Insurers Running Medicare Advantage Plans Overbill Taxpayers By Billions As Feds Struggle To Stop It

Lambert here: Because markets.

Fred Schulte and Lauren Weber, Kaiser Health News. Originally published at Kaiser Health News.

[UPDATED at 1:45 p.m. ET]

Health insurers that treat millions of seniors have overcharged Medicare by nearly $30 billion the past three years alone, but federal officials say they are moving ahead with long-delayed plans to recoup at least part of the money.

Officials have known for years that some Medicare Advantage plans overbill the government by exaggerating how sick their patients are or by charging Medicare for treating serious medical conditions they cannot prove their patients have.

Getting refunds from the health plans has proved daunting, however. Officials with the Centers for Medicare & Medicaid Services repeatedly have postponed, or backed off, efforts to crack down on billing abuses and mistakes by the increasingly popular Medicare Advantage health plans offered by private health insurers under contract with Medicare. Today, such plans treat over 22 million seniors, more than 1 in 3 people on Medicare.

Now CMS is trying again, proposing a series of enhanced audits tailored to claw back $1 billion in Medicare Advantage overpayments by 2020 — just a tenth of what it estimates the plans overcharge the government in a given year.

At the same time, the Department of Health and Human Services Inspector General’s Office has launched a separate nationwide round of Medicare Advantage audits.

As in past years, such scrutiny faces an onslaught of criticism from the insurance industry, which argues the CMS audits especially are technically unsound and unfair and could jeopardize medical services for seniors.

America’s Health Insurance Plans, an industry trade group, blasted the CMS audit design when details emerged last fall, calling it “fatally flawed.”

Insurer Cigna Corp. warned in a May financial filing: “If adopted in its current form, [the audits] could have a detrimental impact” on all Medicare Advantage plans and “affect the ability of plans to deliver high quality care.”

But former Sen. Claire McCaskill, a Missouri Democrat who now works as a political analyst, said officials must move past powerful lobbying efforts to hold health insurers accountable and demand refunds for “inappropriate” billings.

“There’s a lot of things that could cause Medicare to go broke. This would be one of the contributing factors,” she said. “Ten billion dollars a year is real money.”

Catching Overbilling With A Wider Net

In the overpayment dispute, health plans want CMS to scale back — if not kill off — an enhanced audit tool that, for the first time, could force insurers to cough up millions in improper payments they’ve received.

For over a decade, audits have been little more than an irritant to insurers because most plans go years without being chosen for review and often pay only a few hundred thousand dollars in refunds as a consequence. When auditors uncover errors in the medical records of patients they paid the companies to treat, CMS has simply required a rebate for those patients for just the year audited — relatively small sums for plans with thousands of members.

The latest CMS proposal would raise those stakes enormously by extrapolating error rates found in a random sample of 200 patients to the plan’s full membership — a technique expected to trigger many multimillion-dollar penalties. Though controversial, extrapolation is common in medical fraud investigations — except for investigations into Medicare Advantage. Since 2007, the industry has successfully challenged the extrapolation method and, as a result, largely avoided accountability for pervasive billing errors.

“The public has a substantial interest in the recoupment of millions of dollars of public money improperly paid to health insurers,” CMS wrote in a Federal Register notice late last year announcing its renewed attempt at using extrapolation.

Penalties In Limbo

In a written response to questions posed by Kaiser Health News, CMS officials said the agency has already conducted 90 of those enhanced audits for payments made in 2011, 2012 and 2013 — and expects to collect $650 million in extrapolated penalties as a result.

Though that figure reflects only a minute percentage of actual losses to taxpayers from overpayments, it would be a huge escalation for CMS. Previous Medicare Advantage audits have recouped a total of about $14 million, far less than it cost to conduct them, federal records show.

Though CMS has disclosed the names of the health plans in the crossfire, it has not yet told them how much each owes, officials said. CMS declined to say when, or if, they would make the results public.

This year, CMS is starting audits for 2014 and 2015, 30 per year, targeting about 5% of the 600 plans annually.

This spring, CMS announced it would extend until the end of August the audit proposal’s public comment period, which was supposed to end in April. That could be a signal the agency might be looking more closely at industry objections.

Health care industry consultant Jessica Smith said CMS might be taking additional time to make sure the audit protocol can pass muster. “Once they have their ducks in a row, CMS will come back hard at the health plans. There is so much money tied to this.”

