A Florida healthcare provider has agreed to a massive $541.5 million settlement with the federal government over allegations that unsupported diagnosis codes helped drive up Medicare Advantage payments.

The Villages Health System LLC (TVH), headquartered in The Villages, Florida, agreed to resolve False Claims Act allegations involving diagnosis codes submitted between 2020 and 2024, the U.S. Department of Justice announced August 26.

The case involves a part of Medicare Advantage that most beneficiaries rarely see: the system used to adjust how much the federal government pays private insurers based partly on the health conditions of their members.

Importantly, the settlement resolves allegations, and the Justice Department said there has been no determination of liability.

Why Diagnosis Codes Can Change Medicare Advantage Payments

Medicare Advantage, also known as Medicare Part C, allows beneficiaries to receive Medicare coverage through private insurance plans rather than Original Medicare.

The Centers for Medicare & Medicaid Services pays Medicare Advantage Organizations, or MAOs, a monthly amount for each enrolled beneficiary. Those payments are adjusted for factors affecting expected healthcare costs, with plans generally receiving more money for beneficiaries expected to have greater medical needs. Medical diagnosis codes play a significant role in those calculations.

According to DOJ, diagnoses used for these risk adjustments must be supported by medical records from qualifying patient-provider encounters. For outpatient care, the diagnoses also must have required or affected the patient’s care, treatment, or management during the visit.

That creates an important safeguard: a diagnosis submitted for payment purposes isn’t supposed to exist merely as a code on a patient’s chart. It must meet Medicare’s requirements.

What the Government Alleged The Villages Health Did

Federal officials alleged that from 2020 through 2024, TVH knowingly submitted false diagnosis codes to several Medicare Advantage insurers.

According to DOJ, some of the diagnoses did not have adequate support in patients’ medical records. Others allegedly relied on amendments that weren’t initiated by the treating provider, weren’t made in a timely manner, or weren’t approved by that provider.

The government alleges those codes were then submitted by the Medicare Advantage insurers to CMS, resulting in inflated federal payments. TVH’s payments were also allegedly increased as a result.

The Medicare Advantage organizations involved were Humana, several UnitedHealthcare entities, and GuideWell companies including Blue Cross and Blue Shield of Florida and Florida Blue Medicare.

The Health System Reported the Problem Itself

There is an unusual and important detail in this case: TVH disclosed the coding issue to the government.

On December 27, 2024, the organization made a submission through the Department of Health and Human Services Office of Inspector General’s Health Care Fraud Self-Disclosure Protocol. TVH disclosed that it had submitted invalid diagnosis codes for certain Medicare Advantage beneficiaries and that those codes had increased CMS payments to insurers.

DOJ said TVH subsequently took remedial action, provided the government with a detailed written disclosure, and cooperated with investigators.

Those actions mattered when the settlement was negotiated.

Assistant Attorney General Brett A. Shumate said the resolution demonstrates that the government will pursue organizations accused of inflating Medicare payments while also giving credit to organizations that self-disclose problems, take corrective action and cooperate with investigations.

Acting Deputy Inspector General for Investigations Miranda L. Bennett similarly said TVH’s use of the self-disclosure process and its cooperation were important factors in resolving the matter.

What Happens to the Medicare Advantage Overpayments?

The settlement isn’t limited to TVH.

DOJ said the Medicare Advantage insurers that received payments connected to the invalid diagnosis codes are returning overpayments to the federal government.

Depending on the insurer, that is occurring through deletion of invalid diagnosis codes and/or agreements with DOJ and CMS to return money.

That distinction is important because CMS initially paid the Medicare Advantage organizations. TVH allegedly benefited because provider groups can have arrangements under which their compensation is tied to some portion of the Medicare Advantage payments insurers receive.

In other words, the coding at issue could affect payments at multiple points in the Medicare Advantage system.

The Settlement Comes During TVH’s Bankruptcy Case

The resolution also comes against the backdrop of a major financial restructuring.

TVH filed for Chapter 11 bankruptcy protection on July 3, 2025, in the U.S. Bankruptcy Court for the Middle District of Florida. The bankruptcy court approved the federal settlement on August 25, 2026, one day before DOJ publicly announced it.

Bankruptcy court records also show orders approving settlement agreements involving the United States, Florida Blue and UnitedHealthcare on August 25.

The $541.5 million settlement therefore represents part of a much broader financial situation surrounding the healthcare organization.

What This Means for Medicare Advantage Beneficiaries

For beneficiaries, the announcement does not mean that everyone treated by TVH received an incorrect medical diagnosis, nor does it mean Medicare Advantage members need to repay the $541.5 million themselves.

The government’s allegations concern diagnosis codes used in Medicare Advantage risk-adjustment payments.

However, patients should generally review their medical records and Medicare information and raise questions when they see diagnoses, services or claims they don’t recognize. Accurate health records matter beyond billing because medical information can influence future treatment and communication among healthcare providers.

Anyone who suspects Medicare fraud can report concerns to HHS-OIG. DOJ notes that reports of potential healthcare fraud, waste or abuse can be submitted through the inspector general or by calling 800-HHS-TIPS (800-447-8477).

A $541.5 Million Reminder That Medical Coding Has Real Financial Consequences

A diagnosis code can look like a small administrative detail, but Medicare Advantage’s risk-adjustment system can attach substantial financial consequences to the medical conditions reported for beneficiaries.

The Villages Health System settlement demonstrates the scale those consequences can reach when federal officials allege that unsupported diagnoses have influenced payments over several years.

At the same time, TVH’s voluntary disclosure is an important part of the story. Federal officials specifically credited the organization for reporting the issue, taking remedial measures and cooperating with the investigation.

The case ultimately resolves allegations involving hundreds of millions of dollars in Medicare Advantage payments, but DOJ emphasizes that the settlement is not a judicial determination that TVH was liable for the alleged conduct.

Have you ever found a diagnosis or medical service in your health records that you didn’t recognize? Share your experience in the comments.

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Amanda Blankenship

Amanda Blankenship is the Chief Editor for District Media.  With a BA in journalism from Wingate University, she frequently writes for a handful of websites and loves to share her own personal finance story with others. When she isn’t typing away at her desk, she enjoys spending time with her daughter, son, husband, and dog. During her free time, you’re likely to find her with her nose in a book, hiking, or playing RPG video games.