Scheme Tied to UnitedHealth Overbilled Medicare for Years, Suit Says

By Mary Williams Walsh
The New York Times, February 16, 2017

UnitedHealth Group, one of the nation’s largest health insurers, is accused in a scheme that allowed its subsidiaries and other insurers to improperly overcharge Medicare by “hundreds of millions — and likely billions — of dollars,” according to a lawsuit made public on Thursday at the Justice Department’s request.

The accusations center on Medicare Advantage, a program through which people 65 or older agree to join private health maintenance organizations, or H.M.O.s, whose costs the government reimburses.

The program was created in 2003 after UnitedHealth and other insurers said that managed care could help contain the overall cost of Medicare, which has strained the federal budget by rising faster than the rate of inflation.

Instead of slowing Medicare costs, UnitedHealth may have improperly added excess costs in the billions of dollars over more than a decade, according to the lawsuit, which was unsealed in Federal District Court in Los Angeles.

The newly public accusations were first made in 2011, when a former UnitedHealth executive, Benjamin Poehling, filed a complaint under the False Claims Act, a federal law that allows private citizens to take legal action when they believe a government program has been defrauded.

The Justice Department’s court notice that it was joining the case involving UnitedHeath was filed by Chad Readler, a lawyer who joined the agency’s civil division as part of the Trump administration.

Mr. Poehling was finance director for UnitedHealthcare Medicare and Retirement, a subsidiary that works with the Medicare Advantage program. His complaint describes “a corporate culture that demands and rewards financial success from its employees,” including initiatives to increase a billing practice known as “risk adjustment.”

Mr. Poehling said that he and other employees were given “risk adjustment” targets and their performance was evaluated based on how well they achieved them.

Attached to his complaint was an email message from his division’s chief financial officer, Jeffrey J. Knutson, urging staff members “to really go after the potential risk scoring that you have consistently indicated is out there.”

“Let’s turn on the gas!” Mr. Knutson wrote. “What can we do to make sure we are being reimbursed fairly for the members and risk we take on more than what we are currently doing.

“When we meet next on our steering committee, I’d like to see what it would take to add another $100M to our 2008 revenue from where we are. What would be doable? What resources would you need? What technology would you need?”

Medicare initially paid the H.M.O.s a fixed rate per member, no matter what chronic conditions members had. That made the H.M.O.s avoid signing up unhealthy people, because they required more care, reducing the companies’ profits.

The approach changed in 2003, when the Centers for Medicare and Medicaid Services added a “risk adjustment factor” to its reimbursement schedules for managed care. That made H.M.O.s more willing to sign up unhealthy people, but it also gave them a new incentive: to make people appear sicker than they were. UnitedHealth had a unit that helped its subsidiaries and other insurance companies perform risk adjustment calculations.

Medicare Advantage’s rules require that for patient care to qualify for risk adjustment factors, a patient’s condition must be verified in person on a regular basis by a qualified professional.

But Mr. Poehling said that coding specialists would instead mine patient records, looking for hints of a possible long-term condition. When they found one, they would request the higher payment without going through the required in-person evaluation.

The realization that medical records could be mined for extra money appears to have given rise to a cottage industry of consulting firms offering to screen patient histories and look for indications of long-term health problems that could be used to increase Medicare reimbursements.…

Innumerable studies that we’ve written about have shown that the private Medicare Advantage plans have gamed the system at the expense of taxpayers by surreptitiously selectively enrolling healthier, less costly patients, and then, when risk adjustment was introduced to correct for this favorable selection, the plans upcoded to qualify for higher payments by making the patients appear sicker than they really were.

Finally, the legal system has caught up with them. First a whistleblower suit was filed under the False Claims Act, and now, under the Trump administration, the Justice Department has joined in that action.

UnitedHealth contends that they complied with the program rules. Technically, that may be true. The Bush and Obama administrations along with Congress were complicit with efforts to ensure success of the private Medicare Advantage plans as a first step toward eventually privatizing the Medicare program. Insurance innovation has been praised by the privatizers. In this instance, innovation is enhanced by interpreting quite loosely the federal regulations on favorable selection and risk adjustment.

We need a little perspective here. There is no question that the insurers manipulated the system to gain a greater return than the actual health of their enrollees warranted. But private for-profit corporations have a responsibility to their shareholders to do precisely that – maximize returns – and they will every time.

Whether or not there is a technical violation of the regulations, it is the insertion of a rent-seeking intermediary that is the fundamental flaw here. Gaming favorable selection and risk adjustment does not occur in the traditional Medicare program. Gaming the system is expensive because it requires more administrative efforts to pull it off. The private plans have about five times the administrative costs of the traditional Medicare program, and we taxpayers are footing the bill.

The inferiority of the private Medicare plans is not a newly discovered fact. My very first Quote of the Day (before I realized what I was starting) was Congressman Pete Stark’s response to Karen Ignagni of AAHP (precursor to AHIP) who was boasting about Medicare + Choice plans (precursor to Medicare Advantage). She said that the the early results of the plans provided proof that the private sector could provide higher quality at lower costs. (In fact the evidence was the opposite in that Medicare + Choice plans soon began to pull out of the market because they could not deliver on that promise. But the market was saved by converting to Medicare Advantage on terms much more favorable to the insurers.) Pete Stark, not known for mincing words, responded to Ignagni’s praise of private Medicare plans by saying, “She’s full of more s*** than a Christmas goose.”

Obviously the insurers violated what should have been the intent of the laws and regulations. But they will always do that if it accrues to their benefit. The solution is simple: throw them out, fix Medicare, and then expand it to include all of us. An immediate benefit is that it would also end discussion of all of the flawed policies being considered under repeal and replace.