The Centers for Medicare & Medicaid Services overpaid Medicare Advantage plans between $1.2 billion and $3.1 billion in 2010, and likely overpaid even more in 2011, according to an analysis released by the Government Accountability Office.
The problem came to light after policymakers expressed concern Medicare Advantage plans were reporting greater disease severity levels for their enrollees than claims for fee-for-service beneficiaries indicated.
The formula for determining monthly capitation rates for health plans had been based on diagnostic sampling of fee-for-service populations, so the two should be relatively similar based on historical claims costs.
Asked why they weren't, James Cosgrove, the GAO's Health Care Director and lead author of the report, said that wasn't the scope of the project.
"We didn't try to get into the possibilities," he said. "What leads to this problem could be that the fee-for-service doctors are not doing a very good job in reporting diagnoses, or it could be that some of the Medicare Advantage plans are exaggerating the diagnoses that their beneficiaries have, or somewhere in the middle."
He emphasizes that the GAO is not accusing health plans of upcoding, as some reports in the media implied. Part of the problem is that in Medicare Advantage populations, providers may be doing a better job of recording specific diagnostic codes for their enrollees, perhaps because they have more of an incentive, he said.
Fee-for-service providers, on the other hand, will file a claim for "a mid-level office visit," and neglect to put in a specific diagnosis, Cosgrove explains. In coming up with its risk adjustment formula to determine capitation rates for the plans, Medicare looked at spending for large populations based on what limited fee-for-service diagnostic information it had.
CMS officials did adjust risk scores to reduce some of the overpayment, which would have been $3.89 billion to $5.8 billion more before the correction, the report says.
But the adjustments were not enough in 2010 and beyond. "By continuing to implement the same 3.4% adjustment for coding differences in 2011 and 2012, CMS likely underestimated the impact of coding differences in 2011 and 2012, resulting in excess payments to MA (Medicare Advantage) plans," the report says.
Robert Zirkelbach, spokesman for America's Health Insurance Plans, says the coding differences are the result of more diligence by Medicare Advantage plans.
“Unlike the FFS part of Medicare, Medicare Advantage plans work to identify and address beneficiaries' specific health care needs through integrated care coordination, disease management, and quality improvement initiatives. Recent research has found that these programs are improving the quality of care for seniors in Medicare Advantage compared to FFS," he said in a statement.
"For example, a report in the latest edition of Health Affairs found that seniors with diabetes in a Medicare Advantage special-needs plan had more primary care physician office visits and fewer preventable hospital admissions and readmissions than beneficiaries in FFS. Conclusions about whether the MA payment system appropriately pays plans should therefore not be based on GAO’s analysis,” Zirkelbach's statement said.
Cosgrove's GAO report also pointed out that CMS's methodology "did not include more current data, did not incorporate the trend of the impact of coding differences over time, and did not account for beneficiary characteristics other than age and mortality, such as sex, health status, Medicaid enrollment status, beneficiary residential location, and whether the original reason for Medicare entitlement was disability."
In 2011, about 11.7 million people—one in four Medicare beneficiaries—was enrolled in a Medicare Advantage plan, Cosgrove said.