Medicare Advantage: Substantial Excess Payments Underscore Need for CMS to Improve Accuracy of Risk Score Adjustments

United States Government Accountability Office (GAO)
Report to Congressional Requesters, January 31, 2013

What GAO Found

GAO found that the cumulative impact of coding differences on risk scores increased from 2010 through 2012 and was greater than the Centers for Medicare & Medicaid Services’ (CMS) risk score adjustment of 3.4 percent for each of the 3 years. In updating the analysis from its January 2012 report, GAO estimated that cumulative Medicare Advantage (MA) risk scores in 2010 were 4.2 percent higher than they likely would have been if the same beneficiaries had been enrolled continuously in Medicare fee-for-service (FFS). For 2011, GAO estimated that differences in diagnostic coding resulted in risk scores that were 4.6 to 5.3 percent higher than they likely would have been if the same beneficiaries had been continuously enrolled in FFS. This upward trend continued for 2012, with estimated risk scores 4.9 to 6.4 percent higher.

CMS’s adjustment to risk scores for 2010 through 2012 to account for diagnostic coding differences was too low, resulting in estimated excess payments to MA plans of at least $3.2 billion. CMS’s annual 3.4 percent reduction in risk scores is equivalent to $2.8 billion in 2010, $3.0 billion in 2011 and $3.2 billion in 2012. According to GAO’s estimates, the amount of the excess payments to MA plans after accounting for CMS’s adjustments was $0.6 billion in 2010, between $1.1 billion and $1.6 billion in 2011, and between $1.5 billion and $2.9 billion in 2012. Cumulatively across the 3 years, this equals excess payments of between $3.2 billion and $5.1 billion.

For 2013, CMS continues to use the risk score adjustment of 3.4 percent it used in 2010, 2011, and 2012. To conduct its data-based analysis, CMS officials reported that they used the same methodology used in 2010, but they incorporated more recent data.

CMS officials stated that they believed there was policy discretion with respect to the most appropriate adjustment factor but did not identify the specific source of their authority to consider factors other than the required data analysis when determining the adjustment amount. While CMS did not change its risk score adjustment methodology for 2013, agency officials said they may revisit their methodology for future years.

Concluding Observations

Risk adjustment is important to ensure that payments to MA plans adequately account for differences in beneficiaries’ health status and to maintain plans’ financial incentive to enroll and care for beneficiaries regardless of their health status. Our work confirms that differences in diagnostic coding caused risk scores for MA beneficiaries to be higher than those for comparable beneficiaries in Medicare FFS in 2010, 2011, and 2012. CMS’s decision to use a 3.4 percent adjustment to risk scores for 2010 through 2012 instead of the higher adjustments called for by our analysis resulted in excess payments to MA plans. The existence of such excess payments indicates that CMS’s adjustment does not accurately account for differences in treatment and diagnostic coding between MA plans and Medicare FFS—the stated goal of the statute that required CMS to develop a diagnostic coding adjustment. In our January 2012 report, we recommended that CMS take steps to improve the accuracy of the adjustment to account for excess payments due to differences in diagnostic coding. We noted that CMS could, for example, account for additional beneficiary characteristics, include the most recent data available, identify and account for all the years of coding differences that could affect the payment year for which an adjustment is made, and incorporate the trend of the impact of coding differences on risk scores. CMS’s adjustment for 2013 is the same as it used in 2010, 2011, and 2012. However, given our finding that this adjustment was too low and resulted in estimated excess payments to MA plans of at least $3.2 billion, we continue to believe that it is important for CMS to implement our recommendation that it update its methodology to more accurately account for differences in diagnostic coding.

http://www.gao.gov/assets/660/651712.pdf

And…

Medicare Advantage remains strong

U. S. Department of Health & Human Services (HHS), September 19, 2012

“Thanks to the Affordable Care Act, the Medicare Advantage and Prescription Drug programs have been strengthened and continue to improve for beneficiaries,” said (HHS Secretary Kathleen) Sebelius.

For the third year in a row, the Centers for Medicare & Medicaid Services (CMS) used authority provided by the Affordable Care Act to protect beneficiaries from significant increases in costs or cuts in benefits.

http://www.hhs.gov/news/press/2012pres/09/20120919a.html

The private Medicare Advantage plans, offered as an option to traditional Medicare, have been cheating taxpayers by selectively enrolling healthier, lower-cost patients, though being paid at full rates, and more recently by coding patients as having more complicated conditions in order to qualify for higher, risk-adjusted payments. The GAO now provides us with further evidence that Secretary Sebelius and HHS/CMS have been complicit in this fraud.

The Affordable Care Act included provisions to reduce the overpayments to the private Medicare Advantage plans. This GAO report shows that HHS/CMS ignored GAO’s recommendations to improve their risk adjustment methodology, recommendations that should have reduced overpayments due to the embellished diagnostic codes being submitted by the Medicare Advantage plans. HHS/CMS refused to improve the accuracy of their adjustments, which has already resulted in overpayments to these private plans of between $3.2 billion and $5.1 billion.

Why would they do this? Secretary Sebelius has repeatedly touted the Medicare Advantage plans, and has made efforts to expand enrollment in them, even though they cost the taxpayers more money. Overpaying them allows the plans to offer greater benefits in order to entice individuals to enroll. This is leading to further privatization of Medicare, opening up opportunities for Paul Ryan and other members of Congress to push future Medicare beneficiaries into his “premium support” proposal – a voucher plan to privatize Medicare.

Although the Medicare Advantage programs are more expensive, the intent is to expand enrollment and then make a simple change – convert the financing to a defined contribution (premium support), shifting more of the costs to Medicare beneficiaries through higher premiums and then through greater cost sharing (higher deductibles, etc.) to keep the premiums from skyrocketing beyond the means of most seniors.

President Obama has said that he is quite willing to put Medicare on the table as part of the austerity program being advanced by the budget hawks. Secretary Sebelius is advising him on “strengthening” Medicare. Be afraid. Be very afraid.