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Health Affairs' Leslie Erdelack and Kathleen Haddad explain the complexities of the CMS final rule on Medicare Advantage risk adjustment.
Health Affairs This Week places listeners at the center of health policy’s proverbial water cooler. Join editors from Health Affairs, the leading journal of health policy research, and special guests as they discuss this week’s most pressing health policy news. All in 15 minutes or less.
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Leslie Erdelack
Hey, everyone, you're listening to Health Affairs This Week. I'm Leslie Erdelack.
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Kathleen Haddad
And I'm Kathleen Haddad.
00;00;14;16 - 00;00;37;00
Leslie Erdelack
And this is the weekly podcast where the Editors of Health Affairs talk about the latest in health policy news and stories we're following. This week we're talking about a major development affecting the Medicare Advantage program. But before we get to it, a reminder to check out a new report out today at 1 p.m. Eastern on health care spending from the Health Affairs Council on Health Care Spending and Value.
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Leslie Erdelack
The report looks at ways to moderate health care spending and growth. So it's worth taking a look. All right, Kathleen, on Monday, the Centers for Medicare and Medicaid Services finalized a long awaited rule that imposes more aggressive audits of Medicare Advantage plans. So Medicare Advantage now covers, as you know, more than 30 million Americans. More people are choosing Medicare Advantage plans as a private insurance alternative to traditional Medicare.
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Leslie Erdelack
And these plans are run primarily by big insurance companies like Humana and UnitedHealthcare. So the way this works is that Medicare Advantage plans get reimbursed by the federal government for the benefits and services they provide to people who are enrolled in these plans with higher rates for sicker patients. But for many years, plans have been accused of systematically exploiting the Medicare Advantage program and overcharging CMS (Centers for Medicare and Medicaid Services).
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Leslie Erdelack
A financial report from the Department of Health and Human Services found that CMS made over 15 billion in overpayments to Medicare Advantage plans just in fiscal year 2021. So it is a staggering amount of money, but there has been very little action until now on the part of the government to course correct. But this new rule means more enhanced audits of the diagnoses that Medicare Advantage plans submit to CMS to make sure that they are paid appropriately.
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Leslie Erdelack
But CMS is also hoping to recover billions of dollars from improper overpayments made over the course of many years. That's the gist of it. And there's so much to talk about here with respect to payment and risk adjustment policies within the Medicare Advantage program. But a fundamental question I think we can start out with, Kathleen, is why these audits are needed in the first place.
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Kathleen Haddad
So Leslie, as you said, CMS has long argued that MA (Medicare Advantage) plans have been overpaid. There are a couple of reasons for this overpayment, but the audits focus on one in particular known as coding intensity or upcoding.
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Leslie Erdelack
Yeah. What is that? I assume it has to do with the way that certain medical conditions are being documented. Is that right?
00;02;49;23 - 00;03;21;16
Kathleen Haddad
Yeah, that's right, Leslie. And I think to understand this first, it's helpful to know a bit about how CMS pays Medicare Advantage plans. You referred to sicker patients being... garnering more payment for the MA plan. So a simple explanation goes like this: CMS makes an annual premium payment to the plan for each beneficiary, and then CMS adjusts this payment based on the financial risk each patient poses to the plan.
00;03;22;02 - 00;04;04;27
Kathleen Haddad
So a patient's financial risk is based on the patient's health or lack thereof and the amount of care the patient is likely to need. The financial risk is determined by the type and number of diagnoses, the severity and number of diagnoses that are recorded for each patient in the plan. So CMS then uses the diagnoses to develop a risk score for each patient, and then the risk score is used to adjust the annual payments to MA plans and so you can figure out by now that the more diagnoses the plan can reward or record for a patient, the higher the risk score and the more payment the plan gets.
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Leslie Erdelack
As we know, I think a lot of the debate really centers on that formula that gets used. And so how do these plans determine which diagnoses to include?
00;04;17;06 - 00;05;00;09
Kathleen Haddad
Good question. So the diagnoses originate from health care providers, and there are a few issues with how these diagnoses are reported from health care providers to MA and by MA to CMS. So that second part is where the issue lies. MA plans can add diagnoses by doing what they call chart reviews, and they hire firms to do these reviews of patient charts or more often use software to scour the electronic medical records for additional diagnoses that may be indicated by patient's symptoms but not always treated.
00;05;00;28 - 00;05;13;17
Kathleen Haddad
It's these added diagnoses that increase MA payment. And CMS says research and audits have shown many of these diagnoses are just not attached to any provided service and not valid.
00;05;14;03 - 00;05;28;29
Leslie Erdelack
Yeah, I think that's a big problem. And, you know, you said that there are a few issues with the way that these diagnoses get reported. So I guess what else, what other issues are there here? What else is causing problems?
00;05;29;04 - 00;06;02;29
Kathleen Haddad
Well, another problem has to do with the incentives that the various providers have to record complete diagnostic information. MA plans say they report more diagnoses than comparable patients in fee-for-services because doctors paid under fee-for-service have little incentive to provide complete diagnostic information. So under fee for service, doctors get a payment for each service provided then, and regardless of the number or severity of the diagnoses they record, they get that payment because MA
00;06;02;29 - 00;06;32;27
Kathleen Haddad
plans have significant financial incentives to code as many diagnoses as possible. Coding intensity is higher in MA than in fee-for-service Medicare and payments to MA plans are therefore higher. So Congress has recognized this and they've allowed CMS to reduce MA payment by as much as 6%, this goes several years back, 6% of the amount patients would cost in fee-for-service.
