A Step in the Right Direction, But Not Enough to Stem Wasteful Overpayments
As documented in various CMA Alerts, there is consistent and growing evidence that Medicare Advantage (MA) plans are paid more on average than traditional Medicare spends on a given beneficiary, and such spending is growing per person, with significant implications for Medicare programmatic spending (see, e.g., here and here). These overpayments stem, in part, from MA plans “upcoding” – reporting their enrollees as being more sick or requiring more intense levels of care than their medical records support in order to receive higher risk-adjusted payment.
Over the last week, the Centers for Medicare & Medicaid Services (CMS) issued long-awaited rules concerning audits of MA plan payments, as well as proposed MA plan payment rates for 2024. Together, these actions reflect an effort to both acknowledge and confront excessive payment to MA plans, but do these actions fall short? Will they be enough to stem the tide of wasteful payments that could otherwise be used to shore up Medicare’s solvency and expand benefits and coverage for all Medicare beneficiaries?
Overview of Audit Rule
Journalists such as Fred Schulte and colleagues at Kaiser Health News have long written about CMS’s audits of MA plan payments to recoup inappropriately paid dollars, called risk adjustment data validation (RADV) audits. Schulte has highlighted that hundreds of millions of dollars (or more) that CMS has deemed inappropriately paid have gone uncollected.
In 2018, CMS issued a proposed rule concerning RADV audits, including how the agency would extrapolate findings of a representative sample of audit results and apply that error rate to an entire MA contract. After several delays, on January 30, 2023, CMS released its long-awaited final rule regarding Medicare Advantage (MA) Risk Adjustment Data Validation (RADV); also see an accompanying CMS fact sheet. (Note: for a good explanation on MA overpayments and RADV audits, see “‘Everybody has blood on their hands’: A decade-long battle over Medicare Advantage audits is coming to a head” by Bob Herman, STAT News (Jan. 30, 2023).)
On the one hand, the final rule demonstrates CMS’s acknowledgment of the need to address inappropriate MA overpayments, and it retains methodology strongly opposed by the insurance industry. According to the New York Times (Jan. 30, 2023), “[i]t is the government’s strongest action against the practices in more than a decade.” On the other hand, CMS is leaving behind significant amounts of money that it has already determined was inappropriately paid over many years.
As stated by Fred Schulte in “Government Lets Health Plans That Ripped Off Medicare Keep the Money,” Kaiser Health News (Jan. 30, 2023), “Medicare Advantage plans for seniors dodged a major financial bullet Monday as government officials gave them a reprieve for returning hundreds of millions of dollars or more in government overpayments – some dating back a decade or more.” Schulte notes that “in a surprise action, CMS announced it would require next to nothing from insurers for any excess payments they received from 2011 through 2017. CMS will not impose major penalties until audits for payment years 2018 and beyond are conducted, which have yet to be started.” As stated by reporters Bob Herman and Tara Bannow, “federal officials watered down one of the auditing policies by giving insurers seven years of immunity from having the samples of their diagnosis coding errors extrapolated to their broader Medicare Advantage membership” (“Medicare Advantage insurers to repay billions under final federal audit rule” STAT News (Jan. 30, 2023)).
Herman and Bannow quantify “[t]he amount of taxpayer money that insurers will get to keep because of that decision” in a subsequent article titled “Medicare Advantage insurers will score $2 billion gift thanks to limited audits”, STAT News, (Feb. 1, 2023). The reporters note:
The $2 billion in foregone recoveries compares to just $41 million Medicare now expects to collect in “non-extrapolated” overpayments for those seven years. And considering it costs $51 million for Medicare to run these audits every year, the entire oversight program will be running at a huge loss for that seven-year stretch — all on the public’s dime.
Noting that funds are not expected to be recouped before 2025, Herman and Bannow note that this delay “giv[es] insurers two years to gum up or dilute the program even more. Their likely tactics include appeals, challenges to the agency’s audit and extrapolation methodology, and legal challenges.” The reporters put both the expected recovery from prior and future years in perspective related to overall overpayments to MA plans:
Although RADV audits are an important tool to enforce accountability within Medicare Advantage, their scope is still relatively limited, and they do not come close to recouping the full amount of overpayments that plans receive every year.
Just in 2022, the government estimates it overpaid Medicare Advantage plans by $11.4 billion. Since 2018, overpayments to insurers have exceeded $25 billion. The Medicare Payment Advisory Commission estimates coding overpayments are even higher – roughly $17 billion in 2021 alone. The RADV audit program, meanwhile, expects to claw back $4.7 billion in the next 10 years.
