Medicare Advantage Whistleblower Case Ends In $22.5 Million Independence Blue Cross Settlement

What Is Risk Adjustment?

The Center for Medicare and Medicaid (CMS) makes monthly payments to Medicare providers associated with a given recipient. Risk adjustment is a part of the Medicare provider reimbursement process wherein CMS adjusts the size of monthly payments to Medicare providers associated with a given recipient based on the expected healthcare costs associated with that recipient. If a particular recipient, i.e., patient, receives a higher-than-average risk adjustment score, it means that they are sicker and more likely to incur healthcare expenses. Risk adjustment is based on the medical diagnosis a given patient receives. Diagnoses that are considered more serious for the purposes of risk adjustment are therefore associated with a commensurate increase in the size of the Medicare reimbursement received by the medical provider. This system creates a potential financial incentive for health care providers to report more severe diagnosis codes in their monthly reports to CMS than their patients’ actual diagnoses support. This is referred to as “upcoding.”

What Did Independence Blue Cross Allegedly Do with Medicare Advantage Diagnosis Codes?

The United States Attorney’s Office (USAO) for the Eastern District of Pennsylvania alleged that Independence Blue Cross submitted — and did not withdraw — incorrect medical diagnoses in its reimbursement submissions to CMS. Independence Blue Cross ultimately paid $22.5 to resolve the claims in this action, but did not admit to the wrongdoing alleged in the lawsuit. These allegations arose out of a qui tam action under the FCA, meaning a whistleblower came forward to the U.S. government—i.e., the USAO—and provided insider information to substantiate allegations of false statements being made to the government for the purpose of receiving payments from the government.

What Steps Does a Whistleblower Take to File a FCA Case, and What Happens while the Complaint Is under Seal?

The first step for any whistleblower seeking to file a successful FCA case is to retain experienced legal counsel with the resources necessary to investigate and successfully litigate the case. Next, it is important that any would-be whistleblower preserve as much evidence of the alleged fraud as possible. Before meeting with the USAO, whistleblower attorneys will file a disclosure statement about the case and file the case under seal, which alerts the USAO that the allegations are being investigated privately. During this period, the whistleblower and all involved parties must keep the facts, including the existence of the case itself, hidden. Eventually, a whistleblower and their counsel will present their collective findings to the USAO, which will further investigate the matter. After the government completes its investigation, the seal is lifted, the defendant is alerted of the existence of the case, and the litigation process begins. At this juncture, the government determines whether it will intervene in the case or whether it will decline to intervene.

How Is a Whistleblower’s Share of a Recovery Determined, and How Does the $3,825,000 Award in This Case Compare to the Statutory Range?

In this case, the award to the whistleblower was $3,825,000. The amount of a whistleblower’s ultimate recovery in a successful FCA case is determined by two factors: (1) whether the government chooses to intervene in the case and (2) the value of the whistleblower’s contributions. Government intervention in an FCA case simply means that the USAO decided, after investigating a whistleblower’s claims, that it would like to litigate the case itself. Conversely, the government may decide to decline to intervene in the case and allow the whistleblower and their private attorney(s) to litigate the case on behalf of the government. If the government takes the case, the whistleblower receives between 15–25% of any eventual recovery, whereas the whistleblower receives 25–30% of any recovery when the case is declined by the government.

Determination of the award amount provided to the whistleblower within these percentage bands generally remains within the discretion of the USAO and the courts, depending on the nature of the case. Any eventual award is typically based on an assessment of how valuable the contributions of the whistleblower were to the case. Factors that might influence the assessed value of a contribution may include how inaccessible or non-public the information was, how vital the information was in ultimately proving the allegations, or how cooperative the whistleblower was throughout the investigation and litigation process. And regardless of whether the government takes the case or not, a successful whistleblower may be entitled to receive payment for reasonable expenses incurred as a result of bringing the action, in addition to reasonable attorneys’ fees and costs.

In this case, the scale of the $3,825,000 award is within the range that FCA whistleblowers receive every year. In 2025 alone, False Claims Act settlements and judgments amounted to over $6.8 billion.