Continuing an important enforcement trend, the Justice Department announced a $63 million settlement with Los Angeles-based healthcare providers to resolve allegations of risk adjustment fraud under the False Claims Act. The allegations, first brought to light in a whistleblower lawsuit, charged that the providers misdiagnosed their own patients in pursuit of higher payments from Medicare.
Risk adjustment fraud involves Medicare Advantage plans inflating the severity of their members’ medical conditions in order to claim higher capitated payments from Medicare, which adjusts its payment rates for plan members based on their health status. The practice costs the federal government billions of dollars in losses each year and has come under heavy scrutiny.
Medicare has long been concerned about the ways in which Medicare Advantage plans can commit risk adjustment fraud, such as by hiring coders to perform “one way” chart reviews or hiring healthcare providers to visit members in their homes in order to diagnose the members with conditions that do not exist or are not being treated. The Justice Department’s recent $172 million settlement with Cigna, for example, resolved allegations that Cigna submitted false or fraudulent diagnosis codes from both one-way chart reviews and fraudulent in-home visits.
Medicare Advantage plans are not the only ones responsible for risk adjustment fraud, however. Healthcare providers—such as hospitals, physician groups, and other medical services organizations—have also been accused of inflating diagnosis information to drive higher risk adjustment payments. Notable settlements against healthcare providers for risk adjustment fraud include a $90 million settlement with Sutter Health and a $270 million settlement with DaVita Medical Holdings.
Many providers have an incentive to commit risk adjustment fraud because Medicare Advantage plans pay them a percentage of the money the plans receive from Medicare for their patients, a practice known as “sub-capitation.” With a sub-capitation arrangement, the provider can have the same incentive to commit risk adjustment fraud as the plan, because the medical provider will share in the gains.
Provider-driven risk adjustment fraud is particularly worrisome because patients depend on their providers to make accurate diagnoses. Instead of serving as a check on insurers who might commit fraud in the pursuit of higher profits, some providers have become accomplices in that fraud, going so far as to misdiagnose their own patients.
Last week’s settlement is a good example of alleged provider-driven risk adjustment fraud. In a lawsuit filed under the whistleblower provisions of the False Claims Act, Seoul Medical Group (SMG) and its subsidiary Advanced Medical Management agreed to pay $58.74 million, and their former president Dr. Min Young Cha agreed to pay $1.76 million, for submitting false diagnosis codes for patients enrolled in Medicare Advantage plans. Renaissance Imaging Medical Associates Inc., a radiology center that worked with Seoul Medical, also agreed to settle the lawsuit’s claims for $2.35 million, bringing the total resolution to nearly $63 million. The whistleblower’s a share of the recovery has not yet been determined, but whistleblowers typically receive between 15% and 30% under the qui tam provisions of the False Claims Act.
The lawsuit alleged that Seoul Medical Group and its affiliates submitted false diagnoses for two severe spinal conditions — spinal enthesopathy and sacroiliitis — on behalf of patients who didn’t have either condition to increase payments from the Medicare Advantage plan in violation of the False Claims Act.
The Justice Department’s allegations illustrate the potential harm that risk adjustment fraud can cause to patients. According to the Justice Department’s press release, Seoul Medical Group and Renaissance Imaging manufactured fraudulent radiology reports to support the spinal conditions that Seoul Medical Group had diagnosed. Patients saddled with false diagnoses in their medical records can suffer a range of adverse consequences, including potential misdiagnosis by other providers who rely on the falsified records, or ineligibility for life insurance based on their (fictitious) health status.
Phillips & Cohen has extensive experience with risk adjustment fraud lawsuits, including a settlement in December 2024 with Independent Health and related entities for up to $98 million, a $32.5 million settlement with Freedom Health, a Florida-based Medicare Advantage plan, and multiple other cases in ongoing litigation.
If you suspect risk adjustment fraud and would like to speak to an experienced attorney, contact Phillips & Cohen for a free confidential review of your case.