But Sean Creighton, a former senior CMS official who now advises the industry for health care consultant Avalere Health, said payment error rates have been dropping because many health plans “are trying as hard as they can to become compliant.”

Still, audits are continuing to find mistakes. The first HHS inspector general audit, released in late April, found that Missouri-based Essence Healthcare Inc. had failed to justify fees for dozens of patients it had treated for strokes or depression. Essence denied any wrongdoing but agreed it should refund $158,904 in overcharges for those patients and ferret out any other errors.

Essence also faces a pending whistleblower suit filed by Charles Rasmussen, a Branson, Mo., doctor who alleges the health plan illegally boosted profits by overstating the severity of patients’ medical conditions. Essence has called the allegations “wholly without merit” and “baseless.”

Essence started as a St. Louis physician group, then grew into a broader holding company in 2007 backed by prominent Silicon Valley venture capitalist John Doerr with his brother, St. Louis doctor and software designer Thomas Doerr. Neither would comment on the allegations.

How We Got Here

CMS uses a billing formula called a “risk score” to pay for each Medicare Advantage member. The formula pays higher rates for sicker patients than for people in good health.

Congress approved risk scoring in 2003 to ensure health plans did not shy away from taking sick patients who could incur higher-than-usual costs from hospitals and other medical facilities. But some insurers quickly found ways to boost risk scores — and their revenues.

In 2007, after several years of running Medicare Advantage as what one CMS official dubbed an “honor system,” the agency launched “Risk Adjustment Data Validation,” or RADV, audits. The idea was to cut down on undeserved payments that cost CMS nearly $30 billion over the past three years.

The audits of 37 health plans revealed that on average auditors could confirm just 60% of the more than 20,000 medical conditions CMS had paid the plans to treat.

Extra payments to plans that had claimed some of its diabetic patients had complications, such as eye or kidney problems, were reduced or invalidated in nearly half the cases. The overpayments exceeded $10,000 a year for more than 150 patients, though health plans disputed some of the findings.

But CMS kept the findings under wraps until the Center for Public Integrity, an investigative journalism group, sued the agency under the Freedom of Information Act to make them public.

Despite the alarming results, CMS conducted no audits for payments made during 2008, 2009 and 2010 as they faced industry backlash over CMS’ authority to conduct them, and the threat of extrapolated repayments. Some inside the agency also worried that health plans would abandon the Medicare Advantage program if CMS pressed them too hard, records released through the FOIA lawsuit show.

CMS officials resumed the audits for 2011 and expected to finish them and assess penalties by the end of 2016. That has yet to happen amid the continuing protests from the industry. Insurers want CMS to adjust downward any extrapolated penalties to account for coding errors that exist in standard Medicare. CMS stands behind its method — at least for now.

At a minimum, argues AHIP, the health insurers association, CMS should back off extrapolation for the 90 audits for 2011-13. Should CMS agree, it would write off more than half a billion dollars that could be recovered for the U.S. Treasury.

[Correction: This story was updated at 1:45 p.m. ET to remove a reference to America’s Health Insurance Plans’ view on how the Centers for Medicare & Medicaid Services should handle audits from 2014 and beyond.]

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Arizona Slim

    Slim’s summary: The private health insurance industry is a criminal enterprise.

    1. Carla

      I’ve been saying this for years. And I’m so sick of people responding, “Yeah, we really should have a public option.”

      NO. We really should have universal, cradle to grave health care, free to all at the point of service. Like a public drinking fountain.

      1. BlakeFelix

        A good public option should be that IMO. It doesn’t require banning anything, just provide a free option.

        1. templar555510

          Yes you really should . I’m a Brit ; 70 last month . If I need to see the doctor , or have an accident I just turn up at the doctor’s surgery ( office ) or the A and E ( Emergency Room ) at the hospital. I never have to worry for one second about the cost . It’s covered. I have a daughter living in the US married to a doctor . Did that enhance, or make easier, or less costly her experience when she had IVF before her first little one was born ? Not for one minute . She still hasn’t been reimbursed all that she was owed by the insurance company. What aren’t you taking to the streets ?

