The Villages Health: $361 Million Medicare Liability Drives 363 Sale

The Villages Health System, LLC—a senior-focused healthcare provider operating eight primary care centers and two specialty care centers serving more than 55,000 patients in Florida's largest retirement community—filed for chapter 11 bankruptcy on July 3, 2025, with the United States government holding the largest claim at approximately $361 million arising from allegations of Medicare overbilling totaling at least $350 million. The filing came after an internal investigation revealed that a retrospective chart review program initiated around 2020 was inconsistent with Medicare guidelines, resulting in diagnostic codes submitted without proper clinical documentation and patient charts amended after the 90-day CMS deadline for modifications.

The company entered bankruptcy with a $50 million stalking horse agreement from CenterWell Senior Primary Care (Vitality), Inc., a subsidiary of Humana and the nation's largest senior-focused, value-based primary care provider. The 363 sale process ultimately yielded $68 million, with the bankruptcy court approving CenterWell's winning bid on September 9, 2025. TVH secured up to $39 million in DIP financing to fund operations through the sale process, and CenterWell committed to offer employment to substantially all of the company's 800+ employees—providing continuity for both patients and staff during the transition.

The case illustrates the heightened federal scrutiny of Medicare Advantage billing practices and the severe consequences when coding optimization programs cross compliance boundaries. Insurance company objections during the bankruptcy alleged additional misconduct: Florida Blue claimed $25 million in overpayments over four years from false diagnostic codes, while UnitedHealthcare alleged that TVH distributed $183 million to the controlling Morse family between 2022 and 2024 to pay down a line of credit. For healthcare providers operating retrospective chart review programs or similar risk adjustment optimization initiatives, the TVH bankruptcy offers a cautionary study in how aggressive coding practices can transform a regional healthcare institution into an insolvent debtor facing hundreds of millions in federal claims.

Case Snapshot

The Villages Community and TVH Background

The Villages Health served as the dedicated primary healthcare provider for the nation's largest retirement community, a unique market position that created both opportunity and responsibility for serving an exclusively elderly patient population dependent on Medicare and Medicare Advantage coverage.

The Villages Community. The Villages is a census-designated place spanning 57 square miles across Sumter, Lake, and Marion counties in central Florida. The community holds the distinction of being the largest retirement community in the United States, with a population that grew 39% from 93,000 residents in 2010 to more than 130,000 by 2020—making it the fastest-growing metro area in the country during that period. The development traces its origins to 1983 when Harold Schwartz brought his son H. Gary Morse into the business, with the community rebranded from Orange Blossom Gardens to The Villages in 1992. By the early 1990s, The Villages had three golf courses, four restaurants, and over 8,000 residents; by 2025, it had grown to house more than 150,000 residents across its expansive footprint.

The community's demographics created a captive market for senior healthcare services. With essentially the entire population comprising retirement-age individuals, The Villages represented both a stable patient base and a population heavily dependent on Medicare and Medicare Advantage programs for healthcare coverage. This concentration of Medicare-eligible patients made accurate coding and billing practices essential to any healthcare provider operating in the community—and made the consequences of billing errors catastrophically large.

Morse Family Control. H. Gary Morse, an American billionaire who developed The Villages into the nation's largest retirement community, passed away on October 29, 2014. Control of the family enterprise passed to his three children—Mark Morse, Jennifer Parr, and Tracy Morse—each of whom owns and works for the Holding Company of the Villages Ltd. This family-controlled structure meant that the Morse family maintained influence over the broader Villages ecosystem, including relationships with healthcare providers serving the community. The ownership structure would become significant in the bankruptcy when UnitedHealthcare alleged that $183 million was distributed from TVH to the Morse family between 2022 and 2024, raising questions about the relationship between the healthcare entity and its controlling stakeholders.

TVH Formation and Scope. The Villages Health was formed in 2012 in collaboration with the University of South Florida to provide comprehensive primary and specialty care services to the community's elderly population. The partnership with an academic medical institution was intended to bring clinical expertise and research capabilities to the growing retirement community, creating a healthcare system tailored to geriatric medicine. By the time of the bankruptcy filing, TVH had grown to operate eight primary care centers and two specialty care centers, serving more than 55,000 patients with a workforce of over 800 employees. The vast majority of TVH's patients were beneficiaries of Medicare or Medicare Advantage plans, making the organization's financial viability inextricably linked to federal healthcare program reimbursements.

