Some Medicare Advantage plans overcharged the government by billions of dollars and got away with it

Senate Judiciary chair Grassley says government has to 'get it right' and pursue full refunds for overpayments.

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Despite facing mounting evidence they were overpaying some Medicare health plans by tens of millions of dollars a year, federal officials dialed back efforts to recover as much of the money as possible, newly released government records show.

Centers for Medicare and Medicaid Services records reveal that officials there as early as 2008 identified a group of privately-run Medicare Advantage health plans they suspected of ripping off the government, even dubbing them “high-flyers.”

But CMS officials chose to do just 30 in-depth financial audits to recover overpayments each year, even though the records make clear they could complete many more.

“Given our current staffing and contractor resources, we can do up to 80 audits a year,” reads an undated CMS document.

But CMS officials subsequently proposed to the White House Office of Management and Budget that only the 30 audits be conducted. OMB did not respond to requests for comment. A CMS record says the “consensus was to audit 30 contracts per year .”

 In February 2012, CMS announced it would do just that —which meant about five percent of the roughly 600 Medicare Advantage contracts in force would be audited in a year.

The agency expected to complete the first batch of these audits, which covered 2011 spending, and to “recoup overpayments” in early 2014, according to another document. But it has yet to do so. A spokesman said the Medicare agency “anticipates completing” the audits in 2016.

The risk in risk scores

The CMS records were recently released to the Center for Public Integrity through a court order in a Freedom of Information Act lawsuit. The privately-run Medicare Advantage plans offer seniors an alternative to traditional Medicare and in recent years have signed up more than 17 million members, about a third of people eligible for Medicare.

Since 2004, the government has paid the health plans using a risk score it calculates for each patient based on diseases reported by the health plans. Medicare expects to pay higher rates for sicker people and less for those in good health. But overspending tied to fast-rising risk scores has cost taxpayers billions of dollars in recent years, as the Center for Public Integrity reported in a series of articles published last year, leading to widespread suspicions that some risk scores are being purposefully inflated

Many of the records released by CMS are heavily redacted, with dates and the names of their authors sometimes missing. More than 1,400 pages have been “withheld in their entirety” by CMS, including names of the health plans and how much they were overpaid.

Grassley’s ire

The government’s relaxed pace in chasing down overpayments — and the secrecy surrounding the audit results — brought a sharp rebuke from Senate Judiciary Committee Chairman Charles Grassley.

“The agencies are responsible for getting the payments right in the first place and pursuing full refunds of all over-payments for the taxpayers,” the Iowa Republican said in a statement. 

“The agencies also have an obligation to be as transparent as possible about audits, over-payments and everything else in the public interest about a taxpayer-funded program,” Grassley added.

Despite the redactions, the records offer significant new details about the fitful pace of Medicare Advantage audits, which appear so far to have cost taxpayers more to carry out over the years than they have clawed back.

In recent months, the Obama administration has called for a crackdown on medical billing abuses. In February, White House budget director Shaun Donovan called for a “more aggressive strategy” against “improper” payments.

The CMS records make clear that Medicare Advantage overpayments have piled up mainly because the complex “risk score” formula used to pay the plans has few safeguards to discourage abuse. One memo describes it as an “honor system.”

Grassley called that remark “worrisome.” “This is a multi-billion-dollar government program, not the office coffee kitty. CMS, DoJ (Department of Justice) and Congress have to get it right,” he said.

A CMS spokesman did not directly address written questions posed by the Center for Public Integrity about the history of the audits.  But the agency offered a statement that read in part:  “CMS takes seriously program integrity and payment accuracy in Medicare Advantage, and is taking steps to protect taxpayers, Medicare beneficiaries, and the Medicare program.”

‘Substantial overpayment’

The CMS records include an earlier confidential audit of 2005 payments to 22 Medicare Advantage health plans; it showed that auditors couldn’t confirm 31 percent of the patients had the diseases Medicare was paying plans to treat.