    2. Michele

      The upcoding originates in the coding/medical records departments of the hospitals. And that’s where the money ultimately winds up. The insurance companies get their cuts, but this starts with the very prevalent practice of coding as aggressively as possible in hospitals and other providers. It’s an industry wide practice. It’s why health care is so expensive.

  2. anonymous

    reading Toothless, cousin loving is the perfect primer for Insurance companies overbilling Medicare.

  3. Bob Hertz

    Thanks for the article.

    The net effect of this $10 billion a year fraud is that Medicare Advantage plans do no underwriting at all, and nearly all these plans have relatively low deductibles and co-pays.

    It could be that $10 billion is not a terrible price to pay for the above results!

  4. KLG

    From the first sentence, words matter: “Health insurers that treat millions of seniors have overcharged Medicare…”

    No. Health insurers treat no one, and that is a feature, not a bug. When they finally figure out how to pay for the treatment of no one, the business will have been perfected.

  5. Butch

    But in South Carolina a black man just got 5 years for having a cache of personal use pot. Justice is actually spelled Just-us, those with money and power write [it’s not your legislators, all they do is beg for money to win the next election for their party] and execute the laws. It’s not just private health insurance industry thats criminal.

  6. Olivier

    A problem here is that neither the government nor the insurers are particularly credible. The government does not care about seniors and their ills anymore than the insurers: it just wants to save money. It has an incentive to play down the seriousness of their condition that is the mirror image of the insurer’s incentive to overplay it. Who can we trust??

    1. ChiGal in Carolina

      a very good question; at least in mental health, some of the best practitioners won’t even take insurance: in order to bill Medicare for an hour session rather than a 45-minute one, you have to jump through documentation hoops galore to pathologize patients sufficiently.

      and these are individuals with multiple traumas including childhood abuse, domestic violence, and sexual assault, entrenched depression and anxiety, and histories of suicide attempts and/or addiction.

      it is not realistic for even a highly skilled practitioner to accompany someone into an emotionally unsafe place and bring them out again to a place of safety in under an hour. those who do take insurance simply accept payment for a 45-minute session while in fact providing an hour.

      according to insurance, only the very sickest deserve mental health treatment. god forbid you should want to talk to someone because you are going through a divorce and experiencing debilitating insomnia and panic attacks. or have been diagnosed with untreatable cancer, or have lost a child.

      1. Jerry B

        ===it is not realistic for even a highly skilled practitioner to accompany someone into an emotionally unsafe place and bring them out again to a place of safety in under an hour====

        A very eloquent comment ChiGal. Using the excerpt above, even an hour is not really sufficient. Coming from a dysfunctional childhood/family, I had a strong interest in becoming a therapist in order to help people from the issues you mention above. So I did a career change and went back to school and I have a Masters in Counseling and a Masters in Psychology and was very idealistic about becoming a therapist/counselor.

        Then I ran into health insurance companies, Medicare, etc. where as you put it, “I was having to jump through documentation hoops galore to pathologize patients sufficiently”. Not to mention having to get malpractice insurance, etc.

        The stranglehold that health insurance companies and Medicare put on therapists is insane (And the ACA/ObamaCare made it worse. Only so much time per session. A limited number of sessions. Only evidenced base therapies (i.e. usually only cognitive therapy which IMO has limits in it’s effectiveness).

        After only a few years I got so tired of the b.s. I stopped doing therapy/counseling and became a life coach.

        IMO mental health services, cost, and availability in the US is atrocious and has been for decades.

  7. Oh

    In all cases where overcharging is found, the executives should face jail terms in addition to fines for the corp.

    1. inode_buddha

      That hasn’t happened since Enron. It would require a legislature, a judiciary, and regulators that hasn’t been completely bought off.


    In all cases where overcharging is found, the executives should face jail terms in addition to fines for the corp.

    1. Grayce

      This is central to many things corporations aka legal persons get away with. If there were a requirement for one or two “designated felons” to be named in each corporation, subject to loss of personal freedom aka jail, the personhood of a corporation would resemble the human one. Otherwise, the people in the Department of Risk Management simply budget for buying its way out of noncompliance or other Illegal action.
      When the Supreme Court declared freedom of speech (by money and campaign contribution) for corporations, it missed a big opportunity, but worse, it erred that the fictional legal person had all the same earmarks of a biological person.
      Until at least one human, inside a corporation, is subject to the penalty of incarceration without bond, abuse can be done with impunity.
      Money to pay fines does not make illegal acts legal, even in a parallel imagined universe.

