AMARILLO, TX – The original impetus for allowing private insurers to provide Medicare benefits was to reduce costs while maintaining or improving quality of care. However, studies have largely found that Medicare Advantage Plans (“MAPs”) cost the government and taxpayers more than traditional Medicare on a per beneficiary basis. In 2022, that additional cost was about four percent, down from a peak of 17 percent in 2009.

The government pays MAPs a set rate per person, per year (around $12,000 in 2019, not including Part D-related expenses) under a risk-based contract. This means that each MAP agrees to assume the full risk of providing all care for that inclusive amount. This is known as “capitation.”

Medicare Advantage (“MA”) payments are based on a system of benchmarks, bids, and quality incentives.

• Benchmarks – Plan benchmarks are the maximum amount the government will pay a MAP. Benchmarks are set in statute as a percentage of traditional Medicare spending in a given county.
• Bids – Insurers bid every year to enroll Medicare beneficiaries in their MAPs. The bid is based on the insurer’s assessment of its costs to provide Part A and Part B services to the average beneficiary.
• Rebates – If a MAP’s bid is below the local benchmark – as is the case for the majority of MAPs – the MAP keeps part of the difference between the bid and the benchmark. This amount is known as the “rebate” and is equivalent to a shared savings between the government and the MAP.
• Adjustments to Bid Amounts and Rebates – Rebates and bid amounts are adjusted for enrollees’ health status. This means that MAPs with sicker enrollees, who cost more to treat, receive higher rebates.
• Risk Adjustments – Rebates and bid amounts are “risk adjusted” to account for enrollees’ health status. Without risk adjustments, MAPs would have an incentive to select the healthiest, lowest-cost beneficiaries and avoid enrolling the sickest, highest-cost beneficiaries. Critics have asserted that many MAPs have been systematically assessing enrollees as having more health conditions, and being sicker on average, than is usually the case.

On October 2, 2023, the OIG published a report entitled “Medicare Advantage Compliance Audit of Specific Diagnosis Codes That Aena, Inc. (Contract H5521) Submitted to CMS.” The report found that Aetna received overpayments from CMS on the basis that Aetna’s medical records did not support the diagnosis codes submitted to CMS. The report states as follows: 

Why OIG Did This Audit
Under the Medicare Advantage (MA) program, CMS makes monthly payments to MA organizations according to a system of risk adjustment that depends on the health status of each enrollee. Accordingly, MA organizations are paid more for providing benefits to enrollees with diagnoses associated with more intensive use of health care resources than to healthier enrollees who would be expected to require fewer health care resources.

To determine the health status of enrollees, CMS relies on MA organizations to collect diagnosis codes from their providers and submit these codes to CMS. Some diagnoses are at higher risk for being miscoded, which may result in overpayments from CMS. For this audit, we reviewed one MA organization, Aetna, Inc. (Aetna), and focused on seven groups of high-risk diagnosis codes.

Our objective was to determine whether selected diagnosis codes that Aetna submitted to CMS for use in CMS’s risk adjustment program complied with Federal requirements.

How OIG Did This Audit
We sampled 210 unique enrollee-years with the high-risk diagnosis codes for which Aetna received higher payments for 2015 through 2016. We limited our review to the portions of the payments that were associated with these high-risk diagnosis codes, which totaled $856,818.

What OIG Found
With respect to the seven high-risk groups covered by our audit, most of the selected diagnosis codes that Aetna submitted to CMS for use in CMS’s risk adjustment program did not comply with Federal requirements. For 155 of the 210 sampled enrollee-years, the medical records that Aetna provided did not support the diagnosis codes and resulted in $632,070 in overpayments. On the basis of our sample results, we estimated that Aetna received at least $25.5 million in overpayments for 2015 and 2016. As demonstrated by the errors found in our sample, Aetna’s policies and procedures to prevent, detect, and correct noncompliance with CMS’s program requirements, as mandated by federal regulations, could be improved.

What OIG Recommends and Aetna Comments
We recommend that Aetna: (1) refund to the federal government the $632,070 of overpayments; (2) determine, for the remaining 159 enrollee-years in the potentially mis-keyed diagnosis code high-risk group not reviewed as part of this audit, whether the medical records in each case support the diagnosis for the unrelated condition and refund any resulting overpayments to the federal government; (3) identify, for the high-risk diagnoses included in this report, similar instances of noncompliance that occurred before or after our audit period and refund any resulting overpayments to the federal government; and (4) continue to examine and improve its compliance procedures.

Aetna did not concur with our recommendations or agree with our findings for five enrollee years sampled. Aetna did not state whether it agreed or disagreed with our findings for the remaining enrollee-years. Aetna also disagreed with our audit methodology, medical record review process, and use of extrapolation.