Some plans were much worse than others. The average error rate for 17 of the 22 plans was more than 10 percent above the norm, with some even higher.  The confidential 2005 audit, conducted by consulting firm BearingPoint, projected 2005 losses at $4.2 billion from what it termed a “substantial overpayment” to Medicare Advantage plans.

Demanding all the money back “may be defensible to public entities such as Congress,” but might also lead some insurers to “opt out” of Medicare Advantage, the report added. Since debuting in 2004, the program has won many fans among both seniors and members of Congress.

The audits are called RADV, for Risk Adjustment Data Validation. Auditors review medical records of a sample of 201 patients to verify they have the diseases their health plan is being paid to treat.

If patient files don’t confirm the diagnoses, CMS asks for a refund. The agency planned to extrapolate the payment error rate to a contracted plan’s full membership. Extrapolation is widely used by federal officials in calculating medical overpayments. In this case, that sort of extrapolation would have put some large Medicare Advantage plans on the hook for tens of millions of dollars in refunds.

High stakes

CMS records suggest that pushback from the industry, including threats of lawsuits over the legality of the audits, and other delays and missteps, gave the agency pause with extrapolating.

“A lot of money is at stake” from these audits, which “has the plans very nervous,” says one CMS record.

In one undated presentation, officials argued for a “conservative estimate” of overpayments, noting “we think it puts us in the best position to withstand litigation challenges.”

CMS officials also appeared to have doubts about the legality of RADV because it lacked a formal appeals process. Setting one up took until February 2012 and in the meantime the health plans weren’t penalized — even though officials knew payment errors were wasting billions of tax dollars.

Audits for 2007, for instance, dragged on for more than five years before ending with a whimper. CMS had anticipated collecting from $500 million to $800 million from 37 health plans audited that year, the newly released records show.

 That never happened. Instead, CMS collected less than $14 million and some health plans, including UnitedHealth Care, have spent years appealing to get at least some of that money back.

The audit program fell short of expectations at several other points as well.

A Dec. 22, 2010 internal memo said that CMS expected to launch audits of 2008 spending “soon” and that “at least forty” would take place. During 2008, CMS had estimated “improper payments,” to the health plans at nearly $7 billion, mostly overcharges.

Yet CMS ended up scrapping the 2008 audits and didn’t conduct them for 2009 or 2010, apparently because officials believed they had waited too long to get the process up and running.

“If we move forward with 2008, we would be reviewing (medical) records from 4 to 5 years ago,” an unnamed official said in one internal presentation. The official suggested instead that the agency start extrapolation audits for the 2011 payment year.

The speaker went on to reflect frustration with RADV audits which “have taken much longer than we ever dreamed possible.” The official called it a “learning process.”

Apart from discussing “high-flyers” at two internal meetings, there’s no evidence CMS tried to figure out precisely how many plans—including some operated by major corporations with millions of Medicare members— were exaggerating how sick their patients were to fatten the bottom line.

The Centers for Medicare and Medicaid Services, which is part of the Department of Health and Human Services, spends about $17 million a year conducting RADV audits and estimating payment errors. So far, these efforts have returned about $15 million to the agency.

By contrast, other medical fraud and abuse efforts are said to more than pay for themselves. HHS announced in March 2015 that fraud recovery efforts department-wide returned $7.70 for every dollar spent.

CMS officials have said the threat of being audited, and a provision of the Affordable Care Act requiring prompt return of any excess payments, has led Medicare Advantage to voluntarily send back more than $1 billion to the treasury, mostly since 2010. The CMS spokesman said audits of 30 Medicare Advantage contracts and their spending from 2012  have begun  and that plans were chosen based on “how aggressively they report diagnosis codes to CMS for payment.”

But Steve Ellis, vice president of the budget watchdog group Taxpayers for Common Sense, a budget watchdog group, said it was troubling that the audits haven’t delivered better results. “You really have to enforce audits and act on them and not let the bad actors off the hook,” he said.

This story was co-published with NPR.

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