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From Health Law Daily, March 5, 2013

GAO, citing $3.2 billion in overpayments, advises CMS to improve accuracy of risk score adjustments for Medicare Advantage plans

By Sheila Lynch-Afryl, JD, MA

CMS’s risk score adjustment for diagnostic coding differences for 2010 through 2012 was too low, resulting in overpayments to Medicare Advantage (MA) plans of at least $3.2 billion (GAO Report, No. GAO-13-206, January 1, 2013). CMS’s risk score adjustment for 2010 through 2012 was 3.4 percent, but the Government Accountability Office (GAO) found that cumulative MA risk scores in 2010 were 4.2 percent higher than they likely would have been if the same beneficiaries had been enrolled in Medicare fee-for-service (FFS); scores in 2011 were 4.6 to 5.3 percent higher, and in 2012 they were 4.9 to 6.4 percent higher.

Risk score. CMS pays MA plans a monthly amount per beneficiary and adjusts this payment to account for a beneficiary’s health status, a process known as risk adjustment. CMS assigns each MA beneficiary a risk score, which is a relative measure of expected health costs. Although risk scores for beneficiaries with the same diagnoses and characteristics should be the same, regardless of whether they are enrolled in an MA plan or traditional Medicare FFS, because MA plans have a greater incentive to ensure all diagnoses are comprehensively coded, risk scores are generally higher for beneficiaries enrolled in MA plans. To ensure that MA plans are not overpaid as a result of these differences, CMS makes a separate adjustment to MA plan payments.

January 2012 report. In January 2012, the GAO reported that CMS’s adjustments to account for differences in diagnostic coding were inadequate and resulted in overpayments to MA plans. CMS reduced MA beneficiaries’ risk scores by 3.4 percent; however, the GAO estimated the difference in diagnostic coding between MA plans and Medicare FFS providers was 4.8 to 7.1 percent. In the January 2012 report, the GAO recommended that CMS improve the accuracy of the adjustment.

2013 risk adjustment. For 2013, CMS continues to use the risk adjustment score of 3.4 percent that it used for 2010 through 2012. CMS reported that, in calculating the 2013 adjustment, it took into account the results of its data-based analysis and other factors such as payment changes made to the MA program under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), the stability of the Medicare program, and the maintenance of benefits for seniors. The GAO noted that the Social Security Act does not provide for factors other than the results of the data-based analysis of coding differences to be incorporated into the adjustment, suggesting that accuracy can be achieved through the incorporation of these analytical results by themselves.

The GAO continued to recommend that CMS update its methodology to more accurately account for differences in diagnostic coding. CMS did not have any comments in response to this report.

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