The Hunt for the Riskiest, Most Lucrative Patients

(Bloomberg Businessweek) -- Medicare is big business for insurance companies such as UnitedHealth Group, Humana, and CVS Health’s Aetna unit. Selling private versions of the U.S. government health program for seniors—known as Medicare Advantage plans—is among the fastest-growing and most profitable markets in health care. About 26 million Americans, or 42% of all Medicare beneficiaries, choose to get their Medicare benefits through private plans, bringing more than $300 billion annually into insurers’ coffers.

Now federal authorities are raising alarms about the program’s cost. Private Medicare plans, pitched as a way to deliver better care at lower costs, have never saved the government money, according to the Medicare Payment Advisory Commission (MedPAC), a panel of independent advisers to Congress that earlier this year noted that some “policies are deeply flawed and in need of immediate improvement.”

The private plans in fact collect 4% more from the government than what the feds would pay to cover the same enrollees in the traditional program, MedPAC says. Those higher costs go toward perks such as vision and dental care that aren’t covered by traditional Medicare—a key draw for new members—as well as administrative expenses, marketing, and profits for private insurers. But they also reflect payments to companies that have mastered Medicare’s arcane “risk adjustment” insurance coding system to generate higher payments from the government, maximizing their revenue and boosting their bottom lines.

The Department of Health and Human Services Office of Inspector General has urged the government to boost oversight of Medicare Advantage “so that plans will ensure practices drive better care and not just higher profits.”

Starting on Oct. 15 private companies will compete for new members during the annual sign-up window, with pitches that Medicare Advantage provides more comprehensive benefits and lower out-of-pocket costs, particularly for low-income seniors. “It delivers affordable coverage with lower cost-sharing [and] additional benefits that traditional Medicare doesn’t cover,” like caps on total out-of-pocket costs, says Matt Eyles, chief executive officer of America’s Health Insurance Plans, which represents insurers.

Critics say reform is overdue. Two former Medicare officials recently co-authored a critique of what they call the Medicare Advantage “money machine” on the blog of the journal Health Affairs. One of them, Don Berwick, ran Medicare early in the Obama administration. They urged Congress to make the risk-adjustment program “resistant to gaming.” Berwick says it distracts doctors from focusing on patients’ needs and diverts billions of dollars in public funds. “It’s taking money away from care,” he says.

Traditional Medicare pays doctors and hospitals directly for each procedure or test, a system known as fee-for-service. In Medicare Advantage the government pays insurers a per-member fee to take on the risk for the total cost of members’ medical care. In 2019 it was about $12,000 a year per member. But health plans can get higher payments for signing up sicker enrollees. This policy, known as risk adjustment, is meant to compensate plans for additional costs and discourage them from cherry-picking healthy members.

The risk-adjustment system is at the heart of what drives the Medicare Advantage business, and federal authorities say it’s vulnerable to manipulation and fraud. By calculating a patient’s “risk score,” plans get paid more for higher-risk patients with more documented conditions, such as depression, diabetes, vascular disease, or pulmonary disease. The bump is usually $1,000 to $5,000 annually per diagnosis, according to MedPAC, but some illnesses can add $10,000 or more.

This system creates incentives for Medicare Advantage plans to add diagnostic codes to patient records that, in the traditional Medicare program, doctors might not include. In the government program, with payment being based on service provided, doctors record the diagnosis only to justify why an office visit, test, or procedure took place.

In Medicare Advantage, submitting an additional diagnosis means a plan gets paid more, whether it affects that patient’s treatment and even if no treatment is given for the specified malady. Medicare paid private plans $9 billion more in 2019 than if the same patients were enrolled in traditional Medicare because of Advantage plans’ more intensive use of coding, MedPAC estimates.

The incentive to collect diagnostic codes has led to practices that authorities say may inflate payments without benefiting patients. Insurers regularly review charts and use software to mine patients’ medical records for diagnoses that doctors didn’t submit. They also send their own clinicians to patients’ homes to conduct “health risk assessments,” which can unearth other illnesses or conditions that can be added to patients’ records, raising their reimbursement value from Medicare.

An HHS Office of Inspector General report identified $2.6 billion in payments made in 2017 for diagnoses that were reported solely on health risk assessments, not linked to any other care beneficiaries received. Only 10 companies drove almost all the payments related to in-home risk assessments, the OIG says. Records obtained by Bloomberg News show that UnitedHealth, Humana, and Aetna were among them.

Medicare plans also earned millions of dollars in payments from in-home health assessments for thousands of people who apparently received no other Medicare services that year, “which calls into question the treatment and follow-up care provided to these beneficiaries,” the inspector general wrote. Records obtained by Bloomberg show those plans were largely operated by UnitedHealth Group Inc. and Humana Inc. Together, the two companies cover more than 11 million Medicare Advantage members, almost half the total.

UnitedHealth and Humana declined to make executives available for on-the-record interviews. Tim Noel, CEO of UnitedHealthcare’s Medicare & Retirement business, said in a statement that “our in-home clinical visits are the gold standard for how seniors should be evaluated for physical, mental, and social needs.” Humana spokeswoman Kelley Murphy said in an email that “by being in the home we’re better able to evaluate and care for the personal needs of members, including their social and behavioral challenges,” noting that Medicare recognizes chart reviews and health-risk assessments as “valuable tools” for managing members’ health.

A spokesperson for the Centers for Medicare & Medicaid Services said in an email that the agency “is committed to ensuring that payments to Medicare Advantage plans are appropriate and that risk adjustment works as intended” to pay plans for the risk they take on.

Federal prosecutors and company insiders allege in a series of whistleblower lawsuits that some risk-adjustment tactics cross the line into fraud. The U.S. Department of Justice has brought cases against insurers, providers, and vendors involved in risk adjustment, including UnitedHealth, Anthem Inc., Kaiser Permanente, and others.

In the suit against Kaiser Permanente, six separate people came forward independently to file complaints under seal against the HMO. The Justice Department intervened in the cases this summer. The unsealed complaints open a window into how the incentive to add codes plays out. One of the whistleblowers described mandatory “coding parties” in which physicians gathered in a single room with computers to update patient records with retroactively added diagnoses.

A spokesman for Kaiser Permanente wrote in an email that “our policies and practices represent well-reasoned and good-faith interpretations of sometimes vague and incomplete guidance.”

Kaiser Permanente and other insurers say they followed the program’s rules and will fight the suits. An Anthem spokesman said in an email that “the government is trying to hold Anthem and other Medicare Advantage plans to payment standards” that don’t apply to the traditional program and that guidance was unclear.

Democrats in Congress are weighing changes to Medicare, including adding dental and vision coverage to traditional Medicare, which could diminish one of the main draws for Medicare Advantage customers. But those proposals may be pulled to reduce the spending plan’s cost. Either way, the growth of Medicare Advantage plans—which have doubled enrollment in a decade—shows no sign of slowing down.

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