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Medicare Fraud: Kaiser Permanente

The Annual Election Period is closing in quickly. You’ve probably seen advertisements and news announcing changes to the policies and recommending that you schedule a review of your current plan.

If you’ve seen any of that, it’s unlikely that you’ve missed the news about the latest company to commit Medicare fraud: Kaiser Permanente allegedly.

What is Kaiser Permanente?

Kaiser Permanente is one of the largest nonprofit healthcare plans in the nation. It is also the largest managed care consortium in the United States.

It was founded in 1945 and is composed of 3 entities:

  • Kaiser Foundation Hospital and subsidies
  • Kaiser Foundation Health Plan, Inc
  • The Permanente Medical Groups

The company has 12.5 million members, 39 hospitals, 727 medical offices, 23.597 physicians, 63,847 nurses, and 216,738 employees. (1) In 2020, its operating revenue was an outstanding $88.7 billion—no small company, to be sure.

While it is a nonprofit healthcare plan, each individual Permanente Medical group operates as a for-profit corporation or partnership in its territory.

What does Kaiser offer individuals?

The goal of Kaiser Permanente is to provide complete, coordinated care to its members. Since they provide both healthcare plans and healthcare itself, they offer an integrated care system designed to work together and give members seamlessly, quality care.

Each member has one electronic healthcare record that records every visit, medication, claim, payment, and phone call. Preventive care is a top priority at Kaiser, so members are alerted when they are due for screenings. Their goal is to prevent serious health conditions from occurring.

What does Kaiser Permanente have to do with Medicare?

Kaiser offers a variety of Part C Medicare Advantage plans to its members.

Unlike Medigap plans, Medicare Advantage plans are not standardized by the federal government. Private insurance companies sell these plans. Medicare Advantage plans can change each year. As a result, they may change the cost of the premium and deductible, and the plan’s covered services and medications.

While there are a variety of types of Medicare Advantage plans, Kaiser offers the HMO option only.

An HMO is a Health Maintenance Organization. These plans require that the member receive care from an HMO provider only. This is, of course, beneficial to Kaiser as it means that their members must receive care from one of their providers.

This keeps the member – and the financial reimbursement – from going anywhere but Kaiser.

What alleged fraud did Kaiser commit?

Kaiser Permanente is accused of committing fraud by pressuring its physicians to add diagnoses on member’s medical records. These additions were made months – and in some cases, more than a year – after the original date of service.

Medicare Advantage plans are paid on a per-member basis, known as capitation. The base payment per member is adjusted according to the severity of the member’s health condition.

The added diagnoses were for more severe conditions. Generally speaking, the more severe the diagnosis, the higher the reimbursement rate. Adding diagnoses would bring in more money to the company.

The case was brought to light by six whistleblowers who claim that these diagnosis additions violate The False Claim Act. At least one of these whistleblowers was a Kaiser employee.

The False Claim Act is a federal law that prohibits organizations or people from making false claims to any federal health care program that is funded by the United States Government or any state healthcare system.

This could include billing for the same service multiple times, billing for services not actually provided, or making false claims to obtain payments. Adding diagnosis codes fall into these categories and does violate The False Claim Act.

Kaiser has defended the allegations of false claim reporting. The claim against Kaiser Permanente is still under active investigation.

If the claims prove true during the trial, Kaiser could face millions of dollars in fines. In cases brought by whistleblowers under The False Claim Act, whistleblowers are entitled to a portion of the paid fines.

Medical records, pile of patient charts
Pressuring physicians to add diagnoses on member’s medical records.

How does the government prevent Medicare fraud?

There are limits on risk-adjustment claims. Healthcare providers may not increase the severity of the condition based on laboratory tests or radiology results alone. The member must have a face-to-face appointment with the provider and also must be treated for the condition.


Each year, the federal government pays hundreds of billions of dollars ($290 billion in 2020) to Medicare Advantage plans. Kaiser Permanente holds a 7% share in the Medicare Advantage market, claiming a large portion of federal funds.

While Kaiser is currently at the forefront of fraudulent claims, they are not alone. Many other healthcare insurance carriers have been subject to accusations and claims. It is estimated that in 2014, 10% of funds were not paid properly. Applied to 2020’s numbers, that could mean that $29 billion was wrongly spent.

There are millions of individuals who belong to a Medicare Advantage plan, so the integrity of these plans is of the utmost importance to the federal government. If you have additional questions about Medicare Advantage, please consider contacting the consultants at Temmen Insurance.

(1) https://about.kaiserpermanente.org/who-we-are/fast-facts