure these issues were taken seriously.”
Max Voldman, a partner at Whistleblower Partners, who will be speaking at RISE National 2026 about the DOJ’s and Office of Inspector General’s enforcement of kickback schemes in Medicare Advantage, said in the announcement that “working closely with Dr. Taylor over multiple years, we helped develop detailed, technically grounded allegations rooted in his firsthand experience inside Kaiser’s Medicare Advantage operations. “This settlement reflects the importance of whistleblowers who understand how these systems actually work.”