Independent Health Faces the Music Over Medicare Fraud Allegations

Independent Health Association, along with its affiliate Independent Health Corporation, has agreed to pay up to $98 million to settle allegations of defrauding Medicare. The Buffalo-based Medicare Advantage provider is accused of inflating risk scores—a critical metric in determining payments under the Medicare Advantage (MA) program.

This case isn’t just about numbers and spreadsheets; it’s about trust. Medicare, a cornerstone of American healthcare, depends on accurate data to ensure taxpayer money is spent on care for those who need it most. According to the government, Independent Health violated that trust.

Here’s how the alleged scheme unfolded: Payments to Medicare Advantage plans are adjusted by “risk scores,” which are based on the health conditions of enrolled beneficiaries. More complex conditions result in higher payments. The DOJ claims that Independent Health, through its subsidiary DxID LLC, systematically reviewed medical records to inflate these risk scores. Physicians were allegedly asked to add diagnoses to patient records—even when the medical evidence didn’t support them. This manipulation reportedly led to significant overpayments, lining Independent Health’s pockets at the expense of taxpayers.

Deputy Assistant Attorney General Michael Granston put it bluntly, “When Medicare Advantage participants knowingly inflate claims, they undermine the integrity of a program millions rely on.”

The Price of Fraud

The settlement includes $34.5 million in guaranteed payments and up to $63.5 million more, contingent on Independent Health’s financial circumstances. DxID, which ceased operations in 2021, is included in the settlement, and Betsy Gaffney, DxID’s founder, will personally pay $2 million.

But the consequences extend beyond financial penalties. Independent Health has entered into a five-year Corporate Integrity Agreement (CIA) with the Department of Health and Human Services (HHS). The CIA requires the company to hire an Independent Review Organization to conduct annual audits of its Medicare Advantage practices, ensuring compliance with risk adjustment payment rules.

This case came to light thanks to whistleblower Teresa Ross, a former employee of Kaiser Foundation Health Plan of Washington. Ross alleged that Independent Health and other insurers used DxID’s services to improperly boost risk scores.

Under the False Claims Act, whistleblowers are entitled to a share of recovered funds, and Ross will receive at least $8.2 million for her role in exposing the scheme. This isn’t Ross’s first success; her claims previously led to a settlement with Kaiser.

Implications for Medicare & Compliance

“This settlement is a clear message: Medicare Advantage Plans that cheat the system will face serious consequences,” said Christian Schrank, Deputy Inspector General for HHS. And it’s not just talk. The DOJ is leaning heavily on the False Claims Act to ensure that fraudsters—corporate or otherwise—don’t siphon funds from government programs.

For compliance professionals, this case is a reminder that effective internal oversight and ethical corporate practices are non-negotiable. The inclusion of a Corporate Integrity Agreement underscores the government’s demand for transparency and accountability in Medicare Advantage operations. Organizations must prioritize robust compliance programs, including accurate coding practices and thorough auditing mechanisms, to mitigate risks and avoid regulatory scrutiny.

Ultimately, compliance teams are the first line of defense in safeguarding not just their organizations, but the integrity of vital public programs like Medicare.

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