‘Everybody has blood on their hands’
The federal government and health insurance companies have been clashing for more than a decade over how Medicare Advantage plans should be audited and how the well-documented overpayments to those plans should be clawed back.
That fight is about to hit an inflection point this week, when Medicare makes a final determination about how aggressively it will probe the industry. But experts say this is just the start of another brawl that almost certainly will shift into, and clog up, the courts for many more years.
Billions of dollars are on the line, almost all of which would get redirected back toward taxpayers and Medicare enrollees. But that large amount of money is also the major reason why there has been so much inertia. On one side sits an insurance industry hellbent on ensuring nosy auditors don’t touch its extremely profitable Medicare Advantage plans. On the other side exists an under-resourced federal oversight system that has become paralyzed by its own indecision and deference to that politically powerful industry.
“Everybody has blood on their hands,” said Richard Lieberman, CEO of health insurance data analytics firm Cortex Analytics who has more than 30 years of experience with risk adjustment. “This is not an industry problem independent of everyone. This is not a [Centers for Medicare and Medicaid Services] problem independent of everyone. Everybody has contributed to this.”
Medicare Advantage is the growing alternative to traditional Medicare run by private health insurers. It covers almost half of all people on Medicare and is one of the insurance industry’s most profitable segments. Nearly 200 organizations now sell 4,000 different Medicare Advantage plans, more than double the number of plans offered a decade ago, according to the Kaiser Family Foundation.
Older adults and people with disabilities often enroll in Medicare Advantage plans to get extra perks like lower premiums, gym memberships, and caps on out-of-pocket expenses. However, Medicare Advantage plans cost taxpayers more than traditional Medicare, erect more barriers to care, cut out doctors and hospitals from networks, and have flawed measures of quality.
These companies also have a long history of exaggerating how sick their members are, which the Medicare Payment Advisory Commission (MedPAC) said has led to “significant overpayments to plans.” They do this through a process called risk adjustment, in which monthly federal payments to Medicare Advantage insurers are based on how many health conditions each member has, producing what’s known as “risk score.”
Risk adjustment is generally necessary so insurers don’t cherry-pick healthy people. But some companies have also abused the system by coding as many conditions as possible — the more health problems people have, the higher their risk scores, and the more insurers get paid. To crack down on this practice within Medicare Advantage, the federal government started doing audits in 2004 called “risk adjustment data validation,” or RADV — and it’s these audits that are the nucleus of this war and the focus of this week’s final rule.
Regulators conduct RADV audits by comparing the diagnosis codes submitted by insurers with the codes doctors put in patients’ medical records. In theory, they should match. If insurers’ codes do not line up with what doctors have written down, that’s a sign the government paid them too much money. However, Lieberman notes, “It goes both ways. There is more overcoding by certain actors, but there is also undercoding.”
“They don’t know how to operate risk adjustment,” he said.
These audits are supposed to be done annually, but Medicare hasn’t formally completed any since 2007, when the agency conducted limited reviews of 37 Medicare Advantage plans and recouped only $13.7 million. The government didn’t perform any RADV audits between 2008 and 2010 as it ironed out its methodology, and restarted audits in 2011, at least on paper. Regulators then laid out two different sets of rules, one in 2012 and the other in 2018, to finalize how the audits would work and how the government could actually start recovering more overpayments made to Medicare Advantage insurers.
But neither of those rules has actually taken effect. Medicare has punted on decisions several times as the industry has flooded it with comments, complaints, and legal threats. The industry has also made the audits a top lobbying priority. Aetna, UnitedHealth Group, and the Blue Cross Blue Shield Association have lobbied Congress on RADV since 2011, federal lobbying records show. America’s Health Insurance Plans, Elevance Health, and Humana have lobbied heavily on RADV since 2019. AHIP, BCBSA, the Better Medicare Alliance, and a coalition of 14 not-for-profit health insurers also met with Medicare and White House officials this month in a last-ditch effort to get their way.
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As a result, Medicare still hasn’t finalized any RADV audits since 2007 — including ones from 2011, 2012, and 2013 that the government said would account for $650 million in recoupments. Kaiser Health News sued to obtain those audits, and won, revealing widespread overbilling from plans during those years.
“MA plans have been trying to put off RADV for as long as possible because the money’s great,” Lieberman said. “Their profit margins are huge. Their thinking is, the longer they can keep this on ice, the better.”
The 2018 rule stirred the most controversy because the government was ready to move forward with an aggressive plan that would recover roughly $381 million in overpayments from insurers every year — a clear signal that insurers had been inflating members’ conditions, advertently or inadvertently. “The public has a substantial interest in the recoupment of millions of dollars of public money improperly paid to private insurers,” regulators wrote in 2018. “The public also has a significant interest in providing incentives for those insurers to claim only proper payments in the future.”
That’s when the industry’s stall tactics and lobbying muscle kicked into overdrive. AHIP, which did not make anyone available for an interview, demanded Medicare withdraw the entire rule. Large Medicare Advantage players hired white-shoe law practices, actuarial firms, and consultants to debate the legal authority and methodology of these audits.
