Government evidence of Medicare Advantage cheating

How Medicare Advantage plans code for cash

By Fred Schulte
The Center for Public Integrity, August 7, 2014

A new federal study shows that many Medicare Advantage health plans routinely overbill the government for treating elderly patients — and have gotten away with doing it for years.

Analyzing government data never before made public, 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 — some $160 billion this year.

The HHS study does not directly accuse any insurers of wrongdoing or name specific 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.

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 implausibly 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 and 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.


Measuring Coding Intensity in the Medicare Advantage Program

By Richard Kronick and W. Pete Welch
Medicare and Medicaid Research Review (MMRR), A publication of the Centers for Medicare & Medicaid Services, 2014: Volume 4, Number 2

In 2004, Medicare implemented a system of paying Medicare Advantage (MA) plans that gave them greater incentive than fee-for-service (FFS) providers to report diagnoses.

The increase in relative MA scores appears to largely reflect changes in diagnostic coding, not real increases in the morbidity of MA enrollees.

Concerns about overpayment as a result of favorable risk selection have confronted the Medicare program throughout the history of Medicare contracting with health maintenance organizations and other private plans. In the late 1980s, Medicare paid health plans using a system that adjusted for demographic factors such as age and gender, but plan enrollees were healthier than fee-for-service beneficiaries with the same demographic characteristics, and, as a result, health plans were estimated to be overpaid by approximately 11%.

In order to reward health plans for attracting sicker-than-average enrollees, and to discourage plans from constructing business models designed to avoid risk, Medicare and other payers have increasingly turned to diagnosis-based risk- adjusted payment systems in which health plans are paid more for enrollees expected to need more care. While mitigating the incentive to enroll only healthy people, diagnosis-based risk adjustment creates another set of incentives: to find and report as many diagnoses as possible.

The MA payment system uses diagnostic information to assign a risk score to each beneficiary.

This payment system creates incentives for MA plans to find and report as many diagnoses as can be supported by the medical record.

In addition to the incentives to report more completely, the method of collecting diagnostic information also provides MA plans additional opportunities to increase risk scores. FFS diagnoses are drawn only from health care claims submitted for payment. MA plans may also review medical records and can report all diagnoses that are supported in the record, including those that were not reported by physicians on any health care claim or encounter record. MA plans can also employ nurses to visit enrollees in their homes to conduct health assessments and report diagnoses that are found.

From the Discussion

It appears that most of the reason that MA risk scores increased more quickly than FFS scores is due to increases in relative coding intensity—measured as increases in risk scores for stayers—with little of it accounted for by changes in enrollment mix. There is little sign of coding intensity slowing; in fact, Exhibit 2 shows that it may be increasing.

CMS and the Congress have responded to the increase in risk scores over time in several ways. First, starting in 2010, CMS lowered payment by 3.41% by applying an across-the-board coding adjustment. The coding intensity adjustment will increase to 4.91% in 2014 and to at least 5.91% in 2018. Second, starting in 2013, CMS set the four most severe diabetes HCCs (Hierarchical Condition Category) to have the same payment coefficient (Department of Health and Human Services, 2012). As a result, recording diagnoses that move enrollees from HCC18 (diabetes with ophthalmologic or unspecified manifestation) into HCC15 (diabetes with renal or peripheral circulatory manifestation) will no longer increase revenue for MA plans. Third, CMS made further changes to the model in 2014, removing some of the HCCs that were the subject of MA efforts at increasing coding intensity.

Relative MA risk scores have been increasing at least 1% per year and are likely to continue to do so, even though MCBS-based risk scores have been roughly constant.8

Footnote 8:  Some would expect that MA plans will react to the 2013 and 2014 model changes by finding other HCCs on which to focus their efforts, and the success of coding intensity efforts may well increase in the future.



By Don McCanne, MD

We have discussed before the ways in which the private Medicare Advantage (MA) plans have been cheating the taxpayers, including cheating the beneficiaries in the traditional Medicare program who are paying higher premiums to support these private MA plans. Today’s message is especially significant since it cites a detailed 19 page report from the director of AHRQ and his colleague - a report which further confirms the private insurers’ distortion of Hierarchical Condition Categories (HCC) to receive extra risk adjustment payments based on upcoding that reports their patients as being more ill than they actually are (i.e., they pad the diagnoses).

The history of Medicare Advantage is that of a steady string of abuses. The program began with overpayments of about 14 percent over the cost of caring for Medicare patients in the traditional program. That overpayment was a deliberate ploy of Congress to give the private plans a competitive market advantage in an effort to privatize Medicare. The plans then selectively enrolled healthier, less expensive patients through deceptive marketing practices. When an effort to correct this favorable selection was made through risk adjustment using Hierarchical Condition Categories, the insurers then padded the diagnoses, as mentioned above. Further, since the Affordable Care Act included adjustments to correct the overpayments, the insurance industry heavily lobbied Congress and the Obama Administration to use three years of accounting gimmicks to reduce the impact of these adjustments. Cheat, cheat, cheat.

What can we expect now? Richard Kronick and W. Pete Welch are reserved in their language when they state, in a footnote, “Some would expect that MA plans will react to the 2013 and 2014 model changes by finding other HCCs on which to focus their efforts, and the success of coding intensity efforts may well increase in the future.”

I’ll be more frank. These crooks will continue to cheat the American taxpayers. They will surely use other HCCs to upcode their patients, until that door is finally slammed shut. What then? The private insurers continually tout to their shareholders the importance of “innovation” in health care coverage. They will always be able to find new and more effective ways to cheat us.

One of the more important improvements in an Improved Medicare for All would be to get rid of these crooks once and for all. The sooner the better.