Beaver Medical Group and one of its physicians, Dr. Sherif Khalil, have agreed to pay more than $5 million to resolve allegations that they reported invalid diagnoses to Medicare Advantage, causing the plans to receive inflated payments from Medicare, the U.S. Justice Department announced on Aug. 8.

The case was initiated by a whistleblower, Dr. David Nutter, a former employee of Beaver who will receive $850,000 as part of the settlement.

“The United States relies on health-care providers to submit accurate diagnosis data to Medicare Advantage plans to ensure those plans receive the appropriate compensation from Medicare,” said Assistant Attorney General Jody Hunt of the civil division of the Department of Justice (DOJ). “We will pursue those who undermine the integrity of the Medicare program and the data it relies upon.” 

The agreement represents the first settlement of its kind for Beaver, according to a statement released on the same day by Beaver President Richard Hill. The settlement resolves the allegations without any admission or findings of liability by  Beaver.

“Beaver fully cooperated with the DOJ and was completely transparent,” said Dr. Hill. “While we vigorously deny the allegations, we wanted to avoid a lengthy and costly legal challenge and maintain our focus on patient care. Beaver’s commitment to quality care is reflected in the fact that Beaver Medical Group has received the Elite Status in the America’s Physician Group Standards of Excellence Survey the last two years in a row.”

Under the Medicare Advantage program, also known as the Medicare Part C program, Medicare beneficiaries may opt to obtain health-care coverage through private insurance plans that are owned and operated by private insurers known as Medicare Advantage Organizations (MAOs), the DOJ explains. Medicare pays MAOs a fixed, monthly amount to provide health care coverage to Medicare beneficiaries who enroll in their plans.

Medicare adjusts these monthly payments to reflect the health status of each beneficiary. In general, Medicare pays MAOs more for sicker beneficiaries and less for healthier ones.

MAOs often contract with physician groups and other health-care providers to provide care to Medicare beneficiaries enrolled in their plans. These health-care providers report diagnoses and other information to the MAOs, which the MAOs then submit to Medicare in order to obtain higher risk-adjusted payments. 

“In this case, several MAOs in California contracted with Beaver to provide health care to Medicare beneficiaries enrolled in their plans,” the statement said. “The MAOs often compensated Beaver with a share of the payments that the MAOs received from Medicare for the beneficiaries under Beaver’s care.”

Thus, Beaver had a financial incentive to submit additional diagnosis codes to the MAOs to increase the payments that the MAOs received from Medicare. The settlement resolves allegations that Beaver and Dr. Khalil knowingly submitted diagnoses that were not supported by the beneficiaries’ medical records to inflate the payments that the MAO received from Medicare.

“As enrollment in Medicare Advantage continues to grow, investigation into accuracy of diagnosis data becomes ever more important,” said Timothy B. Francesca, acting special agent in charge for the office of inspector general of the U.S. Department of Health and Human Services. “Those who inflate bills sent to government health programs can expect to pay a heavy price.”  

Beaver’s statement points out that the challenged conduct did not affect any amounts billed to or paid by patients. The DOJ initiated an inquiry in the fall of 2017 in response to a qui tam (whistleblower) action filed in Los Angeles County.

“Settlements associated with such inquiries, however, have become increasingly common in the healthcare industry,” the Beaver statement said. “Today’s doctors are required to track over 68,000 diagnostic codes, which makes coding difficult to master and onerous for any doctor, particularly one with as many patients as the individual physician identified.

“As a result, nearly every major health-care organization has been the subject of these kinds of actions and settlements. In fact last year, settlements associated with such actions totaled $2.8 billion, 90 percent of which involved the health-care industry.”

The Beaver Medical Clinic was founded in 1945 by Dr. Merideth Beaver, a World War I veteran who came to Redlands in 1931, according to He earned his medical degree from the University of Oregon and was awarded a fellowship to the Mayo Clinic, where he earned an advanced degree in surgery.

Dr. Beaver also served in World War II and founded the clinic on Fern Avenue after the war.


The False Claims Act

One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, can be reported to the Department of Health and Human Services, at 800-HHS-TIPS (800-447-8477).

This matter was handled by the Civil Division’s Commercial Litigation Branch and the Department of Health and Human Services, Office of Inspector General.

The case is docketed as United States ex rel. David Nutter, M.D., and David Nutter, M.D., individually, v. Sherif F. Khalil, M.D., Beaver Medical group, L.P., The Beaver Medical Clinic, Inc., Epic Management, L.P., and Epic Management, Inc., No. CVC17-02035-PSG-KKX (C.D. Cal.).   

The claims resolved by the settlement are allegations only; there has been no determination of liability.