The organization's growth mirrored the explosive expansion of The Villages community itself. As the population grew from 93,000 to over 130,000 residents between 2010 and 2020, TVH expanded its footprint to meet demand, adding facilities and staff to serve the influx of new residents. This growth, however, apparently coincided with the implementation of billing practices that would ultimately prove inconsistent with Medicare guidelines—a retrospective chart review program that began around 2020 and would later be identified as the source of at least $350 million in alleged overpayments.

The Medicare Billing Scandal

The bankruptcy was precipitated by the discovery of billing practices that allegedly resulted in more than $350 million in Medicare overcharges—a liability that transformed a regional healthcare provider into an insolvent debtor facing the federal government as its largest creditor.

Retrospective Chart Review Program. An internal investigation revealed that a retrospective chart review program initiated around 2020 was inconsistent with Medicare guidelines. The program appears to have focused on optimizing risk adjustment payments by reviewing patient charts for diagnoses that could be coded to increase Medicare Advantage reimbursements. Under the Medicare Advantage risk adjustment system, insurers receive higher payments for patients with more severe diagnoses, creating financial incentives for healthcare providers to capture all documentable conditions.

However, legitimate risk adjustment coding requires contemporaneous clinical documentation supporting each diagnosis. The TVH investigation found that some submitted codes lacked sufficient clinical support—meaning diagnoses were coded without adequate medical records to justify them. More problematically, some codes involved inappropriate amendments to medical records beyond the 90-day CMS deadline for chart modifications. CMS regulations generally require that medical record amendments be made within 90 days of the original documentation, and amendments made after this window—particularly those that add diagnoses affecting risk adjustment—raise significant compliance concerns.

The retrospective nature of the program was central to the compliance failure. Rather than capturing diagnoses through normal clinical encounters and contemporaneous documentation, the program apparently reviewed historical charts to identify conditions that could be added to patient records and subsequently billed. When these additions occurred outside the permitted amendment window or without adequate clinical support, they crossed from legitimate coding optimization into territory that federal regulators treat as overbilling.

Discovery and Disclosure. TVH discovered the billing discrepancies internally in August 2024. The discovery came through internal audits that identified patterns of coding that were inconsistent with Medicare requirements. Upon recognizing the scope of the problem, TVH engaged external consultants to conduct a comprehensive audit of its coding accuracy. The results confirmed that the retrospective chart review program had generated substantial overpayments.

In December 2024, TVH reported the issues to the Department of Health and Human Services, triggering federal scrutiny of the organization's billing practices. Self-disclosure to HHS is a recognized compliance practice that can potentially mitigate penalties, but the scale of the alleged overcharges—at least $350 million based on inaccurately recorded patient diagnoses—meant that even a cooperative approach could not avoid catastrophic financial consequences. The United States government subsequently asserted a claim of approximately $361 million in the bankruptcy proceeding, making the federal government the largest creditor by a significant margin and dwarfing all other claims against the estate.

Leadership Conduct. The bankruptcy filing raised additional governance concerns that would draw scrutiny from creditors and observers. According to industry analysis, the CEO received a $200,000 "retention bonus" on July 2, 2025—the day before the bankruptcy announcement. The timing of this payment, coming on the eve of a filing that would reveal the organization's insolvency, raised questions about whether insider compensation was prioritized over creditor interests in the lead-up to bankruptcy.

The retention bonus timing exemplifies a recurring pattern in healthcare bankruptcies where management compensation decisions made immediately before filing attract creditor scrutiny. While retention payments can serve legitimate purposes in maintaining organizational stability during restructuring, payments made on the eve of filing—particularly when the company's liabilities vastly exceed its assets—invite questions about whether management was acting in the interests of the enterprise and its creditors or seeking to extract value before the constraints of bankruptcy supervision took effect.

Insurance Company Objections and Allegations

Multiple insurance companies filed objections during the bankruptcy proceeding, alleging systematic overbilling that extended beyond the Medicare claims to encompass commercial insurers. These objections complicated the sale process and provided additional detail about the scope of alleged billing misconduct.

Florida Blue Allegations. Florida Blue, a major commercial insurer in Florida, alleged that TVH added false diagnostic codes to patient files over a four-year period, resulting in $25 million in overpayments. The insurer's filing provided specific examples of allegedly improper coding practices. In 2024 alone, TVH allegedly falsely added codes for "Coagulation Defects and Other Specified Hematological Disorders" and "specified Heart Arrhythmias," leading to approximately $8 million in overpayments for that year.

