A better way to curb Medicare Advantage upcoding

CMS' proposed solution imposes collective punishment when 20% of plans are responsible for the worst abuses

I made two errors in my original post this morning, so I am sending it out again. Government payments to Medicare Advantage are 6% more than fee-for-service beneficiaries (not 4%), according to the latest MedPAC report. Also, Richard Kronick of the University of San Diego estimates overpayments could cost the government $600 billion over the next eight years (not $600 million). I regret the errors.

Will collective punishment work? That’s the intriguing question raised last week by the Medicare Payment Advisory Commission in its comments on the Biden administration’s proposal to pare back payments to private Medicare Advantage plans next year.

MA plans now cover over 50% of all seniors and the disabled on Medicare. But the plans cost taxpayers on average 6% more when compared to beneficiaries who remain in the government’s traditional fee-for-service Medicare program.

Under fee-for-service (FFS) Medicare, the Centers for Medicare and Medicaid Services (CMS) pay hospitals, doctors and other providers a set fee for each service they provide to a beneficiary. The government’s annual outlay for any individual will vary depending on how sick he or she becomes and how many services that individual consumes.

Under Medicare Advantage, CMS pays an insurance company an annual fee for each beneficiary who joins its plan. The capped payment is roughly equal to the average cost of each beneficiary in the FFS program in that region.

But that fee is adjusted upward to reflect each beneficiary’s pre-existing medical conditions. For close to two decades, critics have decried CMS’ risk-adjustment methods as incentivizing MA plans to identify their customers’ medical conditions to increase payments to the plans without requiring treatment. Some call it upcoding. Others call it fraud.

MedPAC, which advises Congress and CMS on payment policy, calls it coding intensity. It estimates the flawed risk-adjustment system has generated $124 billion in unnecessary payments to plans since 2007. More than a third of that cash transfer came in just the last two years. Researcher Richard Kronick of the University of San Diego, a former CMS official, estimated it could cost the government $600 billion over the next eight years.

Changes coming

Under administrator Chiquita Brooks-LaSure, CMS has finally taken the concerns of MedPAC and other critics to heart. In its proposed payment rule for 2024 released in early February, the agency offered a series of changes to the MA risk adjustment system that would limit next year’s typical plan increase to 1.3%, which is substantially less than the projected rise in overall spending by the FFS program.

The changes include elimination of diagnostic codes which are routinely abused by MA plans including angina pectoris, intermittent peripheral artery disease and protein-calorie malnutrition. It also proposes to restrict the use of some codes associated with diabetes. MA plans routinely report their diabetic patients have more expensive acute and chronic complications compared to FFS beneficiaries with diabetes. When combined with the minimum risk-adjustment reduction of 5.9% set by Congress, these changes will produce just a 1.3% average increase in next year’s MA payment schedule.

But while generally supportive of the changes, MedPAC in its comments parts ways with CMS on the specifics of the solution.