Last month, the CMS quietly fined a small health insurer in Arizona $146,600 for violating several Medicare rules. In somewhat fiery language for a government agency, the CMS called the company's lapses “systemic.”
But insurance companies of all sizes are increasingly finding themselves in similar situations with the government. This year, nearly three dozen health insurance companies have faced similar fines (called civil money penalties) or, worse, temporary suspension from enrolling or marketing to new Medicare members. Critics of Medicare Advantage view the increased oversight from the CMS as acknowledgment of serious flaws in the program (also known as Medicare Part C) and the Part D prescription drug program. Others say most of the problems identified are easily fixed.
In the case of Phoenix Health Plans, the CMS said (PDF) the plan failed to provide protections to its members on multiple occasions. For example, the company inappropriately denied or delayed medical services and prescription drugs that should've been covered. And it didn't provide the right outlets for people to appeal those decisions. The CMS said those failures led to higher out-of-pocket costs for its members and choked off members' due process.
“All of these violations are part of a very long pattern of misbehavior of Medicare HMOs, really since the start of Medicare HMOs,” said Dr. Steffie Woolhandler, a professor of public health at the City University of New York at Hunter College. “When you see this behavior over and over and over, you have to say this is not a behavior problem. It's a structural problem.” Woolhandler is a co-founder of Physicians for a National Health Program, a group that wants to see the U.S. adopt a national single-payer insurance model.
The private managed-care alternative to traditional Medicare has become a significant part of the Medicare program over the past several years: About 30% of all Medicare beneficiaries, or 15.7 million Americans, were enrolled in an Advantage plan in 2014. In 2005, only 13% of Medicare enrollees had an Advantage plan. Medicare Advantage payments to insurers have been estimated to be about $156 billion this year. About 37 million people, meanwhile, have some type of Part D drug coverage, amounting to a $50 billion tab for the federal government annually.
With so much money at stake, insurers such as UnitedHealthcare, Humana and even smaller not-for-profit companies have enthusiastically pursued participation in the programs. Medicare Advantage plans among publicly traded insurers usually net a profit margin between 5% and 6%.
The recent spate of sanctions overwhelmingly involve questionable prior-authorization techniques for services or drugs, disputes over denied coverage and noncompliant formularies—in other words, Medicare beneficiaries incur unnecessary costs because their health plans create hurdles that shouldn't exist. In the first 11 months of 2014, the CMS took 35 enforcement actions on insurers that provide Medicare Part C and D coverage. That's more than any other year since the CMS beefed up its auditing strategy in 2010.
“That's just embarrassing for this industry,” said John Gorman, a healthcare consultant and former CMS official. “The plans just keep screwing it up.”
Of the 35 actions this year, 30 were fines, totaling $4.9 million. The penalties ranged from $20,700 to more than $447,000.
Lew Borman, spokesman for Blue Cross and Blue Shield of North Carolina, which was penalized $290,250 (PDF) in July, said: “We take these audits very seriously … we have resolved all of the issues raised in the audit.” Moda Health in Oregon was fined $312,300 (PDF) in July, but it likewise created a correction plan and now is in full compliance, spokesman Jonathan Nicholas said.
Aetna received two civil money penalties in April totaling $509,300. The larger of the fines (PDF) involved Coventry Health Care, which Aetna acquired in 2013. Spokeswoman Kristine Grow said the issues in question were related to pre-authorization processes and coverage determinations of certain medical claims, not issues of quality, and Aetna “had already found and corrected some of the issues before the CMS audit.”
Critics of the program question whether the five- and six-digit monetary penalties do enough to change behavior. “The revenue (plans) take in from the federal government is just enormous,” said Wendell Potter, a former PR executive at Cigna Corp. who has testified several times to Congress about the health insurance industry. He is now an analyst at the Center for Public Integrity. “That's not a significant fine or monetary punishment if you ask me.”
An investigation this year by the Center for Public Integrity, a not-for-profit investigative news organization, identified billions of dollars in improper Medicare Advantage payments attributed to insurance companies overstating how sick their members were. Sicker patients command higher lump-sum payments under the program's risk-adjusted model. Whistle-blowers have begun to file False Claims Act lawsuits alleging that companies are manipulating those numbers.
The largest civil money penalty the CMS has ever imposed went to UnitedHealth Group, the parent of UnitedHealthcare. The insurer had to pay $2.2 million in 2012 (PDF) for its Medicare coverage infractions. But with 3 million Medicare Advantage members and more than $44 billion in Medicare revenue, the fine was a mere drop in the bucket and something Potter said is “potentially the cost of doing business.”
However, Dan Mendelson, CEO of consulting firm Avalere Health, said the penalties are a “badge of shame” and meaningfully impact many plans. And the CMS wants to root out the bad practices, not necessarily the players. “What they want is for their business partners to come into compliance with their policies,” he said.
The other five actions the CMS took this year were suspensions of enrollment and marketing—a sanction Gorman says could be a “kiss of death” because it could lead to lower bonus payments tied to the plan's Medicare Advantage star ratings for quality or termination from the program in a worst-case scenario. These types of intermediate suspensions, which fall short of booting a plan from Medicare, could last anywhere from seven months to two years. The CMS said they last “as long as it takes for the sponsor to demonstrate to CMS that the deficiencies have been corrected and are not likely to recur.”
SummaCare, a managed-care plan owned by Akron, Ohio-based Summa Health System, had its Medicare plan suspended in August (PDF). In a statement, outgoing CEO Marty Hauser said: “We are obviously extremely disappointed in the results of the recent CMS audit. We pledge to our valued members that we will resolve any and all deficiencies cited by CMS.”
America's Health Insurance Plans, the industry lobbying group, said despite growing numbers of fines and intermediate sanctions, Medicare Advantage plans take their obligations seriously.
“Notably, the high levels of satisfaction are testament to plans' commitment to the beneficiaries they serve,” AHIP spokeswoman Clare Krusing said in a statement. “Health plans are held accountable by CMS through numerous regulations and guidance that change on a regular basis, and they work with the agency to remedy issues identified by program audits.”
A vast majority of the CMS' actions originate from auditors combing through the insurers' business, said Larry Kocot, an attorney at Epstein Becker Green who works with Medicare Advantage companies. Those audits, he argues, have shortcomings.
“Auditors can be subjective and sometimes just plain wrong,” said Kocot, a former CMS senior adviser. “CMS is looking for systematic deficiencies, but sometimes it doesn't work out that way. And even the best-run plans will pay the price from a bad audit.”
Even when the audit findings are legitimate, the impact of the penalties is limited because few consumers have any idea that a plan has been reprimanded, said Potter.
Gorman, though, said many of the cited problems have simple fixes—like better training of employees in a health plan's member service department—and the CMS is determined to get plans to make them.
Phoenix Health Plans, which is part of hospital giant Tenet Healthcare Corp., said in a statement the company has responded to the enforcement action with increased oversight of operations, and more robust internal audits and staff training. “Phoenix Health Plans looks forward to demonstrating improved performance to CMS in future audits,” Wendy Carver, the insurer's chief compliance officer, said in the statement.
“As long as CMS accelerates this carrot and starts carrying a bigger stick, they are going to get the results they want,” Gorman said. “And there's going to be a lot of roadkill along the way.”
Follow Bob Herman on Twitter: @MHbherman