How Medicare Advantage plans code for cash; HHS report exposes overbilling

By Fred Schulte, Center for Public Integrity Background concept wordcloud illustration of medicare glowing light

A new federal study shows that many Medicare Advantage health plans routinely overbill the government for treating elderly patients — and have gotten away with doing it for years.

Analyzing government data never before made public, Department of Health and Human Services researchers found that many plans exaggerate how sick their patients are and how much they cost to treat. Medicare expects to pay the privately run plans — an alternative to traditional Medicare — some $160 billion this year.

The HHS study does not directly accuse any insurers of wrongdoing or name specific plans that were scrutinized. But the researchers offer the most comprehensive evidence to date that suspect billing practices have been common across much of the Medicare Advantage industry and are likely to get worse unless officials crack down.

“Further policy changes will likely be necessary,” the study concludes.

Congress created Medicare Advantage in 2003 to encourage private insurance companies to venture into the senior care market, and has remained supportive of the concept. The plans now insure some 16 million elderly and disabled people, nearly a third of those eligible for Medicare. They are popular with seniors because they often provide extra benefits, such as eyeglasses and dental care, and can cost less out-of-pocket than standard Medicare.

Medicare pays the Advantage health plans higher rates for sicker patients and less for healthy people using a complex formula called a “risk score.” But the HHS study spells out several ways health plans have inflated those scores, from reporting implausibly high levels of medical conditions such as alcohol or drug dependence to billing for an inordinately high number of patients with complications of diabetes.


Despite its broad implications for Medicare spending, the study by HHS researchers Richard Kronick and W. Pete Welch has attracted scant notice in Washington. It was quietly posted late last month on an online research site run by the Centers for Medicare and Medicaid Services, part of HHS.

Kronick directs the HHS Agency for Healthcare Research and Quality, whose mission is to improve health care delivery. Welch works for the HHS Office of the Assistant Secretary for Planning and Evaluation. The authors note that the study does not necessarily reflect HHS views, but both offices are influential in advising the government on policy matters.

CMS officials declined comment.

“This is clearly impacting what taxpayers are paying for Medicare Advantage, I think, not in a good way,” said Dr. David Wennberg, a researcher at the Dartmouth Institute for Health Policy and Clinical Practice who has studied Medicare billing trends.

Health care fraud expert Malcolm Sparrow, a professor at Harvard’s Kennedy School of Government, said the problems with billings based on risk scores reveal how “financial incentives” can improperly influence how medicine is practiced.

“The problem seems significant,” he said.

The new study amplifies the findings of a Center for Public Integrity investigation published in June. The investigation found that Medicare made nearly $70 billion in “improper” payments — mostly overcharges from inflated risk scores — to Medicare Advantage plans from 2008 through 2013 alone. The Center’s investigation also found that risk scores rose much faster in some health plans than others and that federal officials repeatedly yielded to industry pressure to minimize efforts to recoup overpayments.

Medicare Advantage plans are paid a set monthly fee for each patient based on the risk scores and the government largely trusts the health plans to report the health status of people they enroll. About 70 medical conditions can boost payment rates.


Clare Krusing, a spokeswoman for America’s Health Insurance Plans, the industry’s trade group, said the higher billing resulted from health plans working with patients “to understand their specific health conditions, and consequently make sure they get the care they need.”

“What was not highlighted (in the study) is the fact that these programs have demonstrated improved quality in patients’ health,” she wrote in an email.

However, the study concludes that people who join Medicare Advantage plans are healthier than those who remain on standard Medicare, in which doctors and hospitals are paid individually for each service they provide. The study also says it’s “unlikely” that the higher payments health plans derive from diagnosing more medical conditions “are related to substantial health benefits.”

In short, the numbers of patients diagnosed with diseases which result in higher payments increased far faster at many Medicare Advantage health plans than among people on standard Medicare. Exaggerating the severity of a medical condition to jack up fees is known in medical circles as “upcoding.”

For instance, “drug and alcohol dependence” is as much as eight times more common in the highest coding Medicare Advantage plans than among patients in standard Medicare.

