Audits – hitherto hidden – reveal millions in Medicare benefit from overcharges

Lambert here: Wait what? This is the privatized part of Medicare!

By Fred Schulte, investigative reporter, who has worked for The Baltimore Sun, South Florida Sun Sentinel, and Center for Public Integrity, and Holly Hacker, KHN Data Editor, who previously worked as an investigative reporter for The Dallas Morning News. Originally published in Kaiser Health News.

Newly released federal audits reveal widespread overcharges and other payment errors for Medicare Advantage health plans for seniors, with some plans outcharging the government more than $1,000 per patient per year on average.

The summaries of the 90 audits, which examined invoices from 2011 through 2013 and are the most recent revisions completed, were obtained exclusively by KHN through a three-year Freedom of Information Act lawsuit, which was settled in late September.

Government reviews revealed about $12 million in net overpayments for the care of the 18,090 sampled patients, although the actual losses to taxpayers are likely to be much higher. Medicare Advantage, a rapidly growing alternative to original Medicare, is primarily operated by major insurance companies.

Officials at the Centers for Medicare and Medicaid Services said they plan to extrapolate payment error rates from those samples across each plan’s total membership — and recover an estimated $650 million as a result.

But nearly a decade later, that still hasn’t happened. CMS was set to unveil a final extrapolation rule on November 1 but delayed that decision until February.

Ted Doolittle, former deputy director of CMS’ Center for Program Integrity, which oversees Medicare’s efforts to combat billing fraud and abuse, said the agency failed to hold Medicare Advantage plans accountable. “I think CMS fell into action on this,” said Doolittle, now a health care advocate in Connecticut.

Doolittle said the CMS appears to be “holding water” for the insurance industry, which is “making money on the fist” from Medicare Advantage. “From the outside, it stinks,” he said.

In an email response to written questions posed by KHN, CMS deputy director Dara Corrigan said the agency did not tell health plans how much owed because the calculations were “not finalized.”

Corrigan declined to say when the agency would end its work. “We have a fiduciary and legal duty to address improper payments across all of our programs,” she said.

The 90 audits are the only ones CMS has completed over the past decade, which is a time when Medicare Advantage has grown exponentially. Enrollment in the plans has more than doubled over that period, passing 28 million in 2022, at a cost to the government of $427 billion.

Seventy-one of the 90 audits revealed net overpayments, which exceeded $1,000 per patient on average in 23 audits, according to government records. According to records, Humana, one of Medicare Advantage’s largest sponsors, paid more than $1,000 on average in 10 of 11 audits.

CMS paid the remaining plans very little on average, from $8 to $773 per patient.

Auditors refer to overpayments when a patient’s records fail to document that the person has a medical condition that the government paid for the health plan to treat, or if medical auditors deem the disease to be less serious than claimed.

It occurred on average to just over 20% of medical cases examined during the three-year period; Unconfirmed disease rates were higher in some plans.

As Medicare Advantage has grown in popularity among seniors, CMS has struggled to maintain its auditing procedures, and the mounting losses to the government, have been greatly reduced.

The approach has frustrated both the industry, which blasts the audit as “fatally flawed” and hopes to torpedo it, and Medicare advocates, who fear some insurers will get away with ripping off the government.

“At the end of the day, taxpayers’ money is spent,” said David Lipshutz, senior policy attorney at the Medicare Support Center. “The public deserves more information about that.”

At least three parties, including KHN, have sued CMS under the Freedom of Information Act to get rid of loose details about its overpayment audits, which CMS calls the Risk Adjustment Endorsement, or RADV.

In one case, CMS charged a law firm an upfront search fee of $120,000 and then offered nearly nothing in return, according to court filings. The law firm filed suit last year, and the case is pending in federal court in Washington, DC

KHN sued CMS in September 2019 after the agency failed to respond to a FOIA request for audits. Under the settlement, CMS agreed to turn over audit briefs and other documents and pay $63,000 in legal fees to Davis Wright Tremaine, the law firm that represented KHN. CMS did not acknowledge that records were wrongly withheld.

High coders

Most of the plans reviewed fall into what the CMS calls a “high coding density” group. This meant that they were among the most aggressive in seeking extra payments for patients who they claimed were sicker than average. The government pushes health plans using a formula called a “risk score” that is supposed to offer higher rates for the sickest patients and lower rates for the healthiest patients.

But often, medical records provided by health plans fail to support these claims. Unsupported cases ranged from diabetes to congestive heart failure.

Overall, the average overpayment for health plans ranged from $10 to $5,888 per patient collected by Touchstone Health HMO, a New York health plan that was terminated by “mutual consent” in 2015, according to CMS records.

Most audited health plans have 10,000 or more members, which sharply increases the amount of overpayments when rates are extrapolated.

In all, the plans received $22.5 million in overpayments, though these are less than $10.5 million in payments.

The auditors check 30 contracts annually, a small sample of about 1,000 Medicare Advantage contracts nationwide.

UnitedHealthcare and Humana, the two largest Medicare Advantage insurers, accounted for 26 of the 90 contract audits over the three years.

Eight audits of UnitedHealthcare plans found overpayments, while seven others found the government had paid too little.

UnitedHealthcare spokeswoman Heather Soule said the company welcomes the “oversight for the program provided by RADV Audits.” But she said the audit needs to compare Medicare Advantage to original Medicare to provide a “complete picture” of overpayments. “Three years ago we made a recommendation to CMS suggesting they perform RADV audits on every plan, every year,” Soule said.

Humana’s 11 overpaid audits included plans in Florida and Puerto Rico that CMS had audited twice in three years.

The Florida Humana plan was also the target of an unrelated review in April 2021 by the Inspector General of Health and Human Services. That audit, which covered the billing in 2015, concluded that Humana improperly collected nearly $200 million that year by overestimating how sick some patients were. Officials have not yet recovered any of that money.

In an email, Humana spokeswoman Jahna Lindsay-Jones described the CMS audit findings as “preliminary” and noted that they were based on samples of older claims.

“While we still have material concerns about how CMS audits are conducted, Humana remains committed to working closely with regulators to improve Medicare Advantage in ways that increase seniors’ access to high-quality, low-cost care,” she wrote.

View invoices

The results of the 90 audits, despite their age, mirror the more recent findings of a slew of other government reports and whistleblower lawsuits alleging that Medicare Advantage plans routinely inflate patient risk scores to cost the government billions of dollars.

Taken together, the reviews show the problem is “quite endemic” to the industry, said Brian Murphy, an expert in documenting medical records.

Auditors are finding the same inflated fees “over and over again,” he said, adding, “I don’t think there is enough oversight.”

When it comes to getting money back from health plans, induction is the big sticking point.

Although extrapolation is routinely used as a tool in most Medicare audits, CMS officials have never applied it to Medicare Advantage audits due to stiff opposition from the insurance industry.

“Although this data is more than a decade old, recent research demonstrates Medicare Advantage affordability and responsible stewardship of Medicare dollars,” said Mary Beth Donahue, president of the Better Medicare Alliance, a Medicare Advantage advocacy group. She said the industry is “delivering better care and better outcomes” for patients.

But critics argue that CMS only audits a tiny percentage of Medicare Advantage contracts nationwide and should do more to protect tax dollars.

The agency needs to “start keeping up with the times and doing these audits on a yearly basis and extrapolating to the results,” said Doolittle, the former CMS official.

But Cathy Bobbitt, a Texas healthcare attorney, questioned the fairness of claiming huge refunds from insurance companies after so many years. “Health plans will struggle tooth and nail and won’t make it easy for CMS,” she said.

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