Risk Adjustment Data Validation of Payments Made to PacifiCare of California for Calendar Year 2007

Department of Health and Human Services
Office of Inspector General, November 2012

Under the Medicare Advantage (MA) program, the Centers for Medicare & Medicaid Services(CMS) makes monthly capitated payments to MA organizations for beneficiaries enrolled in the organizations’ health care plans. Subsections 1853(a)(1)(C) and (a)(3) of the Social Security Act require that these payments be adjusted based on the health status of each beneficiary. CMS uses the Hierarchical Condition Category (HCC) model (the CMS model) to calculate these risk-adjusted payments.

The diagnoses that PacifiCare submitted to CMS for use in CMS’s risk score calculations did not always comply with Federal requirements. For 55 of the 100 beneficiaries in our sample, the risk scores calculated using the diagnoses that PacifiCare submitted were valid. The risk scores for the remaining 45 beneficiaries were invalid because the diagnoses were not supported by the documentation that PacifiCare provided.

As a result of these unsupported diagnoses, PacifiCare received $224,388 in overpayments from CMS. Based on our sample results, we estimated that PacifiCare was overpaid approximately $423,709,068 in CY 2007. The confidence interval for this estimate has a lower limit of $288 million and an upper limit of $559 million.

The following are examples of HCCs that were not supported by the documentation that PacifiCare submitted to us for medical review:

*  For one beneficiary, PacifiCare submitted the diagnosis code for “spinocerebellar disease, other cerebellar ataxia.” CMS used the HCC associated with this diagnosis in calculating the beneficiary’s risk score. However, the documentation that PacifiCare provided described an evaluation for fever and cough. The documentation did not mention cerebellar ataxia or indicate that cerebellar ataxia had affected the care, treatment, or management provided during the encounter.

*  For a second beneficiary, PacifiCare submitted the diagnosis code for “malignant neoplasm of the prostate.” CMS used the HCC associated with this diagnosis in calculating the beneficiary’s risk score. However, the documentation that PacifiCare provided appeared to describe suture removal and left shoulder bursitis/tendonitis. The documentation did not mention prostate cancer or indicate that prostate cancer had affected the care, treatment, or management provided during the encounter.

*  For a third beneficiary, PacifiCare submitted the diagnosis code for “unspecified septicemia” (commonly referred to as “blood poisoning”). CMS used the HCC associated with this diagnosis in calculating the beneficiary’s risk score. However, the documentation that PacifiCare provided noted that the patient was admitted for a “left total knee revision arthroplasty.” The documentation did not mention blood poisoning or indicate that blood poisoning had affected the care, treatment, or management provided during the encounter.

http://www.scribd.com/doc/116760242/RISK-ADJUSTMENT-DATA-VALIDATION-OF-P…

It has long been recognized that the private Medicare Advantage plans (offered as an option to the traditional Medicare program) have been cheating the taxpayers, initially by selectively enrolling the healthy while being paid at rates that include a mix of the sick, and, more recently, by gaming the process of risk adjustment (which seeks to correct for the health status of the beneficiaries actually enrolled by the private plans). This new report from the HHS Office of Inspector General is helpful because it provides a perspective of the enormity of the problem.

In one year alone (2007), one California insurer – PacifiCare (acquired by UnitedHealth Group in 2005) – used their Medicare Advantage program to cheat taxpayers out of almost half a billion dollars! Extrapolate that to all Medicare Advantage plans in all states for all years, and think of the impact this must have had on our Medicare budget.

The private insurers pride themselves on their innovations. Based on their past behavior, we can be assured that they will continue to innovate in opaque ways that cheat not only the taxpayers, but also the health professionals and institutions, and, most importantly, the patients. Without transparency, they will get away with it for extended periods of time, with new innovations introduced as they get tripped up on the old.

Although the Affordable Care Act calls for a reduction in overpayments to these plans, the legislation leaves them in place. That is a terrible mistake.

We need to shut down the Medicare Advantage plans, and, while we’re at it, shut down all private insurers and replace them with an improved Medicare for everyone. We may not be able to do that before we reach “The Cliff,” but we should start working on it immediately.