Fidelis Care of New York, one of the largest Medicaid managed care plans in New York State and, at the time of the alleged conduct, a subsidiary of the Catholic Health System of Long Island, agreed to pay $97.5 million to resolve Department of Justice allegations that it submitted inaccurate risk adjustment data to the Medicaid program — data that inflated the per-member-per-month capitation payments the plan received from the joint federal-state program.DOCUMENTED
The settlement resolved allegations under the False Claims Act that Fidelis submitted diagnosis codes for Medicaid beneficiaries that were not supported by the clinical documentation required to substantiate those codes — and that by doing so, the company inflated its members' apparent health risk scores, which in turn increased the capitation payments it received to care for those members.
- Fidelis Care agreed to pay $97.5 million to resolve DOJ Medicaid risk adjustment fraud allegations.
- The allegations covered submission of unsupported diagnosis codes inflating member risk scores.
- Medicaid risk adjustment payments are calibrated to the documented health complexity of enrolled members.
- Fidelis operated as a nonprofit Medicaid managed care plan serving hundreds of thousands of New York members.
- A whistleblower lawsuit triggered the federal and state investigation.
How Medicaid Risk Adjustment Works
Medicaid managed care plans receive capitation payments — a fixed dollar amount per enrolled member per month — rather than fee-for-service reimbursement for each individual service rendered. This payment model is designed to give managed care plans financial incentives to manage members' health efficiently, rather than incentivizing volume as fee-for-service does. The capitation rate for each member is adjusted based on the member's health status, as measured by the diagnosis codes submitted by the plan for services the member received — a system called risk adjustment.REVIEWED
Under risk adjustment, a plan whose members are on average sicker than the benchmark population receives higher capitation payments to account for the expected higher cost of caring for those members. A plan that enrolls relatively healthy members receives lower payments. When a plan submits diagnosis codes reflecting more severe or complex conditions than the member's clinical documentation actually supports, it receives higher payments than its members' actual health status warrants — effectively claiming more from the program than it is entitled to receive.DOCUMENTED
The Specific Allegations Against Fidelis
The DOJ's complaint against Fidelis alleged that the plan submitted diagnosis codes to the Medicaid program for member encounters where the underlying clinical documentation did not support those codes — and that this pattern was not the result of isolated coding errors but of systematic practices that inflated the plan's risk scores across a significant portion of its member population. The complaint alleged that Fidelis used chart reviews and supplemental coding processes in ways that resulted in the addition of diagnosis codes not documented in the original clinical record, and that these additional codes elevated members' apparent health risk status beyond what the documentation warranted.REVIEWED
Risk adjustment fraud through chart review is a recognized enforcement category in both Medicare Advantage and Medicaid managed care. Plans that conduct retrospective reviews of member medical records can legitimately add codes for conditions that were documented but missed in initial billing — the so-called additive reconciliation that makes risk adjustment data more accurate. But when the chart review process is designed to add codes for conditions that are not clearly documented in the underlying record, or to code conditions at severity levels that exceed what the documentation supports, the process crosses into the submission of inaccurate data that inflates payments.REVIEWED
Risk adjustment fraud does not require forged records. It requires only the consistent selection of codes that reflect conditions the documentation does not clearly support, applied at scale.
The Scale of Medicaid Risk Adjustment Spending
The Medicaid managed care market is one of the largest segments of U.S. healthcare spending, with the federal government and states collectively paying hundreds of billions of dollars annually to managed care plans that administer Medicaid benefits. Risk adjustment transfers within the Medicaid managed care system run into tens of billions of dollars, redistributing capitation revenue from plans with healthier-than-average members to plans with sicker-than-average members. The scale of these payments makes the accuracy of the underlying diagnostic data critically important — and makes systematic inflation of diagnosis codes an extremely lucrative form of fraud when successful.REVIEWED
DOJ and HHS enforcement in this space has intensified over the past several years as risk adjustment fraud has become better understood and as data analytics tools have made it easier to identify statistical anomalies in plans' risk score distributions that suggest systematic upcoding. Plans whose member populations have risk scores significantly above what would be expected based on the demographic and geographic characteristics of their enrollment may face increased scrutiny, particularly when the gap cannot be explained by genuine clinical complexity differences in the enrolled population.
New York State's Role in the Settlement
New York State's Medicaid program shared in the recovery from the Fidelis settlement because Medicaid is a joint federal-state program, with the federal government and the state each contributing a portion of program spending. When a managed care plan submits inaccurate risk adjustment data and receives inflated capitation payments, both the federal and state shares of that payment are affected — making state attorneys general co-claimants alongside the DOJ in False Claims Act settlements involving Medicaid managed care fraud. New York's Medicaid Fraud Control Unit participated in the investigation and was entitled to a portion of the settlement recovery reflecting the state's share of the overpayment.DOCUMENTED
For Fidelis Care, which subsequently became a wholly-owned subsidiary of Centene Corporation following Centene's acquisition of the plan, the settlement represented a significant liability arising from conduct predating the acquisition. Healthcare system acquisitions of this type frequently involve indemnification provisions addressing pre-closing liability, and the Fidelis settlement was likely addressed through those provisions in a way that allocated the financial consequence between the prior owner and the acquiring entity based on the timing and nature of the underlying conduct.
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