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Medicare Plans' Upcoding Cost Billions

Leon County Judge John Cooper on June 30, 2022, in a screen grab from The Florida Channel.
Associated Press
The Florida Channel
Leon County Judge John Cooper on June 30, 2022, in a screen grab from The Florida Channel.

Four years ago, Medicare auditors came to an alarming conclusion: the federal government shouldn’t have paid a half-dozen insurance plans hundreds of millions of dollars to treat seniors in especially poor health.

The findings signaled that billing errors could be deeply rooted within private Medicare Advantage plans — which contract with the federal government to care for nearly 16 million elderly Americans, including at least 1.2 million Floridians — and that these abuses could be wasting taxpayer dollars at a ferocious clip.

Medicare expects to pay higher rates for legitimately sicker people who may require expensive care. But the auditors concluded that all six health plans they visited couldn’t justify the money they took in for 40 percent or more of their patients. That triggered whopping overpayments which auditors pegged at nearly $650 million for 2007 alone — just for those six plans.

One major Texas health plan was paid to care for a man it said had brain cancer. But his medical file showed he was treated for an enlarged prostate, a common ailment that didn’t merit any added payment, auditors wrote.

In Arizona, a health plan collected thousands of dollars from Medicare to treat congestive heart failure in a patient seen for knee pain, according to auditors. In Pennsylvania, a person treated for blurry vision was charted as having serious heart disease.

It took years for the Department of Health and Human Services (HHS) inspector general to publish those findings, and government officials have yet to pry back more than a tiny fraction of the disputed money, the Center for Public Integrity has learned.  

And despite the bundle of taxpayer dollars on the line, the HHS inspector general didn’t do any more audits, and decided in 2013 to scrap similar future reviews as part of a budget cut.

Robert Trusiak, a former Department of Justice prosecutor, said that “at the very least” federal officials should have demanded refunds from the health plans and lowered the boom on any plan caught “gaming” Medicare.

“The dollars here are huge,” he said.

The money’s not likely to be returned. The Center for Public Integrity’s yearlong investigation of the Medicare Advantage industry found that federal officials over the past decade have missed multiple opportunities to corral tens of billions of dollars in overcharges and other billing errors tied to a complex payment formula known as a “risk score.”

Health plans collect medical data that is used to compute the health risks for each patient enrolled, but there’s been little to deter plans from jacking up the resulting “risk scores.” When risk scores overstate a patient’s illness, the plans make more money from Medicare. There’s little chance patients or the public will find out when this happens because federal officials have kept most audit results confidential.

Washington health-care lawyer Thomas C. Hill said insiders have known of “significant problems” with Medicare Advantage billing practices for years. But they’ve received scant public notice because neither industry nor government has much to gain by letting the secrets spill out, he said.

“The government isn’t in the best light when there’s that high an error rate,” Hill said. “They are reluctant to expose that to the world.”

Officials from the HHS IGs office defended the findings in the half dozen audits, but declined to comment beyond that. Officials from the Centers for Medicare and Medicaid Services (CMS), the HHS agency that actually runs the program, declined to comment at all, despite numerous requests.

Big scores

Medicare unveiled risk scores in 2004. Congress wanted to systematically pay more for people with chronic or costly diseases, such as cancer and diabetes with complications, and less for those in robust health. Lawmakers also hoped to cut Medicare waste and billing abuse that can occur when doctors and hospitals are paid for each and every thing they do, a practice known as “fee for service.”  That can give them a financial incentive to do more to earn more.

Medicare adjusts the risk scores used in the Medicare Advantage program based on more than 70 conditions and their severity. That can mean thousands of extra dollars over the course of a year to treat a single patient.

Take depression. Mild and temporary feelings of sadness and hopelessness don’t increase Medicare payments. But if that depression and other symptoms linger for at least two weeks it may be classified as “major depressive disorder” and generate hundreds of dollars in payments to the Medicare Advantage plan to treat that patient.  

Patients never know how their health is rated because neither the health plan nor Medicare shares risk scores with them — and the process itself is so arcane and secretive that it remains unfathomable to many health professionals.

Health plans that cheat can face civil or criminal penalties, but federal officials largely trust them to collect medical data for risk scores accurately for the millions of seniors they sign up.

The Centers for Medicare and Medicaid Services conducts its own periodic audits — separate from the HHS IG efforts — known as Risk Adjustment Data Validation, or RADVs. But CMS has yet to impose major penalties when it detects inflated risk scores in those audits, though it may do so for the first time later this year (see sidebar). Still, CMS moves so sluggishly that it will likely take a decade or more to review hundreds of current Medicare Advantage contracts, records show.

CMS is but one part of the giant Health and Human Services Department. The HHS Office of Inspector General is supposed to backstop CMS and act as a watchdog to make sure that taxpayer dollars aren’t misspent. But CMS and the HHS OIG are in conflict over how best to conduct these audits. Neither would comment on the process.

Meanwhile, taxpayer losses pile up by the billions.  

