How Medicare Advantage Plans Dodged Auditors and Overcharged Taxpayers by Millions

Lambert here: Wait. You’re saying it was health insurance companies that did this?! (Also, only “millions”?)

Fred Schulte, an investigative reporter, four-time Pulitzer Prize finalist, and the author of Fleeced!, and Holly K. Hacker, KHN Data Editor. Originally published at Kaiser Health News.

In April 2016, government auditors asked a Blue Cross Medicare Advantage health plan in Minnesota to turn over medical records of patients treated by a podiatry practice whose owner had been indicted for fraud.

Medicare had paid the Blue Cross plan more than $20,000 to cover the care of 11 patients seen by Aggeus Healthcare, a chain of podiatry clinics, in 2011.

Blue Cross said it couldn’t locate any records to justify the payments because Aggeus shut down in the wake of the indictment, which included charges of falsifying patient medical files. So Blue Cross asked the Centers for Medicare & Medicaid Services for a “hardship” exemption to a strict requirement that health plans retain these files in the event of an audit.

CMS granted the request and auditors removed the 11 patients from a random sample of 201 Blue Cross plan members whose records were reviewed.

A review of 90 government audits, released exclusively to KHN in response to a Freedom of Information Act lawsuit, reveals that health insurers that issue Medicare Advantage plans have repeatedly tried to sidestep regulations requiring them to document medical conditions the government paid them to treat.

The audits, the most recent ones the agency has completed, sought to validate payments to Medicare Advantage health plans for 2011 through 2013.

As KHN reported late last month, auditors uncovered millions of dollars in improper payments — citing overcharges of more than $1,000 per patient a year on average — by nearly two dozen health plans.

The hardship requests, together with other documents obtained by KHN through the lawsuit, shed light on the secretive audit process that Medicare relies on to hold accountable the increasingly popular Medicare Advantage health plans — which are an alternative to original Medicare and primarily run by major insurance companies.

Reacting to the audit findings, Sen. Chuck Grassley (R-Iowa) called for “aggressive oversight” to recoup overcharges.

“CMS must aggressively use every tool at its disposal to ensure that it’s efficiently identifying Medicare Advantage fraud and working with the Justice Department to prosecute and recover improper payments,” Grassley said in a written statement to KHN.

Medicare reimburses Medicare Advantage plans using a complex formula called a risk score that computes higher rates for sicker patients and lower ones for healthier people.

But federal officials rarely demand documentation to verify that patients have these conditions, or that they are as serious as claimed. Only about 5% of Medicare Advantage plans are audited yearly.

When auditors came calling, the previously hidden CMS records show, they often found little or no support for diagnoses submitted by the Advantage plans, such as chronic obstructive pulmonary disease, diabetes, or vascular disease. Though auditors look at the records of a relatively small sample of patients, they can extrapolate the error rate to the broad population of patients in the Medicare Advantage health plan and calculate millions of dollars in overpayments.

Overall, CMS auditors flagged diagnostic billing codes — which show what patients were treated for — as invalid more than 8,600 times. The audits covered records for 18,090 patients over the three-year period.

In many cases, auditors found that the medical credentials of the health care provider who made the diagnosis were unclear, the records provided were unacceptable, or the record lacked a signature as required. Other files bore the wrong patient’s name or were missing altogether.

The rates of billing codes rejected by auditors varied widely across the 90 audits. The rate of invalid codes topped 80% at Touchstone Health, a defunct New York HMO, according to CMS records. The company also was shown to have the highest average annual overcharges — $5,888 per patient billed to the government.

By contrast, seven health plans had fewer than 10% of their codes flagged.

Registering Excuses

One Medicare Advantage health plan submitted 57 hardship requests, more than any other insurer, though CMS approved only six. In three cases, the health plans said the records were destroyed in floods. Another cited a warehouse fire, and two said the records couldn’t be turned over because a doctor had been convicted for his role in illegally distributing millions of oxycodone pills through his network of pain clinics.

