Oakland, Calif.-based Kaiser Permanente is suing nine liability insurers for breach of contract, alleging they have refused to cover any portion of its $556 million settlement with the federal government resolving False Claims Act allegations tied to Medicare Advantage billing practices.
Kaiser Foundation Health Plan and its Colorado affiliate filed the complaint Feb. 20 in the U.S. District Court for the Northern District of California, seeking up to $95 million in coverage across a layered program of directors and officers liability policies. The defendants include AIG, Chubb, Berkley, Starr, National Fire, RSUI, Markel, Fair American and Allianz.
The dispute stems from Kaiser’s settlement in January of a consolidated whistleblower action, which encompassed six qui tam lawsuits and a complaint-in-intervention by the Department of Justice. The underlying case alleged Kaiser violated the False Claims Act by submitting improper risk-adjusting diagnosis codes to CMS to inflate Medicare Advantage payments.
According to the complaint, AIG issued a primary D&O policy providing $10 million in coverage above a $10 million self-insured retention, which Kaiser has satisfied. The eight excess insurers issued policies providing an additional $85 million in coverage. AIG acknowledged the lawsuit was a covered claim but paid only $1 million toward Kaiser’s legal defense, citing a policy provision that limits coverage for claims involving the return of government funds. AIG denied coverage for the settlement itself, and all eight excess insurers followed suit.
Kaiser argues the exclusion does not apply to the full settlement. Because the government sought treble damages under the False Claims Act, Kaiser contends a large portion of the settlement represents multiplied damages that go beyond any funds it received from CMS and should therefore be covered under the policies.
Between 2009 and 2018, Kaiser allegedly engaged in a scheme to inflate risk adjustment payments in California and Colorado, the Justice Department alleged. Prosecutors said Kaiser used internal data-mining tools to identify diagnoses from patients’ past medical histories that had not been submitted to CMS and then sent “queries” to physicians urging them to add those diagnoses through addenda, sometimes months or more than a year after the original visit.
In many cases, the added diagnoses had no connection to the patient visit, the Justice Department alleged.
The government also alleged Kaiser set aggressive diagnosis submission targets for physicians and facilities, flagged underperforming providers, and tied financial incentives and bonuses to meeting risk adjustment goals. Internal compliance audits and physician complaints raised concerns about the legality of the practices, but Kaiser allegedly continued them.
“We chose to settle to avoid the delay, uncertainty and cost of prolonged litigation,” the health system said in a previous statement. “Multiple major health plans have faced similar government scrutiny over Medicare Advantage risk adjustment standards and practices, reflecting industrywide challenges in applying these requirements. The Kaiser Permanente case was not about the quality of care our members received. It involved a dispute about how to interpret the Medicare risk adjustment program’s documentation requirements.”
Becker’s has reached out to Kaiser and the liability insurers for comment and will update this article if more information becomes available.
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