Why Medicare Advantage costs taxpayers billions more than it should

Regulators have kept problems secret, and there's no fix in sight

By Fred SchulteemailDavid DonaldemailErin Durkin

Source:The Center for Public Integrity
 
First in a three-part series.
 
In South Florida, one of the nation’s top privately-run Medicare insurance plans faces a federal investigation into allegations that it overbilled the government by exaggerating how sick some of its patients were.

In the Las Vegas area, private health care plans for seniors ran up more than $100 million in added Medicare charges after asserting patients they signed up also were much sicker than normal — a claim many experts have challenged.

In Rochester, New York, a Medicare plan was paid $41 million to treat people with serious diseases — even though the plan couldn’t prove the patients in fact had those diseases.
These health plans and hundreds of others are part of Medicare Advantage, a program created by Congress in 2003 to help stabilize health care spending on the elderly. But the plans have sharply driven up costs in many parts of the United States — larding on tens of billions of dollars in overcharges and other suspect billings based in part on inflated assessments of how sick patients are, an investigation by the Center for Public Integrity has found.

Dominated by private insurers, Medicare Advantage now covers nearly 16 million Americans at a cost expected to top $150 billion this year. Many seniors choose the managed-care Medicare Advantage option instead of the traditional government-run Medicare program because it fills gaps in coverage, can cost less in out-of-pocket expenses and offers extra benefits, such as dental and eye care.

But billions of tax dollars are misspent every year through billing errors linked to a payment tool called a “risk score,” which is supposed to pay Medicare Advantage plans higher rates for sicker patients and less for those in good health.

Government officials have struggled for years to halt health plans from running up patient risk scores and, in many cases, wresting higher Medicare payments than they deserve, records show.

The Center’s findings are based on an analysis of Medicare Advantage enrollment data from 2007 through 2011, as well as thousands of pages of government audits, research papers and other documents.

Federal officials who run the Medicare program repeatedly refused to be interviewed or answer written questions.

Among the findings:

• Risk score errors triggered nearly $70 billion in “improper” payments to Medicare Advantage plans from 2008 through 2013 — mostly overbillings, according to government estimates. Federal officials refused to identify health plans suspected of overcharging Medicare, citing agency policy that keeps many business records confidential. The Center is suing to make these records public.
• Risk scores of Medicare Advantage patients rose sharply in plans in at least 1,000 counties nationwide between 2007 and 2011, boosting taxpayer costs by more than $36 billion over estimated costs for caring for patients in standard Medicare.
• In more than 200 of these counties, the cost of some Medicare Advantage plans was at least 25 percent higher than the cost of providing standard Medicare coverage. The wide swing in costs was most evident in five states: South Dakota, New Mexico, Colorado, Texas and Arkansas.

How risk scores changed

By Chris Zubak-Skees

June 4, 2014

Since 2004, the government has paid Medicare Advantage plans using a complex tool called a risk score. The idea is to pay higher rates for sicker patients and less for those in good health. But over the past decade, officials have struggled to control sharp increases in risk scores that have cost taxpayers billions of dollars. The industry says higher scores result from sicker patients and more thorough documentation of their health. Critics dispute that and want the government to make public more billing records that would help determine if health plans are being paid too much. This graphic plots changes in risk scores at more than 5,700 health plans in 3,000 counties nationwide between 2007 and 2011.

Center sues in an effort to make Medicare Advantage files public

By Fred Schulte

May 27, 2014

More in this series:

• Part One: Federal officials have made billions in “improper” payments to Medicare Advantage plans traced to risk score errors.
• Part Two (Coming Monday): Officials have missed multiple opportunities to recoup tens of billions of dollars in Medicare Advantage overcharges.
•  
• Part Three (Coming Tuesday): Medicare Advantage health plans collect billions of dollars from “house calls” — insurers say the visits improve patient care, but critics argue they inflate costs needlessly.

fraction of that amount back years later. A company spokesman said the plan settled the matter by paying the government $157,777 in December 2013.

Some critics expect little to change unless federal officials disclose Medicare Advantage plans’ full service and billing histories — as they have recently done with Medicare fees paid to more than 880,000 individual doctors and others.

“The [Medicare Advantage] plans don’t want the data out,” said Dr. Brian Biles, a professor in the Department of Health Policy at George Washington University, whose Freedom of Information Act lawsuits shook loose limited enrollment records used in this project. (Biles assisted Center for Public Integrity reporters with the analysis.)

