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Kaiser Permanente Defrauded Medicare of $1 Billion, DOJ Alleges (1)

Oct. 26, 2021, 5:04 PMUpdated: Oct. 26, 2021, 7:14 PM

Members of Kaiser Permanente’s health-care consortium defrauded Medicare out of about $1 billion by altering patient medical records to add diagnoses after the fact that either didn’t exist or were unrelated to patient visits, the Department of Justice is alleging.

In a complaint filed Monday, the DOJ said Kaiser mined the medical files of Medicare Advantage patients for additional diagnoses and then sought to have the physician add the new diagnoses to the medical records retrospectively using an addendum, as if the new diagnoses had been addressed in some way during the patient visit when it had not.

“The driver was money: so that Kaiser could submit these improper diagnoses to CMS for payment,” attorneys with the department said in the filing.

Medicare Advantage plans, sometimes called Medicare Part C, are health-care insurance plans that are managed by insurers who contract with the Centers for Medicare & Medicaid Services. The CMS reimburses these plans differently than traditional Medicare, paying a predetermined monthly amount for each enrollee. Those payments are then adjusted based on the patient’s age and medical diagnoses. More severe diagnoses often lead to higher reimbursements.

In a statement on its website, Kaiser Permanente said it’s confident it’s compliant with Medicare Advantage program requirements and intends to strongly defend against the lawsuits alleging otherwise.

“For nearly a decade, Kaiser Permanente has achieved consistently strong performance on Risk Adjustment Data Validation audits conducted by CMS,” the company said. “With such a strong track record with CMS, we are disappointed the Department of Justice would pursue this path.”

Attorneys with O’Melveny and Myers LLP representing the company did not respond to an email request for comment.

Whistleblower Lawsuits

The complaint stems from six whistleblower lawsuits, the first of which was filed in 2013, that the DOJ decided to join in July. One such case was brought by James Taylor, who served at one point as director of coding for the Kaiser Permanente’s Medical Group in Colorado.

“This is an incredible narrative of how Kaiser has run amok in terms of putting pressure on physicians to diagnose and code patients for illnesses simply to increase risk-adjusted payments,” said Edward Baker, of counsel in Constantine Cannon’s Washington office and co-lead counsel for Taylor.

The DOJ’s complaint is “an indication that Kaiser, among other Medicare Advantage organizations, has really put profits before patients, and it’s really shocking,” he said.

Kaiser Permanente is an integrated health-care consortium made up of health plans, physician medical group practices, and hospitals. The allegations brought by the DOJ concern Kaiser Health Plans and Permanente Medical Groups in Northern California, Southern California, and Colorado, according to the complaint.

The companies are accused of violating the False Claims Act, the federal statute that’s designed to deter fraud against the government and recover losses. The FCA encourages whistleblowers to put their personal and professional careers on the line to report fraud by rewarding them with 15% to 25% of what’s recovered when the Justice Department intervenes in a dispute.

The allegations in the DOJ complaint against Kaiser mirror those in a suit the department brought against the Buffalo, N. Y.-based health insurance company Independent Health Association and its subsidiary last month after the department joined a whistleblower suit.

Other allegations brought against a California-based health-care services provider involving Medicare Advantage patients settled on Aug. 30. The DOJ announced that Sutter Health and several of its affiliated companies had agreed to pay $90 million to settle claims it violated the False Claims Act by knowingly submitting inaccurate information about the health status of beneficiaries enrolled in Medicare Advantage plans.

“This is clearly a DOJ priority and, from my perspective, it should continue to be one,” Baker said. “I think we’re going to start seeing DOJ really kind of coming into its own in terms of pursuing these cases, hopefully more efficiently, quickly, and aggressively.”

The case is United States v. Kaiser Permanente, N.D. Cal., No. 3:13-cv-03891, complaint 10/25/21.

(Update to include a statement from Kaiser Permanente in fifth and sixth paragraphs.)

To contact the reporter on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com

To contact the editor responsible for this story: Brent Bierman at bbierman@bloomberglaw.com

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