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From Health Law Daily, December 28, 2015

No honor among thieves: MA ‘honor system’ costs taxpayers billions

By Kathryn S. Beard, J.D.

Although CMS since 2008 has suspected certain privately run Medicare Advantage (MA) health plans of overcharging the federal government, the agency only completes 30 in-depth financial audits each year to recover overpayments. The Center for Public Integrity (CPI), following up on earlier Freedom of Information Act (FOIA) requests for MA records, notes that CMS has resources for up to 80 yearly in-depth audits, despite completing less than half that number. The result, according to CPI, is a failure to recover tens of millions of dollars in overpayments.

CPI’s investigation into MA overpayments culminated in a FOIA lawsuit captioned Schulte v. HHS, with a CPI reporter obtaining a court order requiring the agency to produce MA records (see HHS sued for failure to release Medicare Advantage billing information, May 28, 2014). In response to that court order, CMS released information to CPI saying that the agency “consensus was to audit 30 contracts per year” on MA plans, corresponding to about 5 percent of the 600 MA contracts in force. The documents also show that CMS expected to complete its first group of audits, covering 2011 spending, in early 2014 and recoup overpayments at the same time; the agency now “anticipates” the completion of these audits in 2016.

About one-third of Medicare-eligible individuals are enrolled in MA plans, as an alternative to Medicare Part A. MA plans are paid using a risk score calculated for each patient based on diseases reported by the health plans, but this calculation has been tied to risk scores that have grown quickly and resulted in billions of dollars in overspending, according to CPI. The newest documents released to CPI do not allay what the watchdog organization calls “widespread suspicions that some risk scores are being purposefully inflated,” with more than 1,400 pages withheld in their entirety, and the remaining records showing heavy redactions.

CPI says that the records clearly show that the risk score formula, described in one CMS memo as an “honor system” lacking safeguards to discourage abuse, is the cause of substantial overpayments to MA health plans. For example, CMS records showed that auditors in 2005 were unable to confirm that 31 percent of patients had the diseases that Medicare was paying plans to treat and projected $4.2 billion in losses for that year alone due to overpayments to MA plans.

CPI suggests that if CMS were to conduct more audits and make stronger efforts to recover overpayments, many private health insurers would opt out of the MA program, or conduct expensive, lengthy litigation over the audit program. As a result, the agency is wary of increasing its oversight, at the expense of billions of lost dollars. CMS records show that because “A lot of money is at stake,” agency officials argued for a “conservative estimate” of overpayments, noting “we think it puts us in the best position to withstand litigation challenges.”

CMS may have good reason for its caution. For 2007, audits lasted more than five years, and the agency collected less than $14 million, despite anticipating recoveries between $500 and $800 million. Further, some health plans continue to appeal to get some of the recovered money back from CMS.

MainStory: TopStory AgencyNews ReimbursementNews ComplianceNews CMSNews PaymentNews PartCNews ProgramIntegrityNews

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