Kaiser Permanente Sues Insurers Over Medicare Advantage Settlement
Kaiser Permanente, headquartered in Oakland, California, has initiated legal proceedings against nine liability insurers, alleging breach of contract due to their refusal to contribute to a $556 million settlement with the federal government. This settlement resolved allegations under the False Claims Act related to Medicare Advantage billing practices.
Filed on February 20, the lawsuit in the U.S. District Court for the Northern District of California involves Kaiser Foundation Health Plan and its Colorado counterpart. They seek up to $95 million in coverage from a combination of directors and officers (D&O) liability policies. The named insurers include AIG, Chubb, Berkley, Starr, National Fire, RSUI, Markel, Fair American, and Allianz.
The contention originates from Kaiser’s agreement in January to settle a consolidated whistleblower case, which included multiple qui tam lawsuits and a Department of Justice complaint-in-intervention. The underlying accusations involved Kaiser purportedly submitting inaccurate risk-adjustment diagnosis codes to the Centers for Medicare & Medicaid Services (CMS) to increase Medicare Advantage reimbursements.
In the complaint, Kaiser states that AIG provided a primary D&O policy with $10 million in coverage, following a $10 million self-insured retention, which Kaiser claims has been met. Additionally, eight excess insurers offered a further $85 million in coverage. Although AIG acknowledged the lawsuit as a covered claim, it only contributed $1 million to Kaiser’s legal expenses, citing a policy clause that restricts coverage related to the return of government funds. Both AIG and the excess insurers declined coverage for the settlement itself.
Kaiser maintains that the policy exclusion should not apply to the entire settlement, arguing that the government’s claim for treble damages under the False Claims Act implies a portion of the settlement reflects punitive damages rather than recovery of funds from CMS, and thus should be covered.
From 2009 to 2018, the Justice Department alleged that Kaiser improperly enhanced risk adjustment payments in California and Colorado. The organization was accused of utilizing data-mining tools to unearth diagnoses in patients’ historical records, prompting physicians to amend records by adding diagnoses sometimes long after visits. Many of these added diagnoses reportedly had no relation to the patients’ visits.
Kaiser has previously stated that settling was a strategic decision to avoid extended and uncertain litigation and costs. They noted that various health plans have similarly faced scrutiny regarding Medicare Advantage risk adjustment practices, indicating broader industry challenges. Kaiser emphasized that the case did not concern the quality of care but rather related to differing interpretations of Medicare documentation requirements.