Medicare open enrollment kicked off Friday with more Medicare Advantage plans to choose from but with renewed criticism that insurers are gaming risk adjustment practices to inflate profits.
While more and more insurers are expanding their presence in the MA marketplace, private Medicare plans are facing heightened scrutiny over risk adjustment and comprehensive diagnostic coding. But industry advocates counter that the criticisms of MA are unfair and that patients get better care in MA plans compared to traditional Medicare.
A series of articles in Health Affairs published late last month by former acting Centers for Medicare & Medicaid Services (CMS) Administrator Don Berwick and former Trinity Health CEO Richard Gilfillan sheds light on coding practices that have made the MA space extremely lucrative for insurers.
The MA program includes a risk adjustment system called hierarchical condition category (HCC) that identifies sicker patients and calculates risk scores that predict future healthcare costs.
But MA plans can “draw enormous overpayments by submitting diagnosis codes that create more HCCs per person,” Berwick and Gilfillan’s article said. “While the codes are, presumably, accurate, the dollar coefficients used in MA payment logic are inflated because they were modeled using markedly under-coded [fee-for-service] data.”
Plans that code more get higher risk scores and lead to more subsidies from CMS and lower premiums for beneficiaries.
“This is one distorted dynamic in the MA marketplace: the costlier the plan is to the payer (CMS), the easier it is to sell to the customer, and the greater the profit,” the article said.
Berwick and Gilfillan add that plans have engaged in several tactics to get providers to code more diagnoses, which in turn lead to greater risk scores and subsidies for the plan.
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For example, some plans pay providers that use their tools like artificial intelligence to identify more coding opportunities, the article said.
MA plans can also share risk premiums with providers through value-based care contracts or plans can just buy the provider outright. The latter tactic “ensures optimal use of their sophisticated AI coding by employed staff,” the article said.
More coding, more money
The article’s findings come amid new scrutiny over the impact of MA on Medicare spending, especially as the program has grown in popularity. Recent data from the Kaiser Family Foundation showed that MA enrollment has doubled over the past decade to more than 26 million members of Medicare. More and more insurers are also expanding their presence in the market.
A separate analysis from Kaiser Family Foundation released earlier this year found that Medicare spends $7 billion more on MA compared to traditional Medicare in 2019. Major drivers of the cost disparity were spending on higher benchmarks that determine MA plan payments and rebates to plans to compensate for supplemental benefits such as vision or dental.
Kaiser also said inaccurate coding practices among MA plans could be a driver of the spending disparity, with the foundation noting that there is an incentive for comprehensive coding because it can affect the amount of payment.
Berwick said in an interview with Fierce Healthcare that he is not opposed to risk adjustment, which is needed to ensure that plans have an incentive to take care of sicker patients.
“What we are saying is we need a better risk coding system,” he said.
Another issue is that the performance of MA plans is harder to evaluate because of the risk coding practices.
“Once you are allowed to up-code patients then statistically you are going to look better because patients will look sicker than they are,” he said.
MA plans get a star rating of one to five stars based in part on their quality performance. CMS recently announced that nearly 70% of MA plans offering coverage for 2022 have four or more stars, a major bump compared to 49% of plans with such ratings in 2021.
Berwick said there is “no doubt” that some MA plans are doing a good job managing care for beneficiaries but said that a “large portion of MA don’t appear to improve care at all.”
His remarks come as the Commonwealth Fund put out a new analysis that showed MA plans don’t offer better care experiences compared to traditional Medicare. For example, MA and traditional Medicare beneficiaries had similar wait times for outpatient and doctors' visits.
But the analysis did say that MA did a better job of care coordination than traditional Medicare.
Not apples to apples
The insurance industry pushed back against the criticisms, noting that there is plenty of research that shows MA enrollees get better care than those in traditional Medicare.
“There are numerous research studies that show whether looking at various clinical quality measures and survival rates and hospital readmissions, vaccination rates for pneumonia and flu, emergency room visits on a whole spectrum of issues that make it very clear that one of the critical value components to the MA program is that individuals are receiving better care,” said Mark Hamelburg, senior vice president for federal programs for the insurance lobbying group America's Health Insurance Plans, in an interview with Fierce Healthcare.
He also said that “the idea that the MA program is not efficient or effective is just not borne out by the facts.”
For one, he points to the 2020 net improper payment rate of 0.55% for MA plans, which is “one-tenth the net improper payment rate in traditional Medicare,” Hamelburg said.
He added that a recent analysis from the Medicare Payment Advisory Commission found that the bids that plans submit for delivering basic Medicare benefits is on average 87% of the traditional Medicare cost.
The MA program also leads to a spillover effect in traditional Medicare.
“As more and more physicians in an area adopt more high-quality, cost-effective practices through contracts with MA plans they basically apply those same ways and methods to their other patients and reducing costs in the [fee-for-service] program. people oftentimes don’t acknowledge that reduction as well,” Hamelburg said.
Some plans also said they work to stay in compliance on risk adjustment.
“We are committed to ensuring that we accurately understand and address the health conditions of the patients we serve to help facilitate better care management,” Humana said in a statement to Fierce Healthcare.
A way forward
There are ways to improve the risk adjustment system, but it remains to be seen what Congress or the Biden administration could pursue.
Berwick floated the idea of making risk adjustment not based on the diagnostic codes by providers but instead on characteristics in census tracks or develop a risk coding system based on the circumstances that people live in.
“There are countries around the world that do adjust payment for the levels of deprivation and social address of localities,” he said.
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The Department Health and Human Services’ Office of Inspector General has also called for CMS to provide more oversight of risk adjustment payments and called on the agency to do periodic monitoring to identify companies with a disproportionate share of payments.
“CMS can ask for more identifiable information,” said Stephanie Kennan, a member of the federal public affairs group with McGuireWoods Consulting.
This new information can be used to double-check a patient’s risk.
“I think as we move forward, this will be a bigger and bigger issue as MA continues to grow,” Kennan said.
But it remains unclear whether Congress will step in.
Berwick said part of the reason the current risk adjustment continues is due to heavy lobbying.
“The amount of political voice that the payers and providers who use this gaming system has is enormous,” he said. “It is very hard for Congress to change the rules.”