Kaiser Permanente to Pay $556 Million in Massive Medicare False Claims Settlement

Affiliates of Kaiser Permanente have agreed to pay $556 million to resolve federal allegations that they violated the False Claims Act by submitting unsupported diagnosis codes for Medicare Advantage enrollees—codes that boosted their government reimbursements. This settlement is one of the largest government actions involving an alleged Kaiser Medicare fraud scheme.

The settlement covers several Kaiser entities, including Kaiser Foundation Health Plan Inc., Kaiser Foundation Health Plan of Colorado, The Permanente Medical Group, Southern California Permanente Medical Group, and Colorado Permanente Medical Group, all of which were named in the wide-ranging Medicare allegations.

How the Scheme Worked

Under Medicare Advantage (Part C), private insurers receive monthly payments from CMS based on the health status—or “risk score”—of each enrollee. Higher‑risk patients generate higher payments, but only when diagnoses are properly documented and tied to a legitimate, face‑to‑face medical encounter. Authorities allege that the Kaiser Medicare fraud scheme exploited flaws in this risk adjustment system.

According to a federal complaint filed in 2021, Kaiser allegedly manipulated this system between 2009 and 2018 by:

• Pressuring physicians to add diagnoses after patient visits through medical record “addenda” as part of what the government described as a Medicare fraud scheme at Kaiser.
• Mining patient histories to identify old or unrelated conditions, which played a role in the overall fraud scheme charged against Kaiser involving Medicare.
• Sending “queries” urging providers to add diagnoses months or even a year after visits
• Adding diagnoses that had nothing to do with the visit, violating CMS rules
• Setting aggressive internal quotas for added diagnoses
• Linking physician bonuses and facility incentives to meeting risk‑adjustment targets

Federal prosecutors said Kaiser ignored internal warnings, physician complaints, and compliance audits that flagged these practices as improper and potentially fraudulent. The investigation showed that the Medicare fraud scheme allegations were persistent despite internal objections.

Federal Officials Condemn the Conduct

Justice Department and HHS‑OIG officials emphasized that Medicare Advantage depends on accurate reporting—not profit‑driven manipulation. Many of the DOJ comments focused on the seriousness of the Kaiser Medicare fraud scheme and its impact on public funds.

• DOJ leaders stressed that false diagnosis submissions undermine the integrity of a program serving more than half of all Medicare beneficiaries and referenced the large-scale Medicare fraud scheme attributed to Kaiser.
• U.S. Attorneys in California and Colorado warned that fraudulent risk‑adjustment practices cost taxpayers billions.
• HHS‑OIG and the FBI called the conduct a serious breach of public trust, emphasizing their commitment to holding health plans accountable in cases such as this large Kaiser Medicare fraud scheme.

Whistleblowers Played a Key Role

The settlement resolves claims brought under the qui tam provisions of the False Claims Act by two former Kaiser employees. Their whistleblowing was instrumental in bringing the scheme to light.

• Ronda Osinek
• Dr. James M. Taylor

Together, they will receive $95 million as their share of the recovery for exposing the alleged Medicare fraud scheme at Kaiser.

A Coordinated Federal Effort

The case was handled by the DOJ Civil Division’s Fraud Section, U.S. Attorney’s Offices in the Northern District of California and the District of Colorado, HHS‑OIG, HHS‑Office of Audit Services, and the FBI, all collaborating to investigate the scheme.

No Determination of Liability

As with most civil FCA settlements, the claims resolved are allegations only, and Kaiser has not admitted wrongdoing related to the supposed fraud.