Kennell and Associates: Rate-Setting Errors and Defense Health Costs

Kennell and Associates agreed to pay $779,951 in its US Family Health Plan actuarial rate settlement over allegations that it failed to tell the Defense Health Agency about errors that inflated payments to health plans. Kennell calculated the rates. The plans received the healthcare payments. If you worked on the calculations, the invoices or the decision about what to disclose, that distinction puts your knowledge at a different point in the same payment chain.

The Justice Department announced Kennell’s settlement on March 13, 2024, alongside a complaint against six plans and their trade group, the US Family Health Plan Alliance. The government alleged that the plans concealed known overpayments and continued invoicing at inflated rates. This is the retained-overpayment problem with an actuarial consultant upstream of the money.

The complaint named Brighton Marine Health Center, CHRISTUS Health Services, Johns Hopkins Medical Services Corporation, Martin’s Point Health Care, Pacific Medical Center and St. Vincent’s Catholic Medical Centers of New York. The allegation ran across the plans: they knew the calculation was wrong but kept the benefit of it.

How US Family Health Plan Rates Set the Government’s Bill

The Uniformed Services Family Health Plan is a military healthcare option for service members, retirees and their families. The government pays participating private health plans a set amount for each enrolled beneficiary, known as a capitation payment. The payment calculation therefore matters before an individual patient receives care: it sets what the government pays the plan for covering that enrollee.

Kennell’s settlement agreement describes its job as developing and annually updating the rate-setting methodology for the plans. The firm had assisted the Defense Health Agency, formerly the TRICARE Management Activity, with operating and monitoring the program since 1995. It sat inside the government’s rate-setting process, with responsibility for calculations that determined payments to other contractors.

The federal court’s account of the contracts explains why the inputs mattered. Rates varied with beneficiaries’ ages and regional markets, and total payments were capped by what the government would have spent providing the benefits through other government programs. For enrollees age 65 and older, the contracts called for a health-status comparison with Medicare beneficiaries of the same age group in the plan’s service area. That adjustment helped set the ceiling on what the plan could receive.

What Kennell Allegedly Knew About the Errors

The government alleged that Kennell learned of health-status-adjustment errors in April 2012 and afterward but failed to disclose the errors or their effect on past payments. The settlement agreement identifies the affected payment period as October 1, 2008 through November 30, 2012. Its allegation reaches both the calculation and the later silence about what that calculation had cost the government.

The plans’ knowledge is a separate part of the story. According to the Justice Department’s complaint announcement, they learned in June 2012 that errors had inflated the rates paid in prior years. The government alleged that they concealed the overpayments, continued submitting invoices at the inflated rates and, in some instances, asked to keep those rates during negotiations for the next year.

The court’s account of the government’s allegations adds how that allegedly worked. The plans allegedly met and decided to advocate a different calculation method that would avoid revealing earlier overpayments. While negotiations dragged on, they accepted an extension of the old, erroneous rate. The government also alleged that communications during those negotiations showed the plans that the Defense Department remained unaware of the errors.

We see the sharpest point in that alleged sequence: the people discussing a new calculation already knew what was wrong with the old one. Yet the government allegedly kept paying on the old basis while the discussion continued.

The plans argued that their contracts promised fixed rates and that the government’s own contractor had made the errors. That framing shifts attention from what the plans allegedly knew to who made the original mistake. The court explained that the contracts tied payments to an actuarially sound calculation and a payment ceiling, so calling the rates fixed did not settle whether the plans had been overpaid.

Kennell’s Settlement and the Plans’ Payments

Kennell’s settlement amount reflected its ability to pay. We see a striking gap between what the consultant could pay and what its calculations allegedly cost: the court’s account describes hundreds of millions of dollars in alleged overpayments to the plans.

The agreement also tied payments to Kennell’s business finances. It required contingent payments of 2% of annual contract revenue for 2023, 2024 and 2025. It also required payment of cash reserves exceeding two months of revenue.

The agreement also required Kennell to cooperate with the government’s investigation of others, including encouraging personnel to cooperate and furnishing requested records of its own investigation. That obligation matters because the rate-setting work and the health plans’ payment decisions sat in different businesses. Resolving the allegations against the consultant left the government pursuing what the plans had allegedly done with the resulting rates.

One plan later reached its own settlement. On February 14, 2025, the Justice Department announced that SVCMC, formerly Saint Vincents Catholic Medical Centers of New York, agreed to pay $29 million to resolve allegations that it knowingly retained inflated payments. The government alleged that Saint Vincent learned of the calculation errors, concealed the overpayments and continued billing at inflated rates.

The whistleblowers were allocated $5.7 million from the Saint Vincent settlement. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

What Evidence Is Needed to Prove Fraud?

For a military health-plan rate case, we connect the calculation that set the payment to the records showing who knew it was wrong and what they told the government afterward. The useful evidence connects the technical error to the payment decision. A corrected model can explain the difference in rates, while a dated discussion can explain who understood its effect on earlier payments.

The government’s allegations here make the comparison concrete. The original health-status calculation belongs beside the correction, the rate used on subsequent invoices and the positions taken in renewal negotiations. An actuary may understand which inputs were wrong. A finance employee may know which rates continued to be billed, while someone involved in negotiations may know what the government was told. We bring those views together around the same payments.

The underlying contract’s payment terms matter as much as the invoice. Here, the court described both the agreed rate-setting method and contract provisions addressing overpayments. Fitting the calculation, the contract and the company’s knowledge together is the work we do with you.

The nearest military health-payment parallel is TriWest Healthcare Alliance’s negotiated-discount settlement. TriWest agreed to pay $10 million to resolve allegations that it billed TRICARE using provider-billed rates while retaining the benefit of lower rates negotiated in binding letters of agreement. There, the comparison was between the provider’s bill and the agreed discount. Here, the government alleged that the capitation calculation itself was wrong and that the resulting overpayments were concealed.

For an employee who saw a rate error, a compliance policy tells us less than the correction, the communication to the government and the next invoice. The 2026 University of California, Davis Law Review article Pathways to Protection: An Organization-Centered Approach to Whistleblowing Law describes the weakness of treating compliance as a checklist:

The paper argues for treating whistleblowers as a source of value within organizations. Applied to a rate-setting problem, that puts the employee who understands the discrepancy at the center of the inquiry. We want to know what that person saw, who received the explanation and whether the government’s payments changed.

The Insiders Behind the US Family Health Plan Case

The US Family Health Plan case began with a False Claims Act whistleblower action brought by people who knew a plan’s finances and leadership. Their roles at Martin’s Point Health Care included interim chief financial officer and adviser to its chief executive and board, followed by service as a trustee. The United States joined their case in the District of Maine.

The Justice Department’s Civil Division Commercial Litigation Branch, Fraud Section and the U.S. Attorney’s Office for the District of Maine investigated, with assistance from the Defense Health Agency. The whistleblowers’ roles show why knowledge of the payment process can matter beyond the person who built the actuarial model. The numbers, the decisions and the explanations given to the government may be understood by different people inside the same business.

You Know What Changed in the Calculation

If you saw a corrected rate, an inflated invoice or a decision to keep the government uninformed, speak to one of our Whistleblower Experts about how the rate error kept getting paid. We build the case with you and bring in defense contractor whistleblower lawyers who understand actuarial evidence and government health care payments. We stay beside you throughout the process, turning your knowledge of the payments into the strongest whistleblower case we can build together.