Other Medicare Advantage health plans argued they had no luck retrieving medical records from doctors who had moved, retired, died — and in some cases been arrested or lost their licenses for misconduct.

CMS found most excuses wanting, telling health plans they granted exceptions only in “truly extraordinary circumstances.” CMS said it receives about 100 of these requests for each year it audits and approves about 20% of them.

The Medicare Advantage plan issued by Minnesota Blue Cross won its appeal after it relied on Aggeus Healthcare for diagnoses of vascular disease for 11 of its patients who got podiatry care.

Dr. Yev Gray, a Chicago podiatrist who owned the Aggeus chain that operated in more than a dozen states, was indicted on federal fraud charges in Missouri in October 2015.

The indictment accused him of creating an electronic medical record that fraudulently added billing codes for treatment of medical conditions patients didn’t necessarily have, including vascular disease.

Gray pleaded guilty in May 2017 to charges of conspiracy to defraud the United States and making false statements related to health care matters. He was sentenced to 90 months in prison.

Blue Cross said it “terminated” its network agreements with Aggeus about two weeks after learning of the indictment. Jim McManus, director of public relations for Blue Cross and Blue Shield of Minnesota, had no comment on the case but said the insurer “is committed to investigating credible cases of fraud, waste, and abuse.”

Dara Corrigan, a CMS deputy administrator, said that as a “general matter,” its Medicare Advantage audits “are not designed to detect fraud, nor are they intended to identify all improper diagnosis submissions.”

Protecting Taxpayers

The costs to taxpayers from improper payments have mushroomed over the past decade as more seniors pick Medicare Advantage plans. CMS has estimated the total overpayments to health plans for the 2011-2013 audits at $650 million, yet how much it will eventually claw back remains unclear.

Payment errors continue to be a drain on the government program. CMS has estimated net overpayments to Medicare Advantage plans triggered by unconfirmed medical diagnoses at $11.4 billion for 2022.

“This isn’t a partisan issue,” said Sen. Sherrod Brown (D-Ohio). “I’ve requested a plan from CMS as to how they plan to recoup these taxpayer-funded overpayments and prevent future overbilling.”

Leslie Gordon, an acting director of health care for the Government Accountability Office, said CMS needs to speed up the audit and appeals process to get quicker results.

“That is money that should be recovered,” Gordon told KHN.

As Medicare Advantage faces mounting criticism from government watchdogs and in Congress, the industry has tried to rally seniors to its side while disputing audit findings and research that asserts the program costs taxpayers more than it should.

AHIP, an insurance industry trade group, criticized KHN’s reporting on the newly released audits as “misleading,” while the pro-industry group Better Medicare Alliance said the audits were “in some cases, more than a decade old.”

Jeff De Los Reyes, a senior vice president at GHG Advisors health care consulting group, said he believes the health plans have improved their documentation in recent years. But, he said, “coding is never 100% perfect and there will be errors despite the best of intentions.”

Rep. Katie Porter, a Democrat from Southern California and a critic of Medicare Advantage, countered: “When big insurance bills taxpayers for care it never intends to deliver, it is stealing our tax dollars.”

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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. John R Moffett

    I think most people here understand that these plans are how congress intends to eventually fully privatize Medicare. These privatized plans were a scam from the very beginning. Their purpose was to make sure that the US went in the wrong direction, away from Medicare for All and toward a corrupt privatized system that was all about making money, not taking care of people. So why would anyone be surprised that the participants were scamming the government? That’s how you boost profits in a corrupt, for-profit system.

  2. Lexx

    Would be interested in the knowing what those seven health plans were. We’re at the ‘mulling over Medigap’ stage.

    ‘By contrast, seven health plans had fewer than 10% of their codes flagged.’

    1. John Zelnicker

      I decided this year to return to traditional Medicare from the Medicare Advantage plan I’ve had for six years.

      Medigap coverage has been around for over 30 years and is very different from Medicare Advantage plans. I was selling life and health insurance when Medigap policies were first issued and it was a hot mess. Every insurance company had different plan features and benefits making it impossible to compare plans across different companies.

