More Medicare Advantage upcoding could follow court ruling

A federal judge's recent decision to vacate a 2014 CMS rule that UnitedHealthcare said resulted in underpayment for Medicare Advantage insurers leaves the federal government with fewer tools to combat upcoding practices that cost the taxpayer-funded Medicare program billions of dollars.

U.S. District Judge Rosemary Collyer last week vacated the 2014 overpayment rule, which required Medicare Advantage plans to return overpayments to the government within 60 days of identifying them or they would be considered in violation of the False Claims Act and potentially subject to civil lawsuits, damages and penalties. Overpayments include diagnostic codes sent to the CMS for payment that are not documented in a patient's medical chart.

Whistleblower lawsuits have challenged Advantage insurers, including UnitedHealthcare, for combing patient medical charts to find and report all possible diagnoses to submit for additional Medicare payments—a practice known as upcoding—but not deleting codes they knew were inaccurate.

Healthcare experts said that the overpayment rule was meant to help curb upcoding and fraudulent billing; vacating it paves the way for more of the same. It also gives insurers more tools to defend themselves against False Claims Act liability. Already, UnitedHealth has filed a statement in a pending Medicare Advantage whistleblower suit explaining that Judge Collyer's decision could affect the whistleblower's claims.

The ruling "is really harmful to taxpayers and to the Medicare program in that all the levers in the Medicare Advantage program are lined up for plans to be able to control their coding destiny," said Tim Gronniger, a former CMS official who is now senior vice president of development and strategy at Caravan Health. "The idea that CMS should be handcuffed in tracking behavior of Medicare Advantage plans is totally backwards."

Payments to Medicare Advantage insurers are based on a risk-adjustment model that takes into account traditional fee-for-service Medicare costs as well as individual enrollees' demographic information and medical diagnoses. Patients with more diagnoses have a higher "risk score" that results in higher payment from the CMS. Patients with fewer diagnoses have a lower risk score and thus insurers receive lower payment.

The CMS aims to pay traditional Medicare and Advantage plans in a way that is "actuarially equivalent." But the judge decided the payments are not actuarially equivalent and violate federal law because the CMS does not audit traditional Medicare data, which are known to be riddled with errors. The agency requires Medicare Advantage data to be 100% accurate or insurers have to pay back payments. Basing Advantage payments on "flawed data" makes those plans' patients look healthier than they are, resulting in lower payments, Collyer wrote.

"The effect of the 2014 overpayment rule, without some kind of adjustment, is that Medicare Advantage insurers will be paid less to provide the same healthcare coverage to their beneficiaries than CMS itself pays for comparable patients," Collyer wrote in the order.

Experts watching the decision argued research flies in the face of these conclusions. According to MedPAC's latest report, payments to Medicare Advantage were 2% to 3% higher in 2016 than they would have been if those same patients were treated under fee-for-service Medicare. That's because Advantage plans' coding practices have resulted in their enrollees having an average risk score that's 8% higher than similar Medicare fee-for-service beneficiaries, despite strong evidence that Advantage members are not sicker.

Gronniger argued that Medicare Advantage insurers need extra CMS oversight because the payment model incentivizes upcoding, whereas fee-for-service providers don't have that same incentive because they not paid based on patient diagnoses.

Edwin Park, research professor at Georgetown University's Center for Children and Families, agreed that the ruling is "taking away a tool the CMS is using to ensure accurate documentation" and that "would mean likely higher payments."

He pointed out that Advantage insurers are profiting as enrollment in the plans grows steadily year over year. Payments to Medicare Advantage plans totaled $210 billion in 2017 to manage the care for 19 million seniors. Advantage insurers' profits—their margins average between 4% and 5%, according to S&P Global—are helped by programs like retrospective chart reviews to comb patient medical records for additional diagnosis codes.

"If you don't have penalty on insurers to adequately ensure accurate documentation, you will have coding practices to distort payment going forward," Park said.

The judge's opinion also dealt with whether the 2014 overpayment rule puts a more burdensome obligation on insurers to identify and report overpayments to the CMS than the False Claims Act does. Few pages of the opinion are devoted to this question, but the conclusion has big consequences, legal experts said.

Under the False Claims Act and the ACA, insurers are liable for false claims if they had actual knowledge, deliberately ignored or recklessly disregarded the fact that a false claim was submitted to the government.

But UnitedHealth alleged, and the judge agreed, that the 2014 overpayment rule imposed a more stringent standard: negligence. Under that holding, insurers would be liable for violating the FCA if they should have known that there was an overpayment and didn't report it.

UnitedHealth argued that insurers should be held accountable only for overpayments they know about.

Collyer agreed, writing, "Not being Congress, CMS has no legislative authority to apply more stringent standards to impose FCA consequences through regulation."

Timothy Adelman, a partner at law firm Hall Render, explained that the 2014 overpayment rule compelled insurers and providers to "really search and ferret out" potential errors in their data by conducting audits and reviews. The ruling relieves some of that burden and could mean the industry won't be as proactive in uncovering errors, such as diagnostic codes that aren't supported by the patient's medical chart.

"Do I think it's going to adversely affect the ability to identify upcoding? Yes, it certainly will," Adelman said, though he cautioned that the ruling does not mean insurers "can completely turn a blind eye" to errors. The FCA will still come down on insurers that identified overpayments and intentionally did not return them.

Brad Robertson, a partner at law firm Bradley in Birmingham, Ala., said the opinion calls into question any overpayment case that is based on negligence, and there are many of those. So in a case where an insurer has not actually identified an overpayment but the government alleges it should have known about one, the ruling "gives the insurer more arguments than it had before in its defense," Robertson said.

That doesn't mean it's a good idea for insurers to abandon all compliance programs, because the CMS is could either appeal the judge's ruling or issue a new overpayment rule.

Correction: An earlier version of this story misstated Edwin Park's title. He is a research professor at Georgetown University's Center for Children and Families.