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OIG: Identifying Denied Claims in Medicare Advantage Needed to Combat Fraud

Analysis  |  By Jay Asser  
   March 10, 2023

Medicare Advantage (MA) plans aren't required by CMS to include indicators in their encounter data, unlike Medicare and Medicaid.

Requiring MA organizations (MAOs) to identify when payment claims are denied would improve oversight of fraud and abuse, according to the Office of Inspector General (OIG).

The HHS watchdog conducted a study to examine whether the lack of an indicator to identify payment denials in MA encounter data makes it harder for proper oversight of MAOs.

While MAOs are not required to include that indicator, CMS' records of services do include denied-claim indicators for Medicare fee-for-service and Medicaid, including Medicaid manage care. The service-level data is used to "detect potentially inappropriate billing patterns and investigate suspected fraud and abuse," OIG said.

Rather than including the indicator, MAOs must submit claim adjustment reason codes when they do not pay the amount billed by the provider. The adjustment codes explain why a claim has had a payment adjustment, such as denials, reductions, or increases in payment.

For the report, OIG analyzed 2019 MA encounter data records to identify which contained payment denials. The organization also interviewed CMS staff, as well as the entities with oversight on MA.

The study revealed that adjustment codes are not enough to identify denied claims in the encounter data because some codes are too vague.

"In addition, oversight entities—including CMS program integrity staff; OIG investigators and analysts; and DOJ health care fraud staff—reported that a denied-claim indicator in the MA encounter data would improve the efficiency, scope, and accuracy of their efforts to combat fraud, waste, and abuse," the report stated.

The absence of an indicator means oversight entities have to make separate requests to MAOs asking them to identify denied claims, which creates burden and adds time.

"The lack of an indicator limits the scope of efforts to determine the full impact of potential fraud activities in MA," the study said.

OIG recommended that CMS require MAOs to provide an indicator on encounter data records to determine when payments have been denied for a service or a claim.

While CMS' MA payment group expressed concern to OIG about requiring MAOs to include an indicator in their encounter records, OIG highlighted that many of the companies covering MA enrollees also have contracts for Medicaid managed care, which is required to include a denied-claim indicator.

CMS "did not concur or nonconcur" with OIG's recommendation.

Jay Asser is the contributing editor for strategy at HealthLeaders. 


Medicare Advantage organizations (MAOs) are not required by CMS to identify denied claims, but instead submit claim adjustment reason codes when they do not pay the amount billed by the provider.

The Office of Inspector General found that the adjustment codes are too vague to identify denied claims in the encounter data.

Without identifying denied claims, it is harder to have proper oversight of MAOs when it comes to fraud and abuse.

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