Even more striking, according to the study, is how much higher reported diabetes rates have been in certain health plans than others. The study tracked rapid rises in many medical conditions from 2004, when risk scoring began, up to last year, and made them public for the first time.

Overall, diabetes with serious complications, which pays higher rates, was reported as much as five times more often among some Medicare Advantage plans than among people on standard Medicare. Conditions such as major depression also were far more common in some plans than others.


Holly J. Cassano, a medical coding consultant in Florida, said that the government’s decision to make the billing data public was “an enormous leap … in the right direction for continued transparency in all areas of health care.”

 “The main issue, now that it has been revealed, is ‘upcoding’, which no one likes to discuss, but the data is in black and white and speaks volumes,” Cassano, CEO of Accucode Consulting, wrote in an email.

Medicare Advantage enjoys solid political backing on Capitol Hill and has successfully fought back efforts by the Obama administration to make substantial cuts to its payment rates. Lobbying by the insurance industry and the fear of angering seniors also has largely quieted concerns in Congress that Medicare Advantage plans can be a poor value for taxpayers.

Congress recognized problems with Medicare Advantage coding as far back as 2005, when lawmakers directed CMS to find ways to cut back on rising, and presumably unjustified, risk scores. But CMS didn’t act until 2010, when it adjusted risk scores downward. The Affordable Care Act theoretically requires further reductions, but the political storm over the planned cuts has made their ultimate fate uncertain.

CMS has cut back payments levels for several diseases that appear to have prompted upcoding by Medicare Advantage plans. But the study’s authors noted that health plans are likely to find new conditions to replace lost revenue.

The study does not name any of the plans examined except to say that all had at least 10,000 members and that one plan among the highest billers had more than 200,000 members. The study does indicate that the longer patients stay in Medicare Advantage, the more their risk scores rose, suggesting that government’s failure to reel in coding has been costly.

The Center for Public Integrity has sought similar billing data from CMS for the past year as well as the names of Medicare Advantage plans that have been suspected of overbilling the government — and by how much. In late May, the Center sued the Department of Health and Human Services to make its Medicare Advantage audits and other related records public. The lawsuit is pending.

Last month, CMS published a draft regulation that would allow for “a formal process to recoup overpayments” made to the health plans. A final decision on the proposal is due by November 1.

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Latest comments

  • That stands to reason. Billions of dollars stolen. The governor of Florida seemed to be rewarded for stealing from Medicare. Then was able to run for office. He should have been banned from office. As should be the car thief in Congress. In the end the patients will suffer. As usual. That is why we need to put an end to health care for profit. Get rich health care does those on Medicare no good. How many times does it have to be said? White collar theft in America is accepted as standard procedure. The more that is stolen, the lighter the slap on the wrist. Made up by making the working class pay in most every way possible. It is disgusting.

  • The breathless Center of Integrity article says:

    “Analyzing government data never before made public, Department of Health and Human Services researchers found…”

    Huh? Why would Department of Health and Human Services data have to be made public before Department of Health and Human Services researchers could analyze it. The Department of Health and Human Services is the government. It is the group that made the data public.

    The rest of this story is equally nonsensical. Read the actual government “study” if you care about this issue (no one seems to except the so-called Center of Integrity). The “study”, which is really kind of a white paper written on such a trivial subject no one wants to “study” it, actually says:

    “Medicare has taken significant steps to mitigate the effects of coding intensity (that began in 2008) in (public Part C Medicare Advantage) MA, including implementing a 3.4% coding intensity adjustment in 2010 and revising the risk adjustment model (again) in 2013 and 2014. Given the continuous relative increase in the average MA risk score, further policy changes will likely be necessary.”

    The white paper also notes Medicare

    “…is also recovering over payments identified by risk adjustment data validation (RADV) audits of selected MA contracts.”

    So this whole story is about a trivial policy begun in 2008, that didn’t seem to be working so the rules were changed in 2010, 2012 and 2013, and the government is getting any money it overpaid back… if such over payments are discovered (which there is some doubt about)

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