$14.1 Million FCA Settlement Underscores Medicare Advantage Coding Scrutiny
On August 3, 2026, DOJ announced a $14.1 million settlement with a management services organization (“MSO”) for primary care groups to resolve allegations that the organization violated the False Claims Act by causing inaccurate diagnosis codes to be submitted to the Medicare Advantage (“MA”) program. The allegations were included in a qui tam suit filed by a whistleblower who worked for two Medicare Advantage Organizations (“MAOs”). See United States ex rel. Karen Bowers v. Complete Health Partners, Inc., Pharos Capital Group, LLC, Viva Health Inc., and BlueCross and Blue Shield of Alabama, No. 3:22-cv-463 (M.D. Fla.). This is the latest in a string of MA-related FCA resolutions; alleged fraud on the MA program continues to be a top area of focus for DOJ, as we previously reported here.
The Centers for Medicare & Medicaid Services (“CMS”) pays MAOs a fixed monthly amount for each beneficiary and increases payments to account for “risk” factors, such as chronic or severe conditions, that make the patient sicker and therefore incur higher healthcare costs. These conditions are reported through the Hierarchical Condition Category (“HCC”) model. Because diagnosis codes impact CMS payments to MAOs, all diagnoses must be sufficiently supported by patients’ medical records.
According to the Settlement Agreement, the defendant MSO and its affiliates contracted with MAOs to provide healthcare services to MA beneficiaries. Allegedly, under a “risk sharing” agreement, the MAOs paid the MSO a percentage of the payments they received from CMS. The Government alleged that these arrangements created an incentive to submit additional diagnosis codes that increased beneficiaries’ risk scores and CMS payments. The allegations focused on HCC 55, relating to drug and alcohol dependence, and HCC 59, relating to major depressive, bipolar, and paranoid disorders. These HCCs have been often cited in FCA settlements and HHS-OIG audits of MAOs and participating providers as sources of potential concern.
The Government identified three practices that allegedly inflated beneficiaries’ risk scores and caused CMS to pay more than it otherwise would have. First, the defendant MSO allegedly disseminated incorrect coding guidance to coders and physicians concerning HCCs 55 and 59. Second, its coders allegedly reviewed patients’ medical records to identify additional diagnoses for severe and chronic conditions, including within HCCs 55 and 59. The coders then allegedly entered specific risk-adjusting diagnoses as pre-visit suggestions in beneficiaries’ electronic medical records and followed up through leading queries if providers did not add those conditions. The Government alleged that these practices pressured providers to report codes “that were not clinically valid, not properly supported by the beneficiary’s medical records, and/or not considered in the care, management, or treatment of the beneficiary.” Third, coders also allegedly added unsupported diagnosis codes without provider involvement.
This settlement highlights the potential FCA risks stemming from coding practices that affect CMS’s risk-adjusted payments. Accordingly, healthcare companies should ensure that diagnosis codes are properly documented, maintain compliant coding workflows, and scrutinize practices that may steer providers toward payment-increasing diagnoses, such as pre-visit prompts, leading queries, and post-visit coding.
A copy of the Settlement Agreement can be found here, and a copy of the complaint can be found here.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.