After reviewing Aetna’s comments and additional information that Aetna provided, we revised the number of enrollee-years in error from 156 to 155 for this final report. We also revised the wording for our fourth recommendation. After we had issued our draft report, CMS updated regulations for audits in its risk adjustment program to specify that extrapolated overpayments could only be recouped beginning with payment year 2018. We, therefore, revised our first recommendation to request a refund of only the overpayments for the sampled enrollee-years.

The OIG report contains data that is consistent with assertions made in a 2022 New York Times article entitled “The Cash Monster Was Insatiable: How Insurers Exploited Medicare for Billions.” The first two sentences of the article state: “By next year, half of Medicare beneficiaries will have a private Medicare Advantage Plan. Most large insurers in the program have been accused in court of fraud.”

The article then recounts the following:

• Kaiser Permanente called physicians in during lunch and after work and urged them to add additional illnesses to the medical records of patients they had not seen in weeks. Physicians who found enough new diagnoses could earn Champaign or bonuses.
• Anthem (now Elevance Health) paid more to physicians who said their patients were sicker.
• Executives at United Healthcare (“UHC”) told their employees to mine old medical records for illnesses.

According to the article, each of these strategies (described by the Department of Justice in lawsuits against the companies) led to diagnoses of illnesses that may never have existed…but led to the insurers collecting additional money from the government. According to the article, a New York Times review of dozens of lawsuits, inspector general audits, and watchdog investigations shows how major health insurers exploit the Medicare Advantage program to inflate their profits by billions of dollars.

The article points out that the government pays Medicare Advantage insurers a set amount per enrollee…with higher rates for sicker patients. According to the article, the insurers have developed practices designed to make their patients appear as sick as possible, often without providing additional treatment. The article states that as a result, a program designed to lower health care spending has instead become substantially more costly than the traditional government programs it was meant to improve.

The New York Times article states that eight of the 10 largest Medicare Advantage insurers, representing more than 2/3rds of the Medicare Advantage market, have submitted inflated bills. The article points out that four of the five largest players have faced lawsuits alleging that efforts to over diagnose their enrollees have crossed the line into fraud.

According to the article, most of the insurers dispute the allegations in the federal lawsuits and contend that the federal audits were flawed. In their statements, insurers said that their aim in documenting more conditions was to improve care by accurately describing their enrollees’ health. The article states that the government spends nearly as much on Medicare Advantage’s beneficiaries as on the Army and Navy combined.

According to the article, a study from the Kaiser Family Foundation, a research organization unaffiliated with the insurer Kaiser, found that the insurers typically earn twice as much gross profit from their MAPs as from other types of insurance.

Most of the fraud lawsuits brought against insurers are from former employees (whistleblowers). According to the New York Times article, the DOJ has intervened in most of the whistleblower suits. In 2021, the DOJ listed Medicare Advantage as one its top areas of fraud recovery. The article points out that CMS has not been aggressive in pursuing overpayments.

The New York Times article gives voice to the frustrations that DME suppliers have asserted over the past several years. Insurers have a powerful lobby and they have many friends in Congress. However, as the OIG report indicates, government agencies are taking note of abuses in the managed care space. Hopefully we will see Congress pass legislation (and we will see CMS issue regulations) that force Medicare Advantage Plans to play fair.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies, manufacturers, and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].

AAHOMECARE’S EDUCATIONAL WEBINAR

Cash-Only Retail: How to Succeed

Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato

Tuesday, October 24, 2023 

1:30-2:30 p.m. CENTRAL TIME
The DME industry primarily serves the elderly. This means that most DME suppliers are dependent on traditional Medicare and Medicare Advantage for most of their revenue. But as DME suppliers know from experience, it can be challenging to be so tied to Medicare. This is where retail comes in. There are 78 million Baby Boomers who are retiring at the rate of 10,000 per day. Many Boomers are willing to pay cash for “Cadillac” items rather than being limited to the “Cavalier” items paid for by Medicare. This program will present the legal parameters within which DME suppliers can move into the retail space. The issues to be presented will include the following:

• Whether the retail business should be (i) under the supplier’s existing Tax ID # or (ii) operated by a separate legal entity.
• State DME licensure.
• Selling Medicare-covered items at a discount off the Medicare allowable.
• Obtaining physician prescriptions.
• Collection and payment of sales tax.
• Qualification as a “foreign” corporation.
• Required notification to a Medicare beneficiary even though the supplier does not have a PTAN.

Registration will soon be posted for Cash-Only Retail: How to Succeed on Tuesday, October 24, 2023, 1:30-2:30 p.m. CT, with Jeffrey S. Baird, Esq., Brown & Fortunato.

Members:  $99
Non-Members:  $129