But the February 2011 memo from Cheri Rice, acting director of the Medicare Plan Payment Group, stated that CMS “anticipates making changes” to the much-feared audit process. The memo arrived at a time when the industry — and stock market analysts — were worried that the audits could seriously impact the bottom line.
Indeed, the memo brought a strong reaction. Justin Lake, then an analyst at UBS Investment Bank, flagged the memo as “breaking news from CMS” in a research note sent via email at 1:33 pm.
“We have been reading CMS notices for 10 years now and don’t EVER remember the agency indicating explicitly that there were changes coming in between publishing preliminary and final rules such as this. Very interesting indeed,” Lake wrote.
Lake speculated that it could signify a “kinder/gentler CMS” that would be less aggressive about clawing back widespread overpayments to Medicare Advantage plans. Such a stance would be “very bullish” for Medicare Advantage stocks, he said.
It’s not clear how the UBS analyst obtained the memo. Lake, who recently joined a hedge fund in Connecticut, declined comment through the firm.
At 2:07 p.m., a second CMS official remarked that Lake’s analysis “is generating huge amounts of interest from the markets. Bank of America just called me too,” he wrote.
In his 2:37 pm email, Segal cited Lake’s note as the biggest driver of the market: “The sales team at UBS must have gotten on [the] phones and convinced a bunch of analysts and traders that this was a big deal,” Segal wrote.
Much of the other chatter within CMS as the stocks gained ground was redacted from the volley of emails released to the Center for Public Integrity.
Still, it’s clear that agency officials were caught off guard. Stock in Humana Inc., the country’s second biggest Medicare Advantage plan, rose by five percent, while HealthSpring, also a Medicare insurer, was up four percent — all on a day when the Standard & Poor’s 500 index was roughly flat, according to the CMS mid-afternoon analysis.
CMS spokesman Aaron Albright said the memo was a “standard communication” and suggested the markets had over-reacted. “We can’t control how people react to a memo like this,” he said.
While investors may have welcomed CMS easing up on Medicare Advantage audits, taxpayers, both then and now, have much less cause for applause.
The audits the industry was hoping to scale back assess the accuracy of a billing tool called a “risk score,” which is supposed to pay insurers higher rates for taking sicker people and less for those with few medical needs.
By 2011, CMS officials had been struggling for years to track overspending tied to inflated risk scores. A 2009 agency study found that some plans had exaggerated how sick patients were to boost their payments, for instance. And by the agency’s own account, “improper” payments to Medicare Advantage plans cost taxpayers billions of dollars annually, as the Center for Public Integrity first reported last year.
Despite growing losses from improper billing, CMS officials have repeatedly caved in to pressure from the industry to scale back the consequences of these audits, which are known as Risk Adjustment Data Validation — or RADV.