Independence Blue Cross, a Philadelphia insurance provider, will pay $22.5 million to resolve claims it defrauded Medicare by knowingly submitting inflated diagnostic codes within its Medicare Advantage plans, the Department of Justice revealed on Wednesday. The DOJ alleges these codes misrepresented the actual health status of patients, a practice known as upcoding, which allegedly allowed the insurer to receive payments exceeding what it was legally owed.
The insurer agreed to settle the matter to avoid a lengthy legal battle, yet it has maintained its innocence. “This matter was not about the quality of care our members received. It involved differing views regarding certain documentation and reporting requirements under the Medicare Advantage risk adjustment program,” IBX stated.
Medicare Advantage Payments
Under the Medicare Advantage program, the Centers for Medicare & Medicaid Services (CMS) pays organizations like IBX on a per-member basis. These payments are then adjusted based on the health severity and other risk factors of the enrollees in a mechanism called risk adjustment. Typically, sicker patients result in higher payments for the insurer. However, since the CMS relies on insurers to submit these diagnosis codes, their accuracy is critical to ensuring proper compensation.
Based on the DOJ’s findings, IBX conducted a retrospective review program from 2016 to 2020 aimed at finding additional diagnosis codes to submit to Medicare. Although the company hired nurses to examine medical charts, it failed to investigate or remove any inaccurate or unsubstantiated codes it discovered, a legal obligation.
False Claims Act Violations
IBX is accused of violating the False Claims Act, the primary federal law used to combat fraud against government programs. “The government pays private insurers over $530 billion each year to care for Americans enrolled in Medicare Advantage,” Brett Shumate, the assistant attorney general for the Justice Department’s civil division, stated in a press release.
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Independence Blue Cross provides coverage to over 2.2 million members in southeastern Pennsylvania, southern New Jersey, and Delaware, ranking it among the region’s largest insurers. Additionally, it administers plans for an extra 3.1 million individuals nationwide through third-party services.
This civil settlement is part of a broader trend; healthcare fraud accounted for more than $5.7 billion of the $6.8 billion in False Claims Act settlements recorded in fiscal year 2025, according to DOJ statistics.
Health plan affiliates of Kaiser Permanente settled for $556 million in January to resolve allegations of upcoding in Medicare Advantage. UnitedHealth and Humana have also been investigated for allegedly exaggerating the medical needs of their MA members.
The HHS Office of Inspector General, a federal watchdog, has released multiple reports warning about improper payments and fraud within MA. Concurrently, the Medicare Payment Advisory Commission predicts that the U.S. government will spend 14% more, or an additional $76 billion, this year on seniors in MA compared to traditional Medicare, largely because of upcoding.