Medicare failed to recover up to $125 million in overpayments, records show

Paying based on risk scores

When Congress created the current Medicare Advantage program in 2003, it devised a new way to pay the health plans.

The method, phased in starting in 2004, seemed simple enough: Pay higher rates for sicker patients and less for people in good health using a formula called a risk score.

But CMS officials soon realized that risk scores rose much faster at some plans than others, a possible sign of upcoding, or other billing irregularities, records show. These overcharges topped $4 billion in 2005, one CMS study found.

The special audits, called Risk Adjustment Data Validation, or RADV, were designed to identify, and hold accountable, health plans that couldn’t justify their fees with supporting medical evidence.

Until these audits, CMS “pretty much went on the honor system with the plans,” an unnamed agency official wrote in an undated presentation.

In the five 2007 pilot audits, two sets of auditors inspected medical records for a random sample of 201 patients at each plan. If the medical chart didn’t properly document that a patient had the illnesses the plan had reported, Medicare wanted a refund. Auditors gave the plans the benefit of the doubt when auditors couldn’t agree, according to the CMS briefing paper.

Finally, CMS applied a standard technique used in fraud investigations in which the payment error rate is extrapolated across the entire health plan, which greatly multiplies the amount due. CMS said it was conservative in assessing the penalties and allowed the plans to appeal.

Appeals or no, the health plans recoiled at the prospect they could be on the hook for millions of dollars they hadn’t budgeted for and didn’t believe they owed. The actual 2007 overage for the 201 Humana patients, for example, was $477,235. Once extrapolated, it soared to $33.5 million.

Michael S. Adelberg, a former CMS official who is now an industry consultant in Washington, said that in retrospect the audit process was “probably rushed.”

Mr. Adelberg said the audits “raised strong industry concerns” on a variety of fronts, from whether CMS had the legal authority to conduct them to the soundness of their methods. CMS stands by its audit techniques and has defended RADV as the only way it can assure plans bill honestly.

Yet agency records released through the FOIA case suggest CMS lacked the will to press ahead with extrapolated audits for Medicare Advantage plans given the fierce industry backlash – even though they do so in overpayment cases targeting other types of medical providers.

One confidential CMS presentation dated March 30, 2011, notes that officials had received more than 500 comments expressing “significant resistance” to the RADV audits.

The presentation goes on to say the audit program’s success depended on its “ability to address the challenges raised.”

CMS didn’t overcome those challenges. Instead, it agreed to settle the five initial audits for $3.4 million, just what it found in the patient files it reviewed – without the extrapolations. And the center did the same for 32 additional 2007 audits, which officials had predicted would refund up to $800 million to the federal treasury. In the end, CMS wound up with $10.3 million from the 32 plans.

The RADV program’s shortcomings, though little known to the public, haven’t gone totally unnoticed. The program was the target of a sharply critical May 2016 report by the Government Accountability Office, which noted that Medicare Advantage plans have overbilled the government by billions of dollars, but rarely been forced to repay the money or face other consequences.

The GAO, the watchdog arm of Congress, called for “fundamental improvements.” The watchdogs also found that CMS has spent about $117 million on the audits, but recouped just under $14 million.

Government officials didn’t dispute that the RADV process had taken far too long and yielded way too little. But while CMS has resumed extrapolated audits, there’s little evidence it is speeding things up.

CMS expected to complete extrapolated audits for payments made in 2011 and finish the job in early 2014, agency records show.

But it has yet to do so. In late December, an agency spokesman said he had no new information about when the 2011 audits would be finished or how much the government would collect.

While the industry awaits the results, it has hardly warmed to the process.

America’s Health Insurance Plans, an industry trade group, argued in a June 2016 position paper that RADV was “not yet stable and reliable,” adding that the audits “could disrupt the care being provided by plans that are working hard to meet the needs of their enrollees.”

John Gorman, a former government health care official and current industry consultant, said he expects RADV to forge ahead under the incoming administration. But he predicted efforts to collect overpayments will “slow down” because the Trump team will prove to be “more sympathetic” to business interests than the Obama administration. The Trump transition office did not respond to a request for comment.

Mr. Gorman said that while career civil servants at CMS decide which plans get audited, how much to assess the health plans as a result rests with “political appointees” who are susceptible to industry lobbying, which he termed “the old Potomac two- step.”

But Sen. Grassley said he is determined to keep a close eye on the audit program. “I intend to press the incoming administration on holding CMS accountable for overpayments that harm taxpayers,” he said.

Taxpayer advocate Mr. Ellis said with so much public money at stake, the government needs to step up its game.

“You can presume that the more people get away with overpayments the more they are going to take,” he said. “As the program gets bigger the problem get bigger.”