For an 82-year-old man with diabetes and rheumatoid arthritis, the CMS will pay a Medicare Advantage plan a certain amount of money each month. Add renal failure and hemiplegia to the list of maladies, and the CMS' monthly payment to his plan skyrockets. It could mean $2,282 a month versus $1,149, experts say.
The CMS pays private Medicare Advantage plans under a severity-adjusted model designed to give insurers a financial incentive to take sicker enrollees. But critics, including HHS' Office of the Inspector General, say the severity-adjusted payment model is being abused by some plans and providers, costing taxpayers billions annually.
A few federal whistle-blower cases filed under the False Claims Act have become public, with more thought to be in the pipeline. The lawsuits allege that providers and Advantage plans, some operated by the nation's largest insurers, have defrauded the Medicare program by manipulating Advantage members' medical data to make the members appear sicker than they were to get higher capitation payments.
Legal experts say the number of such cases is likely to grow because of the potentially large recoveries whistle-blowers stand to receive and the OIG's plan to investigate improper payments based on faulty risk scores.
The OIG estimated that in fiscal 2013 alone, Medicare made $11.8 billion in improper payments—$9.3 billion in overpayments and $2.6 billion in underpayments—because of errors related to risk adjustment.
“The incentive to manipulate that risk adjustment is huge,” said Pam Brecht, a partner at Pietragallo Gordon Alfano Bosick & Raspanti in Philadelphia, who represents whistle-blowers.
According to a 2013 Government Accountability Office report, cumulative Medicare Advantage risk scores were 4.2% higher in 2010 than they likely would have been if the same beneficiaries had been enrolled in traditional Medicare. That difference likely exists because in traditional fee-for-service Medicare, there's no financial incentive to maximize a beneficiary's diagnosis, said Gretchen Jacobson, an associate director with the Kaiser Family Foundation's Program on Medicare Policy.
If the number of lawsuits over risk adjustment grows, it could create a political problem for insurers, who already face a strong effort by the Obama administration to reduce Advantage payment rates as mandated by the Patient Protection and Affordable Care Act. That rate pressure has led to fierce annual lobbying battles by insurers to moderate or reverse cuts proposed by the CMS.
In auditing six Advantage plans for payments in 2007, the OIG found the plans were overpaid by more than $600 million because of risk scores that weren't properly supported by medical diagnoses.
The plans disputed the negative audit findings, blaming them on “statistically invalid methodology” used by the OIG, poor physician record-keeping and difficulty locating medical records because of the time lag between the diagnoses and the audits.
The OIG now plans to target improper payments to Advantage plans based on risk scores. In its 2015 work plan, the OIG said: “We will review the medical-record documentation to ensure that it supports the diagnoses organizations submitted to CMS for use in CMS' risk-score calculations and determine whether the diagnoses submitted complied with federal requirements.”
“The fact that it's in their work plan for 2015 is a big deal,” said Patrick Burns, co-director of the Taxpayers Against Fraud Education Fund, a not-for-profit partly funded by whistle-blowers and law firms representing them. He said that tells him the government has received cases that still are under seal and that it understands the scope of the potential fraud.
Similar statements have been in the OIG's work plans for years. But Brecht said a number of whistle-blower cases alleging fraudulent risk adjustment may not have been made public yet. Cases sometimes can stay under seal for three or four years before the Justice Department announces whether it will intervene in a case.
In whistle-blower cases, individual plaintiffs can file a lawsuit on behalf of the government and the government can decide later whether to join the case. If the government joins, that significantly increases the odds of recoveries. In two cases that recently became public, the Justice Department decided not to join. “I think things are going to start popping on these cases at the end of this year and the beginning of next,” Brecht said.
Clare Krusing, a spokeswoman for America's Health Insurance Plans, which represents the health insurance industry, said, “Medicare Advantage plans recognize that improving quality and health outcomes for seniors can't be done with a body-part-by-body-part approach. It requires treating the whole person. That means identifying patients' health status and needs early on and making sure they get the right treatment. The evidence is clear that this approach leads to improved delivery and better care overall.”
Advantage plan enrollment rose to 15.7 million members in 2014 from 9.7 million in 2008, according to the Kaiser Family Foundation. Nearly one-third of all Medicare beneficiaries are enrolled in Advantage plans, and that percentage is expected to increase. The CMS was projected to pay Advantage plans $156 billion in 2014, accounting for about one-third of all Medicare spending, according to Kaiser.
The CMS pays Medicare Advantage on a per-member, per-month basis, adjusted for each member's medical risk score, which is based on the member's age, sex and diagnoses. The CMS began using risk scores for paying plans in 2004. Patients generally don't see their risk scores.
An entire industry has developed around helping Advantage plans maximize their revenue through patient risk scores, said Dr. David Wennberg, an associate professor at the Dartmouth Institute for Health Policy & Clinical Practice in Lebanon, N.H.