More evidence of squishy risk adjustment for Medicare Advantage

Upcoding: Evidence from Medicare on Squishy Risk Adjustment

By Michael Geruso, Timothy Layton
The National Bureau of Economic Research, NBER Working Paper No. 21222, May 2015

Diagnosis-based subsidies, also known as risk adjustment, are widely used in US health insurance markets to deal with problems of adverse selection and cream-skimming. The widespread use of these subsidies has generated broad policy, research, and popular interest in the idea of upcoding — the notion that diagnosed medical conditions may reflect behaviors of health plans and providers to game the payment system, rather than solely characteristics of patients. We introduce a model showing that coding differences across health plans have important consequences for public finances and consumer choices, whether or not such differences arise from gaming. We then develop and implement a novel strategy for identifying coding differences across insurers in equilibrium in the presence of selection. Empirically, we examine how coding intensity in Medicare differs between the traditional fee-for-service option, in which coding incentives are weak, and Medicare Advantage, in which insurers receive diagnosis-based subsidies. Our estimates imply that enrollees in private Medicare Advantage plans generate 6% to 16% higher diagnosis-based risk scores than the same enrollees would generate under fee-for-service Medicare. Consistent with a principal-agent problem faced by insurers attempting to induce their providers to upcode, we find that coding intensity increases with the level of vertical integration between insurers and the physicians with whom they contract. Absent a coding inflation correction, our findings imply excess public payments to Medicare Advantage plans of around $10 billion annually. This differential subsidy also distorts consumers' choices toward private Medicare plans and away from fee-for-service Medicare.


Does Privatized Health Insurance Benefit Patients or Producers? Evidence from Medicare Advantage

By Marika Cabral, Michael Geruso, and Neale Mahoney
Social Science Research Network, January 28, 2015

The debate over privatizing Medicare stems from a fundamental disagreement about whether privatization would primarily generate consumer surplus for individuals or producer surplus for insurance companies and health care providers. This paper investigates this question by studying an existing form of privatized Medicare called Medicare Advantage (MA). Using difference-in-differences variation brought about by payment floors established by the 2000 Benefits Improvement and Protection Act, we find that for each dollar in increased capitation payments, MA insurers reduced premiums to individuals by 45 cents and increased the actuarial value of benefits by 8 cents. Using administrative data on the near-universe of Medicare beneficiaries, we show that advantageous selection into MA cannot explain this incomplete pass-through. Instead, our evidence suggests that insurer market power is an important determinant of the division of surplus, with premium pass-through rates of 13% in the least competitive markets and 74% in the markets with the most competition.


McCaskill: Medicare Advantage billing fraud 'must be investigated'

By Fred Schulte
The Center for Public Integrity, May 29, 2015

U.S. Senator Claire McCaskill wants federal officials to step up oversight of privately-run Medicare Advantage health plans treating the elderly, citing allegations by whistleblowers that some health plans are overcharging the government for their services.

It is the second recent call by a U.S. Senator for enhanced scrutiny of billing practices in the popular private health plans, which treat more than 16 million seniors.

Last week, Senate Judiciary Committee Chairman Charles E. Grassley asked Attorney General Loretta Lynch to tighten scrutiny of Medicare Advantage health plans suspected of overcharging the government, saying billions of tax dollars are at risk as the senior care program grows.

Both McCaskill, a Missouri Democrat, and Grassley, an Iowa Republican, cited concerns over the accuracy of a billing tool called a “risk score,” which is intended to pay Medicare Advantage insurers higher rates for taking sicker people and less for those with few medical needs.



By Don McCanne, MD

By now there can be absolutely no lingering doubt that the Medicare Advantage plans are ripping off the taxpayers. The NBER paper by Geruso and Layton confirms that the “private Medicare Advantage plans generate 6% to 16% higher diagnosis-based risk scores than the same enrollees would generate under fee-for-service Medicare.”

Their paper also shows that the extra subsidy gained by upcoding “distorts consumers' choices toward private Medicare plans and away from fee-for-service Medicare.” Also, the paper by Cabral, Geruso and Mahoney shows that about 45 percent of the increased capitation is passed through to the Medicare Advantage enrollees in the form of lower premiums - the most important reason that increasing numbers of Medicare beneficiaries are moving from the traditional Medicare program into the private Medicare Advantage plans.

This investment of their fraudulent gains into reducing plan premiums advances their goal of privatizing Medicare. Once they have drawn a critical threshold of Medicare beneficiaries into their private plans, their co-conspirators in Congress can ratchet down funding of the traditional Medicare program, causing providers to bail out. What would be left of the traditional Medicare program would likely be a chronically underfunded welfare program that could be rolled into the Medicaid program, now that Medicaid has expanded into a massive bottom-tiered program that serves the poor.

Sen. Charles Grassley and Sen. Claire McCaskill have requested investigation of these abuses. Of course they will be confirmed, but what will be the response? It is likely that not much more will happen other than an attempt made to close this loophole. But the insurers are masters at innovation and will surely find many other loopholes through which they can pursue their goal of complete privatization of Medicare.

Instead, we should be converting our health care financing system into a program based on the principles of Canada’s Medicare - a single payer national health program - that is if we want equitable care for everyone.