The Villages Health System $541.5 Million Settlement: A New Frontier in Medicare Advantage Risk Adjustment Enforcement

The Medicare Advantage Risk Adjustment Framework 

Under the Medicare Advantage (MA) program — also known as Medicare Part C — Medicare beneficiaries may elect to receive their Medicare benefits through private health plans offered by MAOs rather than traditional Medicare. The Centers for Medicare & Medicaid Services (CMS) pays MAOs a monthly capitated amount for each enrolled beneficiary. CMS adjusts these payments based on “risk” factors affecting expected healthcare costs: in general, MAOs receive higher payments for sicker beneficiaries and lower payments for healthier ones.  

At a high level, these “risk adjustments” occur when:  

1. A provider has a patient encounter and submits medical diagnosis codes to the MAO (the diagnosis codes must be supported in the medical record);  
2. CMS collects the medical diagnosis codes from MAOs; and 
3. CMS uses this and other data to determine capitated payments.  

At times, MAOs contract with provider groups like TVH under arrangements where the provider receives a set percentage of what the MAO receives from CMS. Because CMS’s payments to MAOs are risk-adjusted based in part on beneficiaries’ diagnoses, these arrangements can create a financial incentive for participants involved in the MA program to report diagnoses that are more serious than the symptoms presented to artificially inflate the beneficiaries’ risk scores. 

The Villages Health System’s Medicare Advantage Coding Violations and Self-Disclosure 

On Dec. 27, 2024, TVH made a submission pursuant to HHS-OIG’s Health Care Fraud Self-Disclosure Protocol, disclosing that it submitted invalid diagnosis codes to multiple MAOs — including UnitedHealthcare, Florida Blue, and Humana — for certain Medicare Advantage beneficiaries from 2020 through 2024. The diagnosis codes were allegedly invalid because they either lacked adequate support in the patient’s medical record or were based on medical record amendments that were not initiated by the rendering provider, were untimely (sometimes occurring months to over a year after the patient visit), or were approved by a non-rendering provider. TVH’s knowing submission of these unsupported codes allegedly caused CMS to make inflated payments to the MAOs, which in turn increased the capitated payments from the MAOs to TVH. 

On July 3, 2025, before refunding any payments to the MAOs, TVH filed a voluntary Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court for the Middle District of Florida, due in part to its inability to meet anticipated repayment obligations to the MAOs. The $541.5 million settlement with DOJ — approved by the Bankruptcy Court on Aug. 25, 2026 — resolved the government’s FCA claims against TVH. The government credited TVH for its prompt self-disclosure, detailed written cooperation, and remedial actions taken throughout the investigation. The Acting Deputy Inspector General for Investigations stated, “The provider’s use of the OIG Self Disclosure Protocol and its cooperation were important factors in resolving this matter, and the protocol remains available for managed care entities and other providers that bill managed care entities that seek to disclose potential liability.” 

DOJ Enforcement Against Medicare Advantage Organizations for Risk Adjustment Overpayments

A notable aspect of this enforcement action is that DOJ’s investigation went beyond the providers to include the MAOs. The government separately entered into settlement agreements with UnitedHealthcare (approximately $125.5 million) and Florida Blue (totaling approximately $21.1 million), requiring those MAOs to return alleged overpayments they received because of TVH’s invalid codes. The Florida Blue settlement includes $9.2 million credited for codes already deleted and $11.95 million in additional payment to the DOJ. 

The TVH settlement makes clear that MAO contractual overpayment obligations are not merely theoretical, and a provider’s improper coding can trigger FCA liability and separate financial consequences for the MAOs with which they contract — potentially resulting in significant penalties and damaging critical commercial relationships.

Key Considerations from the Villages Health Settlement 

The TVH settlement reveals several important details for healthcare providers and MAOs:

• High Error Rates. TVH’s outside consultant found that 28.6% to 50.7% of reviewed HCC codes were unsupported from 2020-2024, underscoring the exposure when coding compliance programs are inadequate.
• Specific Problem Diagnoses. TVH’s settlement identifies frequently unsupported codes, including morbid obesity (HCC 22), qualitative platelet defects (D691/HCC 48), and Immunodeficiency (D8481/HCC 47). For example, morbid obesity diagnoses were flagged where BMI was below 35, or between 35-39 without a documented weight-related comorbidity. Providers should evaluate whether their practices have similar vulnerabilities.
• External Consultant Advice Can Be a Double-Edged Sword. TVH retained outside coding consultants — one partially paid for by a major MAO — who advised that TVH was “undercoding.” TVH factored this advice in staff compensation decisions. This demonstrates how external pressure to increase coding intensity can lead to compliance failures if not properly managed.
• Bankruptcy Does Not Eliminate Government Claims. Although TVH filed for Chapter 11 before refunding payments, the $541.5 million settlement was established as a nondischargeable claim against TVH’s bankruptcy estate. Providers should not view bankruptcy as an escape from FCA liability.

Medicare Advantage Risk Adjustment Compliance Lessons for Providers and Payers

• Audit Coding Practices. Accurate coding and documentation are essential. Providers should conduct regular internal audits to confirm codes are accurate and supported by contemporaneous medical records — including treatment plans, follow-up services, lab results, and therapies matching the diagnosis. Retrospective coding activities should be closely scrutinized to ensure diagnosis codes are not inserted into records months after the visit without proper provider initiation and approval.
• Understand Options for Self-Disclosure. TVH received meaningful credit for self-disclosing through HHS-OIG’s Health Care Fraud Self-Disclosure Protocol. TVH’s consultant estimated CMS overpaid the MAOs $416 million, and TVH received approximately $361 million from those MAOs. Although the $541.5 million settlement exceeds the estimated overpayment (reflecting the FCA damages multiplier), the government acknowledged TVH’s cooperation and remedial actions. Providers that identify potential risk adjustment issues should carefully evaluate the benefits of disclosure and cooperation.
• Recognize the Ripple Effects on MAO Relationships. Inaccurate or unsupported coding creates FCA exposure for providers and separate overpayment obligations for MAOs. Providers should anticipate that MAOs will increasingly demand contractual protection, indemnification rights, and audit cooperation provisions to guard against downstream liability from provider coding errors.
• Monitor the Evolving Enforcement Landscape. This settlement was announced in connection with the Administration’s Task Force to Eliminate Fraud and the National Fraud Enforcement Division. DOJ stated that “FCA matters will continue to be on the forefront of the battle against fraud.” Healthcare providers should expect continued scrutiny of Medicare Advantage risk adjustment practices and proactively invest in compliance infrastructure. 

What the Villages Health Settlement Means for Medicare Advantage Compliance

The Villages Health System settlement is more than just a large-dollar resolution of FCA allegations. It represents an evolution in how DOJ approaches Medicare Advantage risk adjustment fraud — pursuing the provider at the origin of the invalid codes as well as the MAOs that received and shared the inflated payments. For healthcare providers operating in the Medicare Advantage space, the lessons are clear: invest in coding compliance, scrutinize amendment practices, understand the value of self-disclosure, and recognize that your coding conduct has consequences that extend beyond your own organization. Accurate coding and support in the medical record are key.