Kaiser Permanente has agreed to pay $556 million to settle federal allegations that it improperly inflated payments from the Medicare Advantage program by submitting unsupported or exaggerated patient diagnoses, according to the U.S. Department of Justice. The settlement is the largest ever tied to Medicare Advantage fraud and underscores growing scrutiny of how insurers are paid under the program.

Federal investigators alleged that Kaiser encouraged physicians to add diagnoses that increased patients’ “risk scores,” a key metric used by the Centers for Medicare & Medicaid Services to determine how much private insurers receive to cover Medicare beneficiaries. Higher risk scores translate into higher payments, even if the underlying conditions were inadequately documented or clinically unjustified.

While Kaiser did not admit wrongdoing as part of the settlement, the agreement resolves whistleblower lawsuits filed under the False Claims Act. The case adds to mounting evidence that Medicare Advantage’s risk-adjustment system creates strong financial incentives for insurers to aggressively code diagnoses, a practice that has driven billions of dollars in additional federal spending.

The settlement arrives as policymakers and regulators intensify efforts to rein in Medicare Advantage costs, which now account for more than half of all Medicare enrollment. Critics argue that unchecked coding practices undermine the program’s promise of efficiency, while supporters warn that overly aggressive enforcement could discourage participation and innovation. The Kaiser case is likely to shape future enforcement actions and policy debates over how Medicare Advantage should be regulated and paid.