Even heading into 2023, a year in which the government is expected to pay Medicare Advantage plans more than $473 billion, coding errors are still outpacing any type of potential oversight [emphasis added].
In their earlier article, Herman and Bannow quote a CMS official who stated that pursuant to the final RADV rule “[t]he recoveries that we’ll make are less than one-fifth of 1% of the amounts paid to Medicare Advantage plans” [emphasis added]. Given the scope of overpayments, this projection begs the question whether far more aggressive tactics should be employed by the agency, including recouping payment from the years CMS is choosing to forego.
Predictable Response from Insurance Industry
As expected when their revenue stream is threatened, the insurance industry leapt into action as soon as the RADV audit rule was released, issuing dire warnings of Medicare Advantage apocalypse.
In response to a rule that will lead to recovery of “less than one-fifth of 1% of the amounts paid to Medicare Advantage plans” (as noted above),AHIP, the national association of health plans, said in a statement, “This rule is unlawful and fatally flawed, and it should have been withdrawn instead of finalized. The rule will hurt seniors, reduce health equity, and discriminate against those who need care the most. Further, the rule would raise prices for seniors and taxpayers, reduce benefits for those who choose MA, and yield fewer plan options in the future.”
Industry group Better Medicare Alliance (BMA) said in its statement, “we are focused on the potential unintended consequence of creating an environment of higher premiums and fewer benefits” for MA enrollees. Similarly, the Blue Cross Blue Shield Association warned in a statement, “this overreaching regulation will raise costs, reduce choice and make it more difficult for seniors and those with disabilities to effectively manage their health.”
Such dire predictions of what the insurance industry would be forced to do if it is paid even slightly less might be motivated more by the potential impact on shareholders than on plan enrollees. There is a large disconnect between how efficient plan sponsors say they can be with respect to delivering Medicare services based on their submitted bids to CMS, vs. the amount they actually get paid. As discussed in this Urban Institute paper “Understanding Medicare Advantage Payment – How the Program Allows and Obscures Overspending” by Robert A. Berenson, Bowen Garret and Adele Shartzer (Sept. 2022):
The growth and popularity of the MA program have come at a high cost, largely because of the payment system used for MA plans […] The paradox is that MA plans provide Parts A and B services for a much lower cost than TM [traditional Medicare] would spend for the same beneficiaries, but Medicare spends more overall than TM would spend for these same beneficiaries by paying for extra benefits and providing MA plans healthy and growing profit margins. Overall, MA plan bids to provide Parts A and B benefits in 2022 were at record lows – only 88 percent of what TM would pay – but payments were 104 percent of TM (MedPAC 2022, chapter 12). The 2022 data continue the decades-long reality described by MedPAC in which aggregate Medicare payments to MA plans have never been lower than spending in TM, even though spending reduction was a prominent reason for promoting private plan choice in Medicare. […] We point to some evidence that suggests MedPAC’s estimates for the amount of extra payments MA plans receive actually may be low, and further analysis is needed.
According to the Kaiser Family Foundation, in 2022 United Healthcare alone accounted for 28% (7.9 million individuals) of all MA enrollees. Due in part to more MA enrollments, AP reported in January 2023 that the “health care giant” beat forecasts and reported that “its profit soared 17% to $4.76 billion in the final quarter of 2022.” The article notes that “[f]or the full year, UnitedHealth earned more than $20 billion on $324.16 billion in revenue.”
What are we getting for all of this money paid to MA plans? The health insurance industry frequently touts that Medicare Advantage is the “better” option for Medicare beneficiaries, in part, because it has “better” health outcomes among enrollees. This line of reasoning implies that even if inflated payments are made to plans, it is money well spent. As discussed in previous CMA Alerts, however, the health outcomes of MA enrollees have been decidedly mixed, and some of the ways that MA underperforms traditional Medicare are of particular concern. In short, MA has failed to live up to its promise to deliver better care at a lower cost. The insurance industry should not be further rewarded with record profits paid by taxpayers.
Proposed 2024 MA Payment Rates Released
As discussed in previous CMA Alerts, the annual release of proposed Medicare Advantage payment rates for the following calendar year (the “Advance Notice”) triggers a yearly ritual on Capitol Hill wherein the insurance industry urges support from lawmakers, asking them to sign on to letters protesting any reductions in MA payment rates. Such lobbying is likely to be more aggressive this year, given the release of the RADV rule described above (see, e.g. AHIP’s statement that they “are concerned with the potential adverse impact” of this year’s payment notice “especially when taken together with” the RADV rule).
