New audits may recover missing millions — or not

Introduction

After years of criticism that they cost taxpayers too much, private Medicare Advantage health plans are facing landmark audits that for the first time could order them to repay the government tens of millions of dollars for past overcharges and other billing mistakes.

Medicare pays the health plans a set amount monthly for each person based on estimates — known as “risk scores” — of how sick they are. The industry has grown explosively over the past decade under this payment method and now cares for nearly 16 million people at a cost expected to top $150 billion this year.

The government audits are targeting chronic Medicare Advantage billing errors that federal officials blame for billions of dollars in “improper” payments every year — mainly due to inflated estimates of the health “risks” of the seniors the plans insure. The findings carry added importance because insurers selling policies on exchanges set up under the Affordable Care Act will be paid under a similar risk-based formula, which officials expect to reduce overall health care expenditures.

The secretive audit process is known as Risk Adjustment Data Validation, or “RADV,” in Washington parlance. In early November 2013, federal officials notified 30 health plans that they had been selected for review this year. Officials declined to name the companies or discuss the audit process. So it’s not clear if any of these audits have yet been completed, or what the results might be.

The Centers for Medicare and Medicaid Services (CMS), the agency that runs Medicare, has quietly conducted some of these RADV (pronounced RAD’-vee) audits since 2008. But the agency has never before imposed stiff financial penalties for overbilling the government, as it now intends to do. In the first round of audits, officials expect to recoup as much as $370 million from overpayments allegedly made to the 30 Medicare Advantage plans during 2011, according to CMS.

However, that figure is well below previous administration estimates, and health plans have been granted extensive appeal rights that could stall any repayment orders for years.

CMS is part of the Department of Health and Human Services (HHS). The HHS Office of Inspector General, which acts as a watchdog over CMS, has done some of its own audits of Medicare Advantage. It estimated much higher losses in six plan audits it conducted starting late in 2008. Those audits found that just the six plans reviewed had been overpaid by as much as $650 million for 2007 alone because of inflated risk scores, including payments for diseases that couldn’t be verified through a patient’s medical record.

The HHS inspector general audits are more worrisome to the industry than the CMS audits because the findings are made public and often draw media notice and attention from members of Congress. But the inspector general’s office has said it won’t be conducting any more of its reviews for the foreseeable future due to budget cuts, leaving oversight in the hands of CMS.

CMS officials have said that health plans would be selected for review this year based “primarily” on changes in risk scores, presumably increases.

Humana Inc., one of the nation’s largest Medicare Advantage plans with more than 2.7 million members, notified investors in February that one of its contracts had been chosen. The company did not elaborate.

Florida Blue Cross also has notified its doctors that the plan was among the 30 selected for review this year. Samaritan Health Plan, based in central Oregon with 6,500 members, also was picked, according to a company newsletter. Health Net, Inc. disclosed in a Securities and Exchange Commission filing that its plan in Arizona was selected. None of the health plans would comment.

At issue is the accuracy of “risk scores” used since 2004 to pay the health plans. At the time, Congress hoped to spur the growth of these insurance plans by adjusting payments based on how likely their enrollees were to need costly medical services.

The health plans collect medical data used to compute a “risk score” for each person they enroll and Medicare pays them higher rates for sicker people and less for those in sound health.

But the risk-scoring formula has proven to be a breeding ground for billing irregularities — as much as $70 billion in “improper” payments to health plans from 2008 through the end of last year, according to government sampling data reviewed by the Center for Public Integrity.

Mary Inman, a San Francisco lawyer who represents whistleblowers, said officials have been concerned for years that risk scores if abused could offer a “new way to fleece” the Medicare program. “This is a weak spot for CMS,” she said, noting that it “hasn’t hit the public realm yet.”

The CMS RADV audits will probe whether health plans trigger overpayments by reporting diseases that don’t have any impact on health and medical care, or by exaggerating the severity of conditions — in effect making patients look sicker on paper than they actually are. Doing that leads Medicare to pay a plan more money than it deserves.

Maria Gonzalez Knavel, a health care attorney in Milwaukee, said that if insurers have been reporting risk scores accurately, the impact of these audits will be minimal. But if they reveal a lot of “loose” reporting, “that will be a whole different ball game,” she said.

Gonzalez Knavel said there’s a perception in the industry that billing errors occur with some frequency. “They’re humans and they don’t always get it right,” she said. “There will be some mistakes made.”

When mistakes are made, risk scores are far more likely to be too high than too low, government records show. Nearly 80% of the improper payments in 2013 — $9.3 billion — were overcharges, according to the data sampling.

Whether Medicare Advantage plans are a good deal for taxpayers has been a contentious, and often highly political, question in Washington for years. Many critics, particularly Democrats in Congress, argued that the health plans marketed to healthier seniors and inflated risk scores to boost profits.

“That makes enrollees look less healthy without any actual change in health status and drives up payments to plans,” Rep. Henry Waxman, then chairman of the House Energy and Commerce Committee, wrote in a March 6, 2009, letter to a top Medicare official. The letter was signed by four other senior Democrats as well.

The Center for Public Integrity’s independent analysis of government data confirmed that in 2011 more than 800,000 patients across the country were enrolled in Medicare Advantage plans that are paid rates at least 25 percent higher than under the more common traditional Medicare option run directly by the government.

Supporters counter that the health plans offer extra benefits, such as dental care and hearing aids, and can cost seniors less in out-of-pocket expenses than standard Medicare, a major selling point.

Cutting back on overpayments to Medicare Advantage plans has been a priority for the Obama administration. With the support of some key Democrats in Congress, the administration had hoped to use some of the savings for the Affordable Care Act.

Still, the Obama administration has taken years to get the new round of RADV audits underway amid criticism from the industry over the details. Group Health, a non-profit plan that operates in Washington state and Idaho, argued in a December 2009 letter to CMS that the audit process “could seriously jeopardize the future viability of the Medicare Advantage program.”

While the reasons are not clear, over time CMS has scaled back the amount of money it expects to recoup from the audits.

In testimony before Congress in March 2010, an administration official predicted the audits would result in $7.6 billion in savings over a decade. A year later that figure had shrunk to $6.1 billion over the same period. In late February 2012, the agency simply stated that it expected to collect $370 million in the first year.

“Fighting fraud, improving payment accuracy and saving money for Medicare is one of our top priorities,” CMS Administrator Marilyn Tavenner said in a February 2012 prepared statement.

Industry consultant John Gorman said that he believes CMS may be disappointed in what it finds.

“It’s pretty clear that this is a substantial revenue collection exercise for the government,” Gorman said. “They clearly think there is a pot of gold at the end of the rainbow.”

Gorman said officials are likely to find some Medicare Advantage plans that can’t produce adequate documentation of the diseases they billed for, but any shortcomings are the result of the complexity of billing, not abuse or fraud, he believes.