July 23, 2019

CMS is preparing to move forward with a proposal to use audits to recoup millions of dollars in overpayments to Medicare Advantage (MA) insurers, after it determined that insurers overcharged Medicare by nearly $30 billion over the past three years.

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Background

CMS uses MA's risk adjustment model, known as the CMS-HCC Risk Adjustment model, to determine payments for MA plans. Under the model, MA plans assign each beneficiary a risk score based on medical coding that reflects the beneficiary's medical condition. Beneficiaries with poorer health have higher risk scores, while healthier beneficiaries have lower risk scores. CMS gives MA plans higher payments for beneficiaries with higher risk scores than beneficiaries with lower risk scores.

Federal officials for years have known MA insurers overcharge Medicare by exaggerating the severity of beneficiaries' conditions or by paying for treatments for conditions they cannot confirm their beneficiaries have in order to raise their beneficiaries' risk scores. However, CMS has struggled to recoup overpayments from MA insurers, with agency officials frequently postponing or canceling plans to address billing abuses and mistakes after the MA industry challenges the agency's proposals.

CMS proposes a controversial crackdown

But now, CMS is once again proposing to crackdown on overpayments.

The proposed changes relate to CMS' Risk Adjustment Data Validation (RADV) audits for MA plans. CMS currently conducts RADV audits on about 5% of MA contracts to determine whether MA insurers are overcharging and whether beneficiaries' diagnoses warrant higher payments. CMS said it has used a sampling and extrapolation method in audits conducted for payment years 2011, 2012, and 2013. Under that method, CMS looks at billing samples for about 200 beneficiaries for each MA contract. The agency then uses that sample data to calculate an overall payment error for the plans.

CMS said it has sought few recoveries based on that data, but the agency under a proposed rule it released in November 2018 is now seeking to use those audits to recoup billions of dollars in MA overpayments. CMS under the proposed rule would use the audits to identify a random sample of 200 beneficiaries, generate an error rate for payments based on the sample, and extrapolate the error rate to a plan's entire membership to determine a penalty. CMS estimated that the change would allow the agency to recoup $1 billion in improper payments made to MA organizations by 2020, and $381 million for each subsequent year.

CMS in a notice published in April extended its deadline for public comments on the proposed rule to August.

The proposed rule sparked pushback from insurers. For instance, America's Health Insurance Plans called CMS' audit design "fatally flawed," and Cigna said the proposed audits "could have a detrimental impact" on MA plans.

But CMS' proposed extrapolation method "is common in medical fraud investigations" outside of MA. Jessica Smith, a health care industry consultant, said CMS might have extended its deadline for public comments on its proposal because the agency wants to be sure its audit protocol is adequate before finalizing the change. "Once they have their ducks in a row, CMS will come back hard at the health plans. There is so much money tied to this," she said.

CMS prepares to move forward with proposal

CMS already is preparing to move forward with its proposed change. Agency officials in a written response to questions from Kaiser Health News said CMS has conducted 90 enhanced audits for payments issued to MA insurers in 2011, 2012, and 2013 and, based on those audits, they expect CMS will collect $650 million in extrapolated penalties from MA insurers. Though that amount is a small share of actual Medicare overpayments to MA insurers, it would represent a major step for CMS in recouping losses.

CMS officials said the agency this year plans to begin audits for 2014 and 2015. Officials said they plan to target 30 MA insurers per year, or about 5% of the country's 600 MA plans annually (Haefner, Becker's Payer Issues, 7/16; Schulte/Weber, Kaiser Health News, 7/16).

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