CVS and Aetna Reach $118M DOJ Settlement
CVS Health’s insurance subsidiary Aetna has agreed to pay $117.7 million to settle federal allegations of Medicare Advantage fraud. The Department of Justice announced the settlement on March 11, 2026. Aetna allegedly submitted false diagnosis codes to inflate its reimbursement from the Centers for Medicare and Medicaid Services, violating the False Claims Act.
CVS chose to settle rather than face prolonged legal proceedings. Notably, the company did not admit any liability as part of the agreement.
How Medicare Advantage Risk Adjustment Works
The Payment Structure Behind MA Plans
To understand this case, it helps to understand how Medicare Advantage (MA) works. The federal government pays private insurers a fixed monthly premium per enrolled member. However, that payment adjusts upward or downward based on the member’s health status. Sicker members generate higher payments; healthier members generate lower ones.
This risk adjustment system serves a dual purpose. First, it motivates insurers to manage chronic conditions and control costs. Second, it discourages insurers from cherry-picking only healthy seniors.
The Problem With Risk-Based Payments
Unfortunately, risk-based payment structures also create financial incentives for manipulation. Insurers can earn significantly more by making their members appear sicker on paper than they actually are. This creates an opening for widespread billing abuse.
What Is Upcoding and Why It Matters
A Costly Industry-Wide Practice
Upcoding refers to the practice of exaggerating a patient’s diagnoses to receive higher government reimbursements. In the Medicare Advantage context, insurers submit diagnosis codes to CMS that determine how much money the government pays them. When those codes overstate the severity of a member’s condition, the insurer collects more than it should.
The Financial Scale of the Problem
Upcoding costs American taxpayers tens of billions of dollars each year. Estimates vary widely, but research consistently shows that MA plans receive substantial overpayments through inflated risk scores. Chart reviews — retrospective audits of member medical records — contribute significantly to these overpayments, affecting roughly one in six MA enrollees.
The DOJ’s Specific Allegations Against Aetna
Chart Reviews and Unsupported Diagnoses
Federal prosecutors alleged that Aetna ran a chart review program in 2015. The company paid medical coders to review member records and identify new diagnoses it could use to increase risk scores. The DOJ argued that many of these codes lacked proper medical documentation to support them.
Failure to Correct the Record
Critically, Aetna did not withdraw the disputed codes after identifying them. Removing those codes would have required the company to repay CMS for any extra reimbursements already received. Instead, Aetna allowed the inaccurate codes to stand.
Obesity Codes and False Certifications
Additionally, for payment years 2018 through 2023, the DOJ alleged that Aetna knowingly submitted false morbid obesity diagnoses. These codes applied to individuals whose body mass indices did not meet the clinical threshold for morbid obesity. Beyond submitting the codes, Aetna also falsely certified their accuracy to CMS, the government alleged.
CVS Denies Wrongdoing Despite Settlement
CVS issued a statement firmly disputing the DOJ’s characterization of events. “Aetna continues to disagree with the DOJ’s industry-wide allegations, and this settlement should not be seen as an acknowledgment of liability,” a company spokesperson said. CVS added that settling allows it to avoid prolonged legal costs while keeping its focus on member experience across its Medicare Advantage plans.
This denial-with-settlement approach is common in large healthcare fraud cases. Companies often calculate that the cost of settlement is lower than the cost of multi-year litigation, regardless of the merits of the underlying claims.
A Broader Industry Crackdown on MA Fraud
Other Insurers Facing Scrutiny
CVS and Aetna are not alone. Federal scrutiny of Medicare Advantage billing practices has intensified across the industry. UnitedHealthcare, the largest MA carrier in the country, faces a separate congressional investigation into its risk adjustment practices. Meanwhile, Elevance Health confronts significant CMS sanctions related to its own risk adjustment data submissions.
Regulators Turn Up the Heat
The Trump administration has also shown unexpected interest in reining in insurer gaming of the MA system. This position surprised many policy observers, who expected a lighter regulatory touch. Nevertheless, CMS has proposed new guardrails specifically targeting the chart review process in its 2027 advance notice for MA payment rates.
What Comes Next for Medicare Advantage Reform
Proposed Changes to Risk Adjustment
Federal regulators now want to exclude diagnoses from risk adjustment calculations unless a treating physician links them to actual patient care. Under this proposal, diagnoses discovered only through retrospective chart reviews — with no corresponding medical encounter — would not count toward a member’s risk score.
Why This Matters for Insurers
This proposed change would effectively eliminate the financial motivation for insurers to conduct chart reviews solely for billing purposes. If finalized, it could significantly reduce MA overpayments and reshape how insurers engage with member health data.
The Broader Stakes
Medicare Advantage now covers more than half of all Medicare beneficiaries. Overpayments in the program directly inflate costs across the healthcare system. They also affect premiums for traditional Medicare recipients and place strain on the federal budget. As enforcement actions like the CVS settlement demonstrate, the era of unchecked upcoding in MA is drawing to a close.
