Medicare Advantage plans are paid by the federal government based on how sick their enrolled patients are. The sicker the patient population on paper, the higher the payment. That structure creates a financial incentive to exaggerate or fabricate patient diagnoses, and federal enforcement actions suggest that incentive is being exploited on a significant scale.
How risk adjustment fraud works
Under the Medicare Advantage risk adjustment system, Medicare Advantage Plans submit diagnosis codes to CMS to document the health conditions of their enrolled members. CMS uses that data to calculate capitation payments, meaning the insurer receives a fixed monthly amount per patient based on projected care needs. According to CMS Medicare Advantage risk adjustment documentation, more severe diagnoses result in higher payments.
Fraud occurs when insurers or their contracted medical coders submit diagnosis codes that do not reflect actual patient conditions. Common schemes include adding diagnoses that were never documented during a patient visit, conducting chart reviews specifically to find billable conditions without providing any treatment, and pressuring physicians or coding staff to add unsupported codes to patient records.
Who sees this fraud firsthand
Medical coders, compliance officers, data analysts, and physicians working with Medicare Advantage plans are often the first to recognize when diagnosis submissions do not match the clinical record. Employees who are asked to add codes without documentation, or who notice systematic patterns of unsupported diagnoses across a patient population, may have grounds to file a qui tam lawsuit under the False Claims Act.
False Claims Act liability
Each inflated risk score submitted to CMS to obtain a higher capitation payment may constitute a false claim under the False Claims Act. According to Department of Justice False Claims Act statistics, healthcare fraud remains the largest source of FCA recoveries year after year. Private employees who file a qui tam lawsuit on behalf of the government may be eligible to receive between 15% and 30% of the total recovery, depending on whether the government intervenes in the case. It is worth noting that retaliation against employees who report this type of fraud is prohibited by federal law.
Understanding your options
If you work for a Medicare Advantage plan or a related coding or compliance contractor and have witnessed diagnosis inflation or unsupported risk adjustment submissions, a qui tam attorney can help you evaluate your evidence, understand your protections, and determine whether filing a lawsuit is the right step.