A federal bankruptcy court has signed off on a $541.5 million settlement after The Villages Health System admitted changing diagnosis codes to improperly increase payments through Medicare Advantage plans.
The ruling late last month follows a year and a half of developments, including the initial disclosure in December 2024, bankruptcy and new ownership. The healthcare group is now part of Humana’s multi-state CenterWell Senior Primary Care.
The case involves a problem known as upcoding that costs the federal government billions of dollars in waste or fraud every year.
The settlement describes how The Villages Health would go back into patients' medical files months later and add diagnoses -- sometimes adding in monitoring, evaluations or treatments. It submitted those changes to three Medicare Advantage insurers. The insurers are responsible for a portion of the settlement.
In the agreement, authorities allege The Villages Health itself pocketed an extra $361 million.
This went on from 2020 into 2024, when The Villages Health sent a letter to patients acknowledging "a problem with some of our Medicare billing practices." Since then, it filed for bankruptcy and was purchased by Humana.
The agreement "resolves allegations that, from 2020 through 2024, TVH violated the False Claims Act ... by knowingly submitting false diagnosis codes," according to a news release from the U.S. Attorney's Office.
Federal prosecutors are giving The Villages Health credit for self-reporting through the U.S. Department of Health and Human Services Office of Inspector General's Health Care Fraud Self-Disclosure Protocol.
Assistant Attorney General Brett A. Shumate said in the news release that the settlement "reflects that we will hold accountable entities that inflate payments through invalid diagnoses; at the same time, we will continue to credit organizations that disclose wrongdoing, take appropriate remedial actions, and fully cooperate with the government’s investigation.”
How upcoding works
The Centers for Medicare and Medicaid Services uses those diagnoses to adjust for risk and estimate future healthcare costs. The so-called Hierarchical Condition Category (HCC) scores help determine how much CMS pays a Medicare Advantage plan per person.
"It's a risk score," said Dr. Keith Joiner, who teaches health economics at the University of Arizona. "HCC is a reflection in any given individual of, to be very sort of general, how sick they are, but sort of more specifically, what resources might be required to take care of them over the coming year.
"And the HCC score is calculated based on records in the medical chart."
Going back into records and adding new diagnoses increases the HCC scores, sometimes even after the condition is resolved.
Joiner coauthored a study published in 2024 looking at the financial costs of upcoding, especially for standard Medicare Parts A and B. Medicare Advantage, the managed care program involving private insurers, is Part C.
His study describes upcoding in Medicare Advantage as "excessive or even fraudulent documentation of underlying chronic health conditions for any given individual." When Medicare Advantage insurers, like the three working with The Villages Health, have thousands of those individuals, they can really cash in.
The study said a review of fraud lawsuits, inspector general audits and watchdog investigations "detailed how the majority of large health insurers used this mechanism to expand profits."
The researchers put the Medicare Advantage overpayments at $9 million-$12 billion per year over the previous decade. But Joiner said getting an accurate estimate is difficult.
He said federal criminal prosecutions for Medicare fraud don’t generally go after upcoding. This year has seen a few settlements with insurers that involved upcoding, including $117.7 million with Aetna and $556 million with Kaiser Permanente.
In 2024, CMS began to phase in a new set of rules, known as Model V28, that address some of the issues around upcoding. V28 was fully implemented this year.
Under these new rules, Joiner said, "only if the diagnosis is included on an annual basis as being documented in the chart and being included in the medical record and on the diagnosis list as being actively managed can it be included in calculating the HCC score.”
V28 becomes especially important now as AI gives insurers new tools to scour medical records.
