The Villages Health System has agreed to a $541.5 million settlement to resolve allegations that it submitted unsupported diagnosis codes, inflating Medicare Advantage payments. The settlement, announced by the Justice Department on Aug. 26, does not require the bankrupt provider group to pay the full amount immediately. Instead, the federal government will receive an allowed, nondischargeable claim against The Villages Health’s bankruptcy estate.
Settlement Details
The settlement agreement states that payments returned to the Centers for Medicare & Medicaid Services (CMS) by Medicare Advantage insurers will reduce the government’s claim. The government will otherwise receive distributions from the bankruptcy estate on a proportional basis.
The Medicare Advantage program relies on accurate diagnoses to protect the federal fisc,” said Assistant Attorney General Brett Shumate of the Justice Department’s Civil Division.
The agreement was reached with The Villages Health System LLC, the legal entity that remains in Chapter 11 after the sale of assets to CenterWell. By structuring the claim as nondischargeable, the Department of Justice ensures that the settlement amount remains enforceable against the estate, even though the provider will not be required to make a lump‑sum payment.
The Villages Health first disclosed the coding issue through the Department of Health and Human Services Office of Inspector General’s Health Care Fraud Self‑Disclosure Protocol in December 2024. That early notification earned the provider credit for self‑reporting, a factor highlighted in the settlement language.
Background and Impact
The Villages Health, owned by CenterWell Senior Primary Care, a Humana subsidiary, filed for Chapter 11 protection in July 2025. The court approved the federal settlement on Aug. 25. The claims resolved by the agreement are allegations only, and there has been no determination of liability.
According to the settlement, The Villages Health’s consultant estimated that the unsupported codes generated $416 million in additional CMS payments to the insurers, of which approximately $361 million was paid to The Villages Health.
The provider received credit for self‑disclosing the conduct, taking remedial action, and cooperating with the government’s investigation.
During the covered period, employees performed what the settlement describes as “Retrospective Amendments,” inserting diagnosis codes and language intended to document monitoring, evaluation, or treatment of conditions long after the original visit. These changes were not initiated by the treating clinician and sometimes occurred many months later. When the original clinician was no longer employed, a medical director or chief medical officer could review and approve the amendment.
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In addition, the organization ran coding “sprints” between March 2021 and August 2024, during which staff systematically edited records to add specific diagnosis codes, often attaching supplemental documentation. After an internal review prompted by outside counsel hired in August 2024, the provider halted both the retrospective amendments and the sprint process.
A consultant’s sampling of four years of service revealed a sharp upward trend in the proportion of conditions lacking proper support. The analysis showed a substantial increase, showing the heightened risk‑adjustment concerns that motivated the government’s action.
Impact on Insurers
Under separate agreements, UnitedHealthcare will pay the federal government approximately $125.5 million, Florida Blue will pay nearly $12 million, and receive credit for approximately $9.2 million associated with codes it already deleted or reported to CMS.
UnitedHealthcare’s contribution reflects its role as a major Medicare Advantage carrier that received the inflated payments. Florida Blue’s credit acknowledges the insurer’s proactive effort to remove questionable codes from its systems, a step that the settlement treats as mitigating conduct.
Larger Trend: Federal Scrutiny of Medicare Advantage
The settlement comes amid continued federal scrutiny of Medicare Advantage risk‑adjustment practices. In January, Kaiser Foundation Health Plan and several affiliates agreed to pay $556 million to resolve similar allegations. In March, Aetna agreed to pay $117.7 million for allegedly submitting or failing to withdraw inaccurate diagnosis codes.
These actions illustrate a broader enforcement pattern in which the Justice Department targets large insurers and provider networks for coding practices that can artificially boost capitated payments. The Department’s focus on both insurers and the providers that supply them signals an expanding regulatory horizon for Medicare Advantage risk adjustment.
Scale of The Villages Health System
The Villages Health operated eight primary‑care centers and two specialty‑care centers, delivering services to more than 55,000 patients. A significant portion of the patient base was enrolled in Medicare or Medicare Advantage, making the organization a key participant in the federal program’s payment ecosystem.
CEO Bob Trinh publicly linked the Chapter 11 filing to the overpayment issue, noting that potential penalties were estimated in the hundreds of millions of dollars. The settlement, therefore, represents a key resolution for a provider whose financial stability was directly tied to the disputed coding practices.