  9. Rod

    What moves a society from being frugal with valuable resources to being wasteful of those same valued resources??

    For the past couple of years my State Employees of NC BlueCross statements have featured a large bold bottom page headline encouraging those insured to report any suspected billing irregularities to the State Auditor via the hotline number provided.
    Strange but good and I wonder why-these were some of my thoughts.
    Now I see NCBCBS are set to be audited for 2013 billings.

    1. ChiGal in Carolina

      get ready for more fun. anyone who provides mental health services to those in the state plan is being required to integrate their EMR with UNC’s so that records are instantly shareable and accessible. for example, if someone arrives at an ER in a psychiatric crisis, their mental health diagnoses, psychotropic medications, etc., will all be readily available to staff.

      efficient yes, but this is a fundamental violation of the confidentiality that is so crucial when it comes to mental health.

      providers are debating whether to invest in transferring their records to an EMR that is compatible; meanwhile the deadline for implementation has been moved back from this past June to Jan 2020, with the possibility of a year’s extension.

      i don’t think a lot of those insured by this plan even know this is happening. soon there will be far fewer providers approved to take this insurance, and those that do will be unable to ensure confidentiality as traditionally understood in the field of mental health.

        1. ChiGal in Carolina

          yes, only the wealthy who can afford to pay out of pocket and bypass insurance can get care that respects their privacy

      1. Grayce

        Don’t even combine that question with the recent talk of mental health red flags as the default deterrent to mass killings. If that terrible shortcut is allowed to grow, then the records you rightly claim to be private will become a scapegoat for the other tragedy.

  10. Synoia

    Could the Electronic Health records from the Doctors be reconciled with Insurance Company claims on Medicare and Medicaid?

  11. dimmsdale

    Here’s another pernicious insurance-company gambit: got a call from a rep from United Healthcare, who cover me under Medicare. Rep wanted to send, completely free of charge, a “medical professional” to my home, to evaluate my health! (Not a “doctor” or a “nurse,” mind you, but some sort of “medical professional.”) I refused, since I’m under pretty rigorous medical surveillance. But it got me mad enough to do some checking.

    Turns out this is a typical practice among certain insurance companies who cover a high number of Social Security/Medicare recipients: they willingly pay, train, and deploy medical people for the sole purpose of sniffing out medical conditions not already listed in a patient’s records, SO THAT the insurance companies can up-charge Medicare for covering these patients; evidently they do well enough at it to justify the personnel costs.

    Are the newly discovered conditions real? Serious? Fake? Fictional? Who knows!? The key point is that it results in increased billing for the insurance companies, and if you picture, say, Rick Scott spearheading the endeavor, I think you can determine whether it provides a service to patients, or a bilking of taxpayers.

    1. ChiGal in Carolina

      the other purpose of this is to DISqualify you from services you are receiving, if these “medical professionals” assess that you do not need what your doctors are prescribing.

      see I, Daniel Blake by Ken Loach for a powerful portrayal of how the indifferent bureaucracy of the state grinds up the working class in its gears

  12. MichaelSF

    The latest CMS proposal would raise those stakes enormously by extrapolating error rates found in a random sample of 200 patients to the plan’s full membership — a technique expected to trigger many multimillion-dollar penalties. Though controversial, extrapolation is common in medical fraud investigations

    For most of my career at SSA I was in a division that did quality assurance on the SSI (Title XVI) program, evaluating the quality/error rates of the decisions made by the field offices. It was normal practice to do that extrapolation of errors from our sample case population to the entire population of recipients to determine the likely actual impact of error in the system. Dinging an insurer only for the actual dollars in the current case being investigated for the current period sounds like quite a sweet deal.

  13. Jack Parsons

    I worked for a short time in this area.

    Medical billing is a mess, partly because medical professionals care about telling each other what is wrong with you, but telling the accountants is just a pain in the neck. As a result, a lot of medical diagnoses wind up in text form (where docs & nurses can see) but not in the billing codes.

    As a result, hospitals end up losing money on these diagnoses unless they impute an error rate and estimate. If they overestimate, and are audited, the penalties are bizarrely draconian. The whole project is dysfunctional.

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