Florida Blue's allegations went beyond the general assertion of coding errors to describe a systematic pattern of inappropriate documentation practices. The insurer alleged that diagnoses were submitted without proper clinical documentation—meaning codes were added to claims without adequate medical record support to justify the diagnoses. Additionally, Florida Blue alleged that patient charts were amended after the 90-day CMS deadline, consistent with the findings of TVH's own internal investigation. The specificity of these allegations—naming particular diagnosis categories and quantifying year-by-year overpayments—strengthened the factual record supporting claims of systematic billing misconduct.

The Florida Blue claims demonstrated that the coding issues at TVH were not limited to Medicare programs. Commercial insurers also use risk adjustment or condition-based payment models that can create similar incentives for diagnosis capture. When a provider implements aggressive retrospective coding practices, those practices typically affect all payers, not just Medicare—compounding the potential liability exposure across multiple insurance relationships.

UnitedHealthcare Allegations. UnitedHealthcare filed objections alleging that TVH distributed $183 million to the Morse family between 2022 and 2024, with funds used to pay down a line of credit. The allegation struck at the relationship between TVH and its controlling stakeholders, suggesting that the healthcare organization diverted substantial resources to its owners while simultaneously accumulating massive liabilities to insurers and the federal government.

The UnitedHealthcare allegations raised questions about whether TVH was operated as a going concern intended to remain financially viable or whether it functioned as a vehicle for extracting value for related parties. If accurate, the distributions would represent a significant transfer of value from the entity to insiders during the precise period when the company was allegedly overbilling insurers by hundreds of millions of dollars. UnitedHealthcare objected to the sale process based in part on these distribution allegations, suggesting that the objector believed the sale should not proceed without addressing the alleged preferential treatment of insiders.

The line of credit connection is particularly notable. According to UnitedHealthcare's allegations, the distributions were used to pay down debt obligations of the Morse family or related entities, effectively using TVH cash flows to service obligations of the controlling owners. This pattern—if proven—would represent a classic concern in bankruptcy cases involving affiliated entities: the risk that operating company resources are upstream to parent entities or owners at the expense of the operating company's own creditors.

DIP Financing and 363 Sale Process

TVH entered bankruptcy with a stalking horse buyer in place and secured DIP financing to fund operations through an expedited sale process, ultimately achieving a 68-day timeline from petition to sale order.

DIP Financing Structure. TVH secured up to $39 million in DIP financing from PMA Lender LLC, comprising $24 million in new money advances and a $15 million roll-up of prepetition debt. The roll-up component converted prepetition obligations owed to PMA Lender into postpetition DIP debt, effectively priming other prepetition creditors while providing the lender with enhanced security and priority.

The court entered an interim DIP order on July 11, 2025—eight days after the petition—authorizing $5 million immediately to fund ongoing operations. This initial authorization allowed TVH to maintain patient care services and employee payroll while the full DIP facility moved through the approval process. The final DIP hearing was scheduled for August 11, 2025, approximately one month after filing. A final DIP order was ultimately entered on November 20, 2025, as the case continued toward closing the sale transaction.

The DIP financing structure reflected the urgent operational needs of a healthcare provider serving 55,000 patients. Unlike manufacturing or retail bankruptcies where operations can potentially be wound down or scaled back, a healthcare provider must maintain continuity of care throughout the restructuring process. Patients cannot be abruptly transferred, and clinical staff must remain in place to provide ongoing treatment. The DIP facility provided the liquidity necessary to sustain these operations through the sale process while providing the lender with the collateral protection and priority typical of DIP arrangements.

CenterWell Stalking Horse. TVH filed with a $50 million all-cash stalking horse asset purchase agreement with CenterWell Senior Primary Care (Vitality), Inc., a subsidiary of Humana Inc. The stalking horse structure allowed TVH to enter bankruptcy with deal certainty while still conducting a competitive process that could yield higher bids.

CenterWell brought strategic logic to the acquisition. The company is the nation's largest senior-focused, value-based primary care provider, serving approximately 450,000 patients at 350 locations across 15 states, including 150 centers in Florida. For CenterWell, acquiring TVH meant adding 55,000 patients and 10 facilities in a concentrated market of Medicare-eligible seniors—exactly the demographic that forms CenterWell's core business focus. The Villages' population characteristics aligned perfectly with CenterWell's value-based care model, which emphasizes preventive care and care coordination for senior patients.