Based on its own sampling of data from health plans, CMS has estimated that faulty risk scores triggered nearly $70 billion in what officials deemed “improper” payments to Medicare Advantage plans from 2008 through 2013. Most were overcharges sparked by health plans “upcoding” — overstating how sick their patients were­ — or failing to document that patients actually had diseases the plans were paid to treat, according to CMS. Overall, Medicare paid the health plans about $135 billion in 2013 alone.

But which health plans consistently have been overpaid — and by how much — remains under wraps. While CMS audits have detected billing errors in 30 percent or more of the patient files reviewed, the agency cloaks the identities of health plans audited and the results. CMS officials declined a Center for Public Integrity request to make its audits public or discuss the process. Last month the Center sued in an effort to obtain those audits.

The CMS policy means that those six audits by the HHS inspector general — which does publish its findings — stand as the only public account detailing Medicare Advantage billing practices over the past decade.

Those inspector general’s audits began late in 2008. Drafts weren’t presented to the health plans until two years later. The eye-popping findings didn’t begin to dribble out until 2012 — even though Medicare paid the health plans hundreds of billions of dollars in the interim as enrollment began to surge.

Dr. Todd M. Husty, a Florida physician and medical billing consultant, said he was “shocked” that the HHS inspector general failed to step up their audits given the early findings. “They could have cleaned this up four years ago,” he said. The health plans “were kind of sailing along not looking at how accurate their risk scores were because nobody ever dinged them.”

Patrick Burns, a co-director of Taxpayers Against Fraud, a Washington-based group, said that only stiff penalties will protect taxpayers from getting fleeced.

“The billing system has failed and needs to be rejiggered,” he said, adding: “Even when we catch it, nobody gets spanked.”

HHS Inspector General’s Office spokesman Donald White wouldn’t comment on the audits except to say that the office “stands by” its findings.

White conceded that further risk-scoring audits by the IG’s office are “indefinitely on hold” because of the expense of paying medical coders to scrutinize patient files. Late last year, the office told Congress it would need to cut back on its workload to save money.

That decision leaves CMS as the only government entity watching over Medicare Advantage billing, and its findings are not made public.

The industry denies that the health plans overbill and note that they have worked with federal officials to revamp record-keeping practices.

 “Medicare Advantage plans are working hard to comply with CMS requirements and we have every reason to believe these activities will be effective,” said Clare Krusing, director of communications for America’s Health Insurance Plans, the industry trade group.

Padded bills

Under the traditional Medicare program, launched in 1966, the government pays doctors and other medical professionals according to the fee-for-service concept.

Congress first carved out a significant role for private health plans in Medicare in the 1980s.

Lawmakers decided Medicare would pay plans a monthly rate for each person they enrolled. They expected that would save money by curbing waste and unnecessary medical care that can occur in fee-for-service Medicare. Congress also reasoned that removing the incentive to overbill would help control fraud. Many lawmakers also favored a medical insurance option for seniors run by the private sector.

In 2003, Congress tried to boost the program’s fortunes by renaming it Medicare Advantage and phasing in risk-based payments to the private plans, starting in 2004. The expectation was that health plans wouldn’t shy away from taking sicker patients so long as they were paid fairly.

Medicare tried to predict the costs of treating a range of diseases, including those likely to require expensive treatment and adjusted payments upward for them. However, government officials paid little attention to warnings from some researchers that the strategy would spawn a whole new form of costly billing abuse that could prove immensely difficult to stamp out, government records reveal.

Quite simply: as Medicare began paying more for “sicker” patients, Medicare Advantage health plans began reporting their patients were sicker than the Medicare population as a whole.

Risk scores rose twice as fast for people who joined a Medicare health plan as for those who didn’t. A July 2004 CMS study of nine plans found inflated risk scores for a third or more of patients. A second study done for CMS opined that the upward trajectory could most logically be explained by Medicare Advantage plans chasing dollars, not by any decline in patients’ health.

In February 2008, CMS officials amplified that point, writing that it was not “reasonable to assume” that people in Medicare Advantage got sicker faster than seniors who chose standard Medicare coverage.

Since then, dozens of academic papers and government reports have focused on the rising costs of the Medicare Advantage option. Some cite lax government oversight of risk scores, including persistent “upcoding,” as the main culprit.

The Center for Public Integrity’s analysis of Medicare Advantage plan data from 2007 through 2011 confirmed that risk scores rose more than twice as fast as the government-estimated average for people in standard Medicare in some plans in at least 1,000 counties nationwide.

CMS, starting in 2010, cut risk scores across the board, reducing payment rates to Medicare Advantage. But critics argue that even as the health insurance industry launches an intense lobbying campaign to shelve sharper rate cuts, it remains overpaid.

“That’s a systematic problem that has to be addressed,” said Dr. Robert Berenson, a former member of a panel that advises Congress on Medicare spending. He added that the method of payment leaves “a lot of room for bad actors.”

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--Center for Public Integrity is a non-partisan, non-profit organization dedicated to investigative journalism to promote democracy.