What you should know:
– Kaiser Permanente members have agreed to a $556 million settlement to resolve accusations to violate the False Claims Act submitting invalid diagnosis codes to inflate Medicare Advantage (MA) payments.
– The agreement, involving several Kaiser Foundation and Permanente medical groups, addresses a decade-long “data mining” scheme designed to improve outcomes by manipulating the risk adjustment model.
The Core of the Conflict: Risk Adjustment Versus Care Delivery
Under Medicare Part C, CMS uses a “risk adjustment” model. It’s a simple financial equation: Sicker patients require more resources, so CMS pays Medicare Advantage Organizations (MAOs) higher monthly capitated rates for those individuals.
The Department of Justice alleged that between 2009 and 2018, Kaiser systematically deceived this system by:
- Retrospective “Mining”: Identify previous diagnoses and pressure doctors to add them to medical records through “addendums” months or even a year after the encounter.
- Incentivize improved coding: Link physician financial bonuses and facility-specific incentives to achieving “risk adjustment” diagnostic goals.
- Ignore the warning signs: Ignoring internal audits and complaints from doctors that flagged these practices violated the requirement that a diagnosis must be addressed during an in-person visit.
For years, large integrated systems like Kaiser have touted their “values-based” model as the gold standard for efficiency. This agreement suggests a cynical reality: When “value” in value-based care is derived from retrospective coding algorithms rather than actual clinical intervention, it is not innovation: it is simply sophisticated billing. The $95 million payout to two former employees demonstrates that internal compliance cultures are often secondary to revenue goals until the Justice Department comes knocking.
Why this is important Leaders in healthcare finance
For CFOs and Chief Medical Officers, this deal is a cautionary tale about generative AI and NLP tools currently being marketed for “risk adjustment factor (RAF) optimization.”
- Clinical validation is mandatory: Any code suggested by an AI or data mining tool. has to have been addressed during the meeting. Retrospective riders without a clinical bridge are a False Claims Act magnet.
- Audit the “Queries”: If your organization uses “queries” to ask physicians to update records, those queries should be clinically supported, not revenue-driven.
- Incentive realignment: Linking physician compensation directly to RAF scores is now a high-risk regulatory strategy.
The Justice Department’s use of the False Claims Act highlights a growing intolerance for “gaming the system” in Medicare Advantage, a program that now covers more than half of all Medicare beneficiaries.