As part of the stalking horse agreement, CenterWell committed to offer employment to substantially all of TVH's 800+ employees. This employment commitment addressed one of the primary stakeholder concerns in healthcare bankruptcies—the risk that staff displacement would disrupt patient care continuity. By committing to retain the workforce, CenterWell signaled its intention to operate the acquired facilities as a going concern rather than liquidating assets or dramatically restructuring operations.

Auction and Sale Order. The bidding procedures order was entered on July 28, 2025, establishing the framework for competing bids and the auction process. A notice of successful bid was filed on September 8, 2025, followed by the sale hearing and sale order approval on September 9, 2025. The final purchase price was $68 million—an $18 million increase from the $50 million stalking horse bid.

The price increase from $50 million to $68 million could reflect either competitive bidding at auction or renegotiation to address objector concerns. The insurance company objections from Florida Blue and UnitedHealthcare had raised significant issues about the sale, and modifications to deal terms may have been necessary to secure court approval over those objections. The final approved sale included assumption of cure costs and liabilities beyond the base purchase price, and CenterWell committed to maintain TVH's payor-agnostic structure—an important concession given that CenterWell is a Humana subsidiary.

The 68-day timeline from petition to sale order (July 3 to September 9) represented an efficient execution of the 363 sale process. Healthcare bankruptcies often move quickly given the imperative to maintain patient care continuity and avoid operational disruption, but the TVH timeline was nonetheless brisk given the complexity of the insurance company objections and the need to address concerns about billing practices that the buyer would presumably not want to inherit.

Post-Sale Transition and Network Status

The sale to CenterWell created patient uncertainty around insurance network status, particularly heading into the Medicare open enrollment period when beneficiaries make coverage decisions for the following year.

Network Negotiations. The transition to CenterWell ownership required new network agreements with insurers who had previously contracted with TVH. Because CenterWell is a subsidiary of Humana, questions arose about whether TVH locations would remain accessible to patients enrolled in non-Humana Medicare Advantage plans. Negotiations with UnitedHealthcare, in particular, dragged on through fall 2025, creating uncertainty during the Medicare open enrollment period when beneficiaries were selecting plans for 2026 coverage.

Patients reported feeling "duped" by the transition uncertainty, despite assurances from TVH leadership of a seamless transition. For elderly patients who had selected their Medicare Advantage plans based on TVH's in-network status, the possibility that their healthcare provider might suddenly become out-of-network created anxiety and confusion. Some patients scrambled to change Medicare plans during open enrollment to ensure continued access to their physicians, while others waited anxiously for network negotiations to conclude.

The patient experience during this transition illustrates a downstream consequence of healthcare provider bankruptcies that often receives less attention than creditor recoveries or sale prices. For the 55,000+ patients who relied on TVH for their primary and specialty care, the bankruptcy was not an abstract financial restructuring but a potential disruption to their healthcare access. The combination of a sale to a competitor-affiliated buyer and the uncertainty of network negotiations created genuine stress for a vulnerable elderly population.

2026 Network Resolution. CenterWell ultimately reached a long-term agreement with UnitedHealthcare, ensuring TVH locations would remain in network for UHC members for 2026. The resolution came after weeks of uncertainty and last-minute negotiations that extended close to the Medicare open enrollment deadline.

For 2026, TVH locations will accept plans from Aetna, CarePlus, Florida Blue, Humana (CenterWell's parent company), and UnitedHealthcare. The payor-agnostic commitment addressed the primary concern that Humana ownership might narrow network participation to favor Humana plans. By maintaining contracts with multiple major insurers, CenterWell ensured that the acquisition would not force patients to change insurance plans to maintain access to their healthcare providers.

The network resolution demonstrated that the concerns raised about CenterWell's ownership structure could be addressed through appropriate contractual commitments. However, the extended period of uncertainty highlighted the risks inherent in healthcare provider ownership changes, particularly when the buyer has affiliated insurance operations that could create conflicts of interest regarding network participation.

Key Timeline

Industry Implications

The TVH bankruptcy carries broader implications for healthcare providers operating retrospective chart review programs and for the Medicare Advantage industry's ongoing reckoning with risk adjustment practices.

Medicare Advantage Billing Scrutiny. The TVH case emerged against a backdrop of heightened federal focus on Medicare Advantage billing accuracy. CMS has increasingly scrutinized retrospective chart reviews and other diagnosis optimization programs, viewing some practices as inflating risk adjustment payments without corresponding clinical justification. The TVH case—with its $350 million+ in alleged overcharges—represents an extreme outcome of practices that exist on a spectrum across the industry.