Dr. David Wennberg, a Dartmouth Institute researcher who has studied the payment issue, said that with billions of tax dollars at stake federal officials need to hit the “reset button” on risk scoring.

Wennberg said Medicare Advantage “is a very large program with lots of money flowing through it. There are always vested interests in protecting the status quo.”

“We very intentionally tried to overpay them a little bit.”

- Thomas Scully, Medicare administrator under President George W. Bush

Medicare Advantage:

Nearly 16 million seniors have joined about 700 insurance plans that accept a set fee from Medicare for covering each patient in exchange for providing all medical care, from doctor visits to hospital services. The plans also provide extra benefits that are popular with the elderly, including gym memberships and eyeglasses and often are less expensive than standard Medicare. Monthly premiums average about $35.

Health care politics

The Affordable Care Act, or Obamacare, orders deep rate cuts in Medicare Advantage, partly to cover millions of uninsured people. That’s consistent with an early Obama administration promise to reduce payments to the health insurers.

But support for Medicare Advantage in Congress has snowballed as it has attracted more and more seniors who are happy with their care and the price they pay for it. Earlier this year, the insurance industry mounted a fierce media campaign to block the rate cuts, enlisting support from more than 200 members of Congress and forcing the administration to partially back off.

The debate over how best to pay Medicare Advantage health plans — and how to curb overcharging — has been contentious for years.

As far back as the 1980s, Congress hoped that carving a bigger role for managed care plans like Medicare Advantage would help curtail overall Medicare spending and ward off waste and fraud that can pop up when doctors and hospitals are paid for each and every service they perform.

To that end, Medicare decided to pay health plans a set monthly rate for patients regardless of how much care they needed. But some health plans stacked the deck by signing up people who were healthier than average, a marketing ploy known in insurance circles as “cherry picking.”

That led to a “lot of game playing” and “dumping patients who were ill,” said Laurence Bishoff, a Boston health care consultant.

Congress thought it saw a remedy in the Medicare Modernization Act of 2003. The law created Medicare Advantage and phased in “risk adjusted” payments starting a year later.

Thomas Scully, who helped get the program running under President George W. Bush, said rates were generous in hopes of enticing insurers to expand their Medicare business and not shy away from people in poor health.

“We very intentionally tried to overpay them a little bit,” said Scully, now a Washington lobbyist with numerous health care industry clients.

Health status was added to other factors such as sex, race and age in setting rates. Plans that took on the greatest risk by accepting the sickest patients were paid the most.
But turning to risk scores as the way to adjust payments ushered in a new form of Medicare billing abuse: Some health plans misstated how sick their patients were or failed to document they had treated illnesses Medicare paid them to treat, the Center’s investigation found.

By 2009, government officials were estimating that just over 15 percent of total Medicare Advantage payments were inaccurate, about $12 billion that year.

By the end of 2013, officials reported the error rate had dropped to nine percent, which still added up to $11.8 billion for the year. Nearly 80 percent of that — $9.3 billion — was overcharges, records show.

The Medicare Advantage billing error rate has averaged 12 percent over the past six years, at times outpacing that of standard government-run Medicare, which federal officials assert is highly vulnerable to billing fraud and abuse.

Medicare Advantage has faced much less scrutiny. The federal Centers for Medicare and Medicaid Services didn’t try to recoup overpayments until 2012, eight years after phasing in risk scoring. And when it did, it won back only $3.4 million — a tiny fraction of the estimated losses, according to government records. Though the agency is beefing up collection efforts starting this year, most health plans won’t see federal auditors for years.
Malcolm Sparrow, a professor at Harvard University’s John F. Kennedy School of Government and health fraud expert, said officials are “asking for trouble” by allowing health plans to generate the data on which risk scores and their revenues are based.
“You want to make sure this is audited rigorously,” Sparrow said. “It’s much more expensive [to taxpayers] not to.”

Federal probe

Four of the ten major Medicare Advantage plans with the highest average risk scores nationally are in Puerto Rico.

Medicare Advantage plans, which control 70 percent of the island market, argue their patients are poorer and sicker than average. They also say that cuts required under the Affordable Care Act have hit them hard, prompting cuts in benefits and higher premiums for patients who can ill afford to pay more.