The industry’s assault has focused on three main auditing policies, which remain the main points of contention today: extrapolation of results; recouping payments retroactively; and accounting for coding differences between the traditional Medicare program and Medicare Advantage.
Medicare’s use of extrapolation was relatively straightforward: Find a representative sample of up to 201 people in a given Medicare Advantage plan, see how many erroneous codes there are, and then apply that error rate to the entire contract to see how much money will get recouped. Insurers hated the idea, knowing extrapolation would result in bigger paybacks, and have argued Medicare’s use of extrapolation is both unlawful and unconstitutional. But experts have been appalled at the opposition because extrapolation makes auditing more efficient — and is used in everything from basic statistics to political polling.
“If CMS walks away from extrapolation, that will be a complete cave to the industry.” RICHARD LIEBERMAN
“If CMS walks away from extrapolation, that will be a complete cave to the industry,” Lieberman said. “It’s just common sense. It would be a joke to fine MA plans based on 201 members.”
Small Medicare Advantage plans have contracts with as few as 1,000 members, but a majority of contracts at large players have tens of thousands or hundreds of thousands of members. UnitedHealth’s largest contract covers 1.8 million people, according to federal data analyzed by STAT, and Aetna’s largest contract covers nearly 2 million.
“It’s pretty absurd to be doing these audits and then to say, ‘I’m just going to bill you for what you got paid in error in the sample,’” added a former CMS official and health plan executive who asked not to be named to speak candidly.
Insurers also don’t want to be penalized for past behavior. The Better Medicare Alliance, a lobbying group that is funded by the largest Medicare Advantage plans, has used talking points that say RADV audits “should be applied in ways that look forward, not backwards” — or else it would “threaten the care that more than 29 million seniors rely on today.” The Better Medicare Alliance did not make anyone available for an interview.
However, federal law says the government can make retroactive changes to programs if a “failure to apply the change retroactively would be contrary to the public interest.” And experts say retroactive audits are just the right thing to do when billions of taxpayer dollars improperly went out the door.
“As a matter of principle, if the methodology is sound, then the dollars should be collected — period,” said Mark Miller, executive vice president of health care policy at Arnold Ventures who used to work at MedPAC and CMS. “You can do things like collect over some time period so it’s not a gigantic paycheck. But this notion and threat thrown about from plans — ‘Touch one of my dollars, and all benefits will disappear’ — based on history and experience, that’s nonsense.”
The most complex component of the battle has been over what’s called the “fee-for-service adjuster.” Medicare Advantage insurers are paid based on patient data in the traditional, fee-for-service Medicare program, and there was an assumption that that patient data was incomplete — and therefore insurance companies were being paid in a way that didn’t fully account for someone’s medical conditions.
In 2012, Medicare said it would adjust for those discrepancies, which in practice would limit the amounts Medicare Advantage plans would have to pay back. But in 2018, Medicare studied the issue more closely and released a six-page paper that said it had determined the coding differences between the two programs do not actually matter and in fact favor insurers — and therefore the agency would not make those adjustments in the audits.
The reversal incensed the industry, which would now be on the hook for paying back a lot more money. UnitedHealth, the largest Medicare Advantage insurer in the country, complained in 2019 that Medicare “cannot hold MA plans to a higher standard of documentation than the data in the [traditional Medicare] program.” UnitedHealth even argued that “MA plans have been systematically underpaid due to rigid rules around identifying member diagnoses.”
But in 2021, the courts dealt Medicare Advantage plans a major blow on this point. The U.S. Court of Appeals for the D.C. Circuit tore apart a case from UnitedHealth, memorably saying that “UnitedHealth’s math does not add up.”
Most observers are convinced this battle inevitably will get bogged down in the courts again, even if Medicare waters down its proposals. Over the past several months, large Medicare Advantage insurers and lobbyists have hinted that litigation is a certainty.
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Zach Baron, associate director of the Health Policy and the Law Initiative at Georgetown University’s O’Neill Institute, said the federal government now has some precedent on its side. The government also has a lot of discretion to refine oversight programs, like when Medicare’s report said the “fee-for-service adjuster” is no longer necessary.
“If the agency is saying that it’s conducted a thorough analysis and made such a finding … courts would tend to be quite deferential to that,” Baron said.
The legal drama is why experts like Miller think the federal government should focus on reining in systematic coding abuses in a different way that gives them clearer control.
MedPAC estimates patients’ risk scores in Medicare Advantage were 10.8% higher than comparable patients in traditional Medicare in 2021. By law, Medicare can claw back a maximum of 5.9%, but that means there’s still a 4.9 percentage point gap in the “coding intensity” of insurers. That gap generated “$17 billion in excess payments to MA plans” that year, according to a MedPAC presentation from this month.
The federal government has the authority to raise that “coding intensity” clawback, but in another nod to the influence of Medicare Advantage plans, has chosen not to touch it.
“If you want to correct the problem more immediately for the taxpayer and the beneficiary, this is a much more straightforward way to do it,” Miller said.
STAT Reporter: Bob Herman
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