Six years ago, federal health officials were confident they could save taxpayers hundreds of millions of dollars annually by auditing private Medicare Advantage insurance plans that allegedly overcharged the government for medical services.
An initial round of audits found that Medicare had potentially overpaid five of the health plans $128 million in 2007 alone, according to confidential government documents released recently in response to a public records request and lawsuit.
But officials never recovered most of that money. Under intense pressure from the health insurance industry, the Centers for Medicare and Medicaid Services quietly backed off their repayment demands and settled the audits in 2012 for just under $3.4 million — shortchanging taxpayers by up to $125 million in possible overcharges just for 2007. The centers are part of the Department of Health and Human Services.
Medicare Advantage is a popular alternative to traditional Medicare. The privately run health plans have enrolled more than 17 million elderly and disabled people — about a third of those eligible for Medicare — at a cost to taxpayers of more than $150 billion a year. And while the plans generally enjoy strong support in Congress, there are critics.
“It's unclear why the Obama Administration allowed CMS to overpromise and under-deliver so badly on collecting these overpayments,” Sen. Chuck Grassley, R-Iowa, told Kaiser Health News in an email response to the findings.
He said CMS “should account for why this process seems to be so broken and why it can't seem to fix it, despite recommendations to do so. The taxpayers depend on getting this process right.”
The failure to collect also alarmed Steve Ellis, vice president of the budget watchdog group Taxpayers for Common Sense in Washington.
“They need to put up a bigger and stronger fight to make sure these programs are operated on the straight and narrow,” Ellis said.
Yet outside of public view, federal officials have been losing a high-stakes battle to curb widespread billing errors by Medicare Advantage plans, according to the records obtained through a Freedom of Information Act lawsuit filed by the Center for Public Integrity.
The Center for Public Integrity first disclosed in 2014 that billions of tax dollars are wasted annually partly because some health plans appear to exaggerate how sick their patients are, a practice known in health care circles as “upcoding.”
Last August, the investigative journalism group reported that 35 of 37 health plans CMS has audited overcharged Medicare, often by overstating the severity of medical conditions such as diabetes and depression.
The newly released CMS records identify the companies chosen for the initial 2007 audits as a Florida Humana plan, a Washington state subsidiary of United Healthcare called PacifiCare, an Aetna plan in New Jersey and an Independence Blue Cross plan in the Philadelphia area.
The fifth one focused on a Lovelace Medicare plan in New Mexico, which has since been acquired by Blue Cross.
Each of the five audits, which took more than two years to complete, unearthed significant — and costly — billing mistakes, though the plans disputed them.
For example, auditors couldn’t confirm that one-third of the diseases the health plans had been paid to treat actually existed, mostly because patient records lacked “sufficient documentation of a diagnosis.”
Overall, Medicare paid the wrong amount for nearly two-thirds of patients whose records were examined; all five plans were far more likely to charge too much than too little. For 1 in 5 patients, the overcharges were $5,000 or more for the year, according to the audits. None of the plans would discuss the findings.
As preliminary results of the audits started to roll in, CMS officials outlined steps to recover more than $128 million from the five plans at a confidential agency briefing in August 2010, according to a policy memo prepared for the meeting. The records don’t indicate who attended.
That day, CMS set Humana’s payment error at $33.5 million, PacifiCare at $20.2 million, Aetna at $27.6 million, Independence Blue Cross at nearly $34 million and Lovelace at just under $13 million. Those estimates were based on extrapolation of a sample of cases examined at each plan.
CMS “has developed a process for moving forward with payment recovery,” according to a briefing paper from the 2010 meeting.
But that process fizzled after two years of haggling with the plans and insurance industry representatives, who argued the audits were flawed and the results unreliable. In August 2012, CMS gave in and notified the plans it would settle for a few cents on the dollar.
“Given this was a new process, the decision was made at the time to tie repayments to the actual claims reviewed as part of the 2007 pilot audit,” said CMS spokesman Aaron Albright. “For subsequent audits, we said we intended to determine repayments by extrapolating the error rate of the sample of claims reviewed to all claims under the contract.” Albright said more of the audits are underway. Allowing the insurers to dodge liability dealt a serious blow to the government’s efforts to crack down on billing abuses — a setback one taxpayer advocate called alarming.
“That’s a very bad way to operate the system.” said Patrick Burns, acting executive director and president of Taxpayers Against Fraud in Washington, on hearing of the outcome. “Nobody is held accountable.”
Indeed, CMS kept the settlement terms under wraps until 2015, after an inquiry by Grassley. The senator had requested details about Medicare Advantage fraud controls in response to articles published by the Center for Public Integrity.
In a July 31, 2015 letter to Grassley, CMS Acting Administrator Andy Slavitt attached a table that showed the five plans repaid just under $3.4 million. The letter didn’t mention the earlier estimate that the government was due $128 million. Grassley said it should not have taken the FOIA lawsuit to make that information available to the public.
“Perhaps adding insult to injury, these numbers might never have seen the light of day without a lengthy lawsuit,” Grassley said this week.