HHS Report: Medicare Advantage Plans Exaggerate Members’ Diseases To Make More Money

Washington, DC, United States (KaiserHealth) – Many Medicare Advantage health plans routinely overbill the government for treating elderly patients — and have done it for years, a federal study shows.

Department of Health and Human Services researchers found that many plans exaggerate how sick their patients are and how much they cost to treat. Medicare expects to pay the privately run plans — an alternative to traditional Medicare —$160 billion this year.

The HHS study does not accuse any specific insurers of wrongdoing or name the plans that were scrutinized. But the researchers offer the most comprehensive evidence to date that suspect billing practices have been common across much of the Medicare Advantage industry and are likely to get worse unless officials crack down.

“Further policy changes will likely be necessary,” the study concludes.

Congress created Medicare Advantage in 2003 to encourage private insurance companies to venture into the senior care market. The plans now insure 16 million elderly and disabled people, nearly a third of those eligible for Medicare. They are popular with seniors because they often provide extra benefits, such as eyeglasses and dental care, and can cost less out-of-pocket than standard Medicare.

Medicare pays the Advantage health plans higher rates for sicker patients and less for healthy people using a complex formula called a “risk score.” But the HHS study spells out several ways health plans have inflated those scores, from reporting surprisingly high levels of medical conditions such as alcohol or drug dependence to billing for an inordinately high number of patients with complications of diabetes.

Despite its broad implications for Medicare spending, the study by HHS researchers Richard Kronick and W. Pete Welch has attracted scant notice in Washington. It was quietly posted late last month on an online research site run by the Centers for Medicare & Medicaid Services, part of HHS.

Kronick directs the HHS Agency for Healthcare Research and Quality, whose mission is to improve health care delivery. Welch works for the HHS Office of the Assistant Secretary for Planning and Evaluation. The authors note that the study does not necessarily reflect HHS views, but both offices are influential in advising the government on policy matters.

CMS officials declined comment.

“This is clearly impacting what taxpayers are paying for Medicare Advantage, I think, not in a good way,” said Dr. David Wennberg, a researcher at the Dartmouth Institute for Health Policy and Clinical Practice who has studied Medicare billing trends.

Health care fraud expert Malcolm Sparrow, a professor at Harvard’s Kennedy School of Government, said the problems with billings based on risk scores reveal how “financial incentives” can improperly influence how medicine is practiced.

“The problem seems significant,” he said.

The new study amplifies the findings of a Center for Public Integrity investigation published in June. The investigation found that Medicare made nearly $70 billion in “improper” payments — mostly overcharges from inflated risk scores — to Medicare Advantage plans from 2008 through 2013. The center’s investigation also found that risk scores rose much faster in some health plans than others and that federal officials repeatedly yielded to industry pressure to minimize efforts to recoup overpayments.

Medicare Advantage plans are paid a set monthly fee for each patient based on the risk scores, and the government largely trusts the health plans to report the health status of people they enroll. About 70 medical conditions can boost payment rates.

Clare Krusing, a spokeswoman for America’s Health Insurance Plans, the industry’s trade group, said the higher billing resulted from health plans working with patients “to understand their specific health conditions, and consequently make sure they get the care they need.”

“What was not highlighted (in the study) is the fact that these programs have demonstrated improved quality in patients’ health,” she wrote in an email.

However, the study concludes that people who join Medicare Advantage plans are healthier than those who remain on standard Medicare, which pays doctors and hospitals for each service they provide. The study also says it’s “unlikely” the higher payments health plans derive from diagnosing more medical conditions “are related to substantial health benefits.”

In short, the numbers of patients diagnosed with diseases which result in higher payments increased far faster at many Medicare Advantage health plans than among people on standard Medicare. Exaggerating the severity of a medical condition to raise fees is known in medical circles as “upcoding.”

For instance, “drug and alcohol dependence” is as much as eight times more common in the highest coding Medicare Advantage plans than among patients in standard Medicare.

Even more striking, according to the study, is how much higher reported diabetes rates have been in certain health plans than others. The study tracked rapid rises in many medical conditions from 2004, when risk scoring began, through last year, and made them public for the first time.

Overall, diabetes with serious complications, which pays higher rates, was reported up to five times more often among enrollees in some Medicare Advantage plans than among people on standard Medicare. Conditions such as major depression also were far more common in some plans than others.

Holly J. Cassano, a medical coding consultant in Florida, said the government’s decision to make the billing data public was “an enormous leap … in the right direction for continued transparency in all areas of health care.”

“The main issue, now that it has been revealed, is ‘upcoding’, which no one likes to discuss, but the data is in black and white and speaks volumes,” Cassano, CEO of Accucode Consulting, wrote in an email.

Medicare Advantage enjoys solid political backing on Capitol Hill and has successfully fought back efforts by the Obama administration to make substantial cuts to its payment rates. Lobbying by the insurance industry and the fear of angering seniors also has largely quieted concerns in Congress that Medicare Advantage plans can be a poor value for taxpayers.

Congress recognized problems with Medicare Advantage coding as far back as 2005, when lawmakers directed CMS to find ways to cut back on rising, and presumably unjustified, risk scores. But CMS didn’t act until 2010, when it adjusted risk scores downward. The Affordable Care Act theoretically requires further reductions, but the political storm over the planned cuts has made their fate uncertain.

CMS has cut back payment levels for several diseases that appear to have prompted upcoding by Medicare Advantage plans. But the study’s authors noted that health plans are likely to find new conditions to replace lost revenue.

Even though the study does not name plans, it says all those examined had at least 10,000 members and that one plan among the highest billers had more than 200,000 members. The study indicates that the longer patients stay in Medicare Advantage, the more their risk scores rose, suggesting that government’s failure to reel in coding has been costly.

The Center for Public Integrity has sought similar billing data from CMS for the past year as well as the names of Medicare Advantage plans that have been suspected of overbilling the government — and by how much. In late May, the Center sued the Department of Health and Human Services to make its Medicare Advantage audits and other related records public. The lawsuit is pending.

Last month, CMS published a draft regulation that would allow for “a formal process to recoup overpayments” made to the health plans. A final decision on the proposal is due by Nov. 1.

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