On February 1, 2023, CMS released the Calendar Year (CY) 2024 Advance Notice for the Medicare Advantage (MA) and Part D Prescription Drug Programs, which includes proposed MA payment rates (the document is available here; also see CMS Fact Sheet here).
After factoring in different variables, including the projected growth rate of spending in traditional Medicare and adjustments to star ratings and risk model revisions, CMS estimates that the expected average change in revenue will be an additional 1.03% in payment to MA plans relative to last year.
One the one hand, CMS appears to be taking steps to address overpayments by revising risk adjustment methodology in order to more accurately determine appropriate payment amounts. According to reporter Bridget Early in Inside Health Policy (Feb. 1, 2023), the proposed payment rate to MA plans, if finalized, would represent “a sharp decrease from the more than 8% pay bump they received for 2023, as well as the 4% increase plans got for 2022. The smaller pay raise is due in part to CMS proposing a revamped risk adjustment model and changes in star ratings that are projected to hurt plan payments.” Reporter Bob Herman, in an article titled “Biden administration floats major 2024 pay cut for Medicare Advantage plans” (STAT News Feb. 1, 2023) noted that “[i]f the proposal stands, it would be a net cut of more than $3 billion to the industry.” This proposal represents a welcome shift in CMS oversight of MA payment.
On the other hand, CMS is not proposing to use its discretion to employ higher coding intensity adjustment – described by the Commonwealth Fund as “an across-the-board cut [CMS] makes to plans’ payments meant to adjust for the fact that some plans may be coding too intensely.” CMS has the authority to adjust plans’ payment more than the 5.9% statutory minimum; as noted by the Fund, MedPAC estimated that in 2020, the risk scores for MA enrollees were about 9.5% higher than what they would have been for a similar beneficiary in traditional Medicare. Using a higher adjustment is a measure supported by many stakeholders ranging from MedPAC to the Center for American Progress to the Committee for a Responsible Federal Budget (as discussed in this CMA Alert).
Discussion
Ultimately, Congress bears responsibility for setting Medicare payment and coverage policy. But despite some notable exceptions, most lawmakers do not even acknowledge, let alone try to address, Medicare Advantage overpayments, even when discussing the Medicare program’s fiscal solvency.
Absent Congressional action, it is up to the Administration and CMS to act. The need to rein in the MA industry and stop wasteful payments could not be more clear. As reported by Reed Abelson and Margot Sanger-Katz in a New York Times article titled ‘The Cash Monster Was Insatiable’: How Insurers Exploited Medicare for Billions” (Oct. 8, 2022), “major health insurers [have] exploited the [Medicare] program to inflate their profits by billions of dollars.” Noting that most large insurers offering MA plans have been accused of fraud in various lawsuits, the article outlined how MA insurers, “among the largest and most prosperous American companies, have developed elaborate systems to make their patients appear as sick as possible, often without providing additional treatment, according to the lawsuits” and “[a]s a result, a program devised to help lower health care spending has instead become substantially more costly than the traditional government program it was meant to improve.”
It is not only a matter of needing to ensure proper fiscal stewardship of taxpayer dollars and preventing unjust enrichment of insurance companies. What could we do with all of those overpayments? In addition to shoring up the Medicare program’s solvency, such wasted funds could be used to expand Medicare and other health coverage. For example, the New York Times article cited above noted that even conservative estimates of the scope of MA overpayment ($12 billion in 2020 alone, according to MedPAC), would be enough to “cover hearing and vision care for every American over 65.” As discussed in a previous CMA Alert, for a brief period of time during the Build Back Better debate in 2021, Congress contemplated reining in these overpayments to help pay for expanding dental, hearing and vision services for all Medicare beneficiaries, not just those enrolled in private plans, until the insurance industry stepped in to maintain the status quo – and prevent traditional Medicare from being a more attractive option for beneficiaries.
Conclusion
The Center for Medicare Advocacy is encouraged by many of the steps taken by this Administration to increase oversight of MA plans and strengthen consumer protections. When it comes to MA overpayments, however, it appears to be doing too little, too late. Will the impact of recent policies concerning RADV audits (looking backwards), and MA payment rates (looking forwards), be enough to right the current payment imbalances? Will independent efforts by the Department of Health and Human Services’ Office of Inspector General (OIG) and the Department of Justice (DOJ) help to reverse the tide of wasteful overpayments?
We are very likely to see the insurance industry take steps to thwart implementation of the RADV rule, and to exert significant pressure on CMS to revise its proposed 2024 payment rates. We urge CMS to hold fast against this pressure, and to reinforce its efforts to rein in and recoup Medicare Advantage overpayments. The Medicare program, the people it serves, and taxpayers cannot afford any other course of action.