DOJ's Focus on Medicare Advantage Yields $100 Million FCA Settlement with Plan, Vendor, and CEO

After a nearly decade-long whistleblower suit, Medicare Advantage (MA) Plan Independent Health Association and its subsidiary Independent Health Corporation (collectively, Independent Health), as well as diagnosis coding vendor DxID LLC and its CEO, Betsy Gaffney, agreed to pay up to $100 million to resolve allegations that they violated the False Claims Act (FCA). The United States alleges that they knowingly submitted or caused the submission of invalid diagnosis codes to Medicare to inflate payments received for the members enrolled in the MA plan. The relator filed her initial complaint on April 11, 2012, yet the United States did not move to intervene until January 23, 2020. The case settled last month following the District Court’s ruling on defendants’ motion to dismiss, allowing all but one claim to proceed to discovery.

Under Medicare Part C, private insurers (such as Independent Health) offer MA plans as an alternative to traditional Medicare fee-for-service plans. MA plans cover more than half of all Medicare members. Unlike traditional Medicare, MA plans are paid fixed monthly payments for each plan member based on their “risk score,” which considers the member’s demographic information and health conditions. MA plans submit diagnosis codes to the Centers for Medicare & Medicaid Services (CMS). A higher risk score means that the member is sicker and likely more expensive to cover, and therefore the plan receives higher payments for that member.

In the FCA case, the United States alleges that Independent Health knowingly submitted invalid diagnosis codes through its risk-adjustment program to capture and submit additional medical diagnoses that increased the payments to the MA plan. Independent Health purportedly created DxID LLC, a diagnosis coding vendor, to carry out this scheme by (1) conducting retrospective chart reviews and (2) sending requests to providers encouraging them to retroactively add diagnoses that were purportedly missed during patient encounters and not initially submitted to CMS. The complaint alleges that DxID did not charge an upfront fee for its services, but instead retained 20% of “actual proven recoveries,” meaning it received a financial benefit for identifying additional diagnosis codes that yielded higher payments to MA plans.

The settlement is structured such that Independent Health must pay $34.5 million, but the remaining $63.5 million, on behalf of itself and DxID, is contingent on Independent Health’s ability to pay. Moreover, consistent with the U.S. Department of Justice’s (DOJ) emphasis on individual accountability, the agreement requires Gaffney to pay $2 million.

Lastly, Independent Health entered into a five-year Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General which requires, among other things, that Independent Health employ an external auditor to review a sample of patient records and associated internal controls to ensure that risk adjusted payments are accurate.

This settlement is another example of DOJ’s continued focus on bringing FCA actions in MA, which DOJ described in its fiscal year 2024 False Claims Act report as an area of “critical importance.” For example, DOJ has settled similar allegations with a medical services organization for $270 million and an MA plan for $172 million. DOJ and MA plans are also engaged in risk-adjustment litigation, including a trial slated to begin in October 2025 involving United Health Group, Inc. (United States ex rel. Poehling vs. United Health Group, Inc. et al., No. 2:16-cv-08697 (C.D. Cal)).

Stay tuned in to Qui Notes as we continue to monitor these cases against MA plans and their vendors.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.