      Finally, the federal government stepped in and started regulating the policy provisions in order to make comparisons feasible. Any insurance company selling Medigap coverage has to offer, I think, six of the ten or twelve different plans that are available. They can offer more if they wish.

      I’m not sure, Lexx, that knowing which are those seven health plans will help you make a decision. Medigap claims are not reimbursed by the federal government like Medicare Advantage claims are, which means there is no third party to defraud. The insurance companies have no incentive to allow payment for treatment that wasn’t actually provided or to approve claims for upcoded diagnoses.

      I recommend you look into the general reputation of the company you are considering. Look for indicators of how promptly they pay claims and their rate of claim denials.

      Best of luck in your search.

      Stay safe.

  3. Insouciant Iowan

    “CMS has estimated the total overpayments to health plans for the 2011-2013 audits at $650 million, yet how much it will eventually claw back remains unclear.”

    Grifting is grifting. Still, the amount is not even a rounding error in Pentagon budgets. This round: $858B

  4. LawnDart

    Via Physicians for a National Health Program, some considerations for the consumer:

    The Disadvantages of Medicare Advantage

    …there’s probably three important things to consider … between traditional Medicare and Medicare Advantage. The first is a difference in coverage, the second is a difference in access, the third would be a difference in cost…

  5. Arizona Slim

    Once again, whew!

    Slim just turned 65 and let me tell you, I was deluged with Medicare Advantage offers in the year before this milestone birthday. Those offers kept my paper shredder VERY busy.

    And, sorry, health insurance industry colossus, the paper deluge didn’t work. I chose traditional, classic rock Medicare, and I would like to thank NC for the information that steered me in this direction.

    1. Jokerstein

      For me it’s 100%, copper-bottomed, indisputably axiomatic that if industry players are pushing an alternative to a government program, you run as fast as you can in the opposite direction. 65 in March 2025, and hoping I can still get Medicare Classic then..

  6. gcw919

    “Medicare reimburses Medicare Advantage plans using a complex formula called a risk score that computes higher rates for sicker patients and lower ones for healthier people.”

    I have Kaiser Senior Advantage, but it is through a retirement plan, so I pay an additional equivalent of a Medi-Gap plan each month. I have generally been satisfied with the medical care. However, a few years back, I noticed that I have about 15 diagnoses in my chart, some dating back many years, and certainly not current problems. As the above quote notes, the plan gets more money the “sicker” I am.

    As an aside, Kaiser is a non-profit, which among other things means some executive salaries are in the 8 figures in spite of no “profits” being realized. Perhaps if they redistributed some of the funds they get from their accounting sleights-of-hand, they wouldn’t face massive work shortages, such as recently took place with Kaiser mental health workers in N. California.

    1. Oh

      The Congress which is bought by the Insurance companies (besides other big groups), makes sure there are hurdles to people choosing Traditional Medicare:

      1. They make sure you have to purchase the Medicap policy to cover the coverage gaps they’ve created. Adding up the monthly Medicare premium and the medigap policy premium will make the choice more expensive vis a vis Medicare “Advantage”. Medigap premiums seem to be increasing annually with coverage decreasing.

      2. They force you to purchase a drug insurance policy. If you don’t, they will penalize you.

      3. They pay more subsidies for “sicker” patients as you point out. Why? The insurance cos. take advantage of this by offering home visits. After the home visit they will allow coding of your health to include ailments you don’t have in order to increase their income by billing for these.

      As more people choose Medicare “Advantage” the insurance cos. will cut back the extras they offer.

      BTW, a non profit corporation is non profit for tax purposes only. They make profits but call it a “reserve”. Kaiser doesn’t deserve to be a non profit entity. It doesn’t help the consumer in any way. Let them pay their share of taxes!

      1. juno mas

        Most hospitals are “non-profit” organizations. It’s for tax reasons and encouraging mega-donations from the local elite.

        Back in the 70’s the highest paid “public” official in Idaho was the CEO of the Sun Valley Hospital.

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