00;06;33;14 - 00;07;04;17
Kathleen Haddad
This adjustment is referred to as a clawback, but the Medicare Payment Advisory Commission, MedPAC, has said that 6% is not enough because the risk scores for MA plans are actually about 11% higher than for a comparable fee-for-service patients. So with the audit, CMS is trying to fix both of these problems and make the payments between MA patients and comparable fee-for-service patients equal.
00;07;05;26 - 00;07;31;08
Leslie Erdelack
So as important as it is to make sure accurate payments are being dispersed across the Medicare program, as you said, we know from studies and audits done separately by CMS and the Inspector General that the medical records that you mentioned don't always support those diagnoses that get reported. So these audits really serve an important purpose in the sense that they are CMS’s the main corrective tool for identifying improper payments.
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Leslie Erdelack
But in the past these audits weren't working as intended. They were missing some of the biggest overpayments, and this led to calls for more accountability and oversight and also questions about whether the higher payments to Medicare Advantage were justified. So one of the policies finalized in this rule has to do with the way that CMS determines an overall level of payment error going forward.
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Leslie Erdelack
So extrapolating the findings from these audits, this is something that has historically been a normal part of the auditing process at CMS is really at the heart of what we're talking about today. So they're using these extrapolated audit findings to recover the money paid to these plans in error and it's really this new methodology and how the extrapolation is applied.
00;08;25;05 - 00;08;32;04
Leslie Erdelack
That has been the subject of debate for many years and we're still talking about it.
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Kathleen Haddad
Yes, and Leslie, the extrapolation is in essence, simply extrapolating from a sample to the population of enrollees in MA plans. And you're right, that is the subject of the debate. There are a lot of mechanics involved in that and in this whole issue. But Leslie, you've looked into the savings that might accrue from the audit, correct?
00;09;00;09 - 00;09;25;07
Leslie Erdelack
Right. So CMS estimates that it will get back 479 million in overpayments from 2018. So they're applying that new methodology, that new error rate to audits from 2018, even though earlier proposals had regulators going back even further. CMS also projects that it will recover around $4.7 billion over the next decade. So a sizable amount.
00;09;25;07 - 00;09;33;00
Kathleen Haddad
Very sizable, especially in my budget. But tell me Leslie, what are the stakeholders saying?
00;09;34;04 - 00;10;03;01
Leslie Erdelack
So I think it's really interesting because some people are actually saying that Medicare Advantage plans are getting off way too easy. So they're wanting CMS to demand penalties as far back as 2011 when those audits first started. And of course, there are other groups lobbying on behalf of the insurance industry, questioning whether Medicare officials, you know, really have the legal authority to take findings from a limited audit and collect overpayments from mistakes that were made over such a long period of time.
00;10;03;13 - 00;10;24;22
Leslie Erdelack
And it's those same groups that have expressed concerns that the rule would ultimately lead to higher costs for enrollees, fewer benefits, fewer plan options in the future. But the HHS (Health and Human Services) secretary sort of at the federal level said earlier this week that he thinks, of course, the rule takes long overdue steps to move in the direction of accountability.
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Kathleen Haddad
And it sounds like a lot of litigation might be in store, right, Leslie?
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Leslie Erdelack
Yep. So there is some indication that these insurance companies could challenge the rule in court. They... I think at least they would likely focus on whether CMS’s methodology is legal. And already we've heard the rule characterized as unlawful, fatally flawed, relying on bad data. So I think a big part of the opposition has to do with the statistical and methodological validity of the extrapolation techniques.
00;10;57;09 - 00;11;19;17
Leslie Erdelack
CMS has emphasized that nothing in this rule changes the longstanding principle that a diagnosis code that is not documented in a patient's medical record is not a valid basis for CMS risk adjustment payments. So with strong opinions on both sides, I think it will be interesting to see if and how this plays out in court.
00;11;20;00 - 00;11;50;07
Kathleen Haddad
Yeah, who knows how long that will take. I read recently that Mark Miller, who was chairman in the past of the Medicare Payment Advisory Commission, MedPAC, had hinted that the cheaper and more efficient way to deal with this overpayment is simply to reduce payment to MA plans by increasing the clawback. And that, however, would require congressional authority.
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Kathleen Haddad
And that itself is a very heavy lift.
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Leslie Erdelack
Yeah, I think definitely a range of dynamics to take into consideration here as well as options on the table. So, you know, we look forward to seeing what happens next. I mean, obviously, given that Medicare Advantage is such a popular and attractive option to many people, this is a really important story to follow.
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Kathleen Haddad
Sure is.
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Leslie Erdelack
So, in the meantime, if you enjoyed today's episode, leave us a review and make sure you subscribe to Health Affairs This Week. Kathleen, great conversation with you today.
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Kathleen Haddad
Thanks, Leslie.
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Leslie Erdelack
And stay tuned. We'll be back next week.