The specific failures identified in the TVH investigation—codes lacking clinical support and amendments made outside the 90-day window—represent clear compliance violations that distinguish problematic practices from legitimate coding optimization. Healthcare providers operating retrospective review programs should view the TVH case as a prompt to audit their own practices, ensuring that diagnosis capture is based on contemporaneous documentation and that chart amendments comply with CMS timing requirements.

Value-Based Care Transition. The acquisition by CenterWell also reflects the ongoing consolidation in senior-focused primary care and the transition toward value-based care models. CenterWell's business model emphasizes care coordination and preventive services designed to improve patient outcomes while reducing total cost of care. The acquisition of TVH—despite its billing controversies—allowed CenterWell to expand its Florida footprint and patient base while presumably implementing its compliance and quality programs at the acquired facilities.

The willingness of a major healthcare organization to acquire TVH's assets despite the billing scandal suggests that the underlying patient relationships and facility infrastructure retained value separate from the coding practices that created the liability. CenterWell apparently concluded that it could operate the TVH facilities profitably under compliant billing practices, using its existing Medicare Advantage infrastructure and compliance programs to manage the transition.

FAQs

Why did The Villages Health System file for bankruptcy?

TVH filed after an internal investigation revealed that a retrospective chart review program initiated around 2020 was inconsistent with Medicare guidelines, resulting in at least $350 million in Medicare overcharges from inaccurately recorded patient diagnoses. The United States government asserted a claim of approximately $361 million—making it the largest creditor. TVH discovered the discrepancies in August 2024 and reported them to HHS in December 2024, setting the stage for the July 2025 bankruptcy.

Who acquired The Villages Health?

CenterWell Senior Primary Care (Vitality), Inc., a subsidiary of Humana Inc. and the nation's largest senior-focused, value-based primary care provider, acquired TVH's assets. CenterWell initially entered as a $50 million stalking horse bidder and ultimately paid $68 million. CenterWell serves approximately 450,000 patients at 350 locations across 15 states, including 150 centers in Florida.

What were the specific allegations of improper billing practices?

Multiple issues were alleged: some submitted diagnostic codes lacked sufficient clinical support; patient charts were amended after the 90-day CMS deadline; and retrospective chart reviews optimized diagnoses for risk adjustment payments without proper documentation. Florida Blue alleged $25 million in overpayments from false codes for "Coagulation Defects and Other Specified Hematological Disorders" and "specified Heart Arrhythmias" without clinical documentation.

What did UnitedHealthcare allege about distributions to the Morse family?

UnitedHealthcare accused TVH of distributing $183 million to the Morse family (which controls The Villages through several companies) between 2022 and 2024, with funds used to pay down a line of credit. This allegation suggested resources were diverted to controlling insiders while the company accumulated liabilities to insurers and the federal government.

What is the DIP financing structure?

TVH secured up to $39 million in DIP financing from PMA Lender LLC, comprising $24 million in new money advances and a $15 million roll-up of prepetition debt. The interim order authorized $5 million immediately upon filing, with full availability after the final hearing. The final DIP order was entered in November 2025.

Will patients be able to keep their insurance coverage?

Yes. CenterWell committed to maintain TVH's payor-agnostic structure. For 2026, TVH locations will accept plans from Aetna, CarePlus, Florida Blue, Humana, and UnitedHealthcare. CenterWell reached a long-term agreement with UnitedHealthcare to ensure network continuity for UHC members.

What happens to employees?

CenterWell agreed to offer employment to substantially all of TVH's 800+ employees as part of the stalking horse agreement. This commitment was maintained through the sale process and final order, providing workforce continuity through the ownership transition.

What is The Villages?

The Villages is the largest retirement community in the United States, spanning 57 square miles across Sumter, Lake, and Marion counties in central Florida. The community has more than 130,000 residents and grew 39% between 2010 and 2020—the fastest-growing metro area in the country during that period. It is controlled by the Morse family through several holding companies.

What was the significance of the CEO retention bonus?

The CEO received a $200,000 retention bonus on July 2, 2025—the day before the bankruptcy announcement. This timing drew scrutiny from creditors and observers questioning whether insider compensation was prioritized over creditor interests in the lead-up to bankruptcy.

What is the current case status?

The sale order was approved September 9, 2025, with closing expected in Q4 2025. CenterWell resolved network agreements with major insurers for 2026 coverage. The Final DIP Order was entered November 20, 2025, and a second exclusivity extension was granted December 22, 2025. Post-sale administration continues as the transaction moves toward closing.

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