How insurance industry 'stranglehold' blocked Medicare reform

UnitedHealth Group is facing a torrent of accusations that it and its industry peers have exploited the Medicare Advantage program to gain billions in extra payments from the federal treasury.

These coding practices have been well-documented for years, prompting critics to ask: How has this persisted for over a decade?

The stalemate stems from a rash of reasons, including worries about cutting benefits for seniors and the lobbying clout of health insurers.

"At the front of the line, I would put the influence of the insurance industry," said Mark Miller, the former executive director of the Medicare Payment Advisory Commission (MedPAC), a nonpartisan agency that makes recommendations to Congress. "The industry has a stranglehold on the Congress and any administration."

Health insurers insist their methods to increase payments from the federal Medicare Advantage program are lawful: The money goes to care for sicker patients and to cover popular benefits in the privatized version of Medicare.

But government reports and academic researchers have long flagged the practice of "risk adjustment" as vulnerable to abuse and fraud. Critics say enhancing patients' health risks on paper, by using questionable evidence of actual health problems, can improperly lead to billions in extra revenue for insurers.

Many insurers are facing scrutiny for these coding practices, but UnitedHealth's sheer size -- as the Eden Prairie-based owner of the nation's largest Medicare Advantage insurer, UnitedHealthcare -- makes it the lead target of federal investigators, auditors, journalists and whistleblowers.

Reforms that started under President Joe Biden and continued under President Donald Trump are having an impact, Medicare experts say. These changes caused financial stress for health insurers, contributing to a huge stock sell-off earlier this year at UnitedHealth.

Medicare officials say more reforms are coming.

"While the Administration values the work that Medicare Advantage plans do, it is time CMS faithfully executes its duty to audit these plans and ensure they are billing the government accurately for the coverage they provide to Medicare patients," Medicare administrator Dr. Mehmet Oz said in a statement earlier this year.

But it's too soon to say whether the push, including expanded audits, will work.

In Medicare Advantage, seniors opt to receive Medicare benefits through private insurance companies. As part of the program, Congress created a mechanism that allowed insurers to receive additional payments for covering sicker patients.

When the Office of Inspector General (OIG) at the U.S. Department of Health and Human Services launched its first six audits on risk adjustment more than a decade ago, two reports focused on a UnitedHealth subsidiary based in California, PacifiCare, where the insurer's documentation didn't support the submitted risk score data for dozens of seniors.

In one example, the company submitted the diagnosis code for peripheral vascular disease to support one patient's risk score. But auditors found documentation didn't mention the disease -- it described, instead, the patient's pain after a heavy can fell on her foot.

UnitedHealth subsidiaries were collectively overpaid $539 million, just for 2007, the OIG estimated. The company pushed back with vigor.

"PacifiCare strongly disagrees with the findings ... and believes that the analysis, methodology and extrapolation used by the OIG in its audit are flawed," UnitedHealth wrote at the beginning of a 29-page response to one of the audits, published in 2012.

In the end, Medicare settled those six initial OIG audits for just pennies on the alleged dollar because government officials "sided with the industry and all but ignored the inspector general's recommendations," a journalism group called Center for Public Integrity reported in 2014.

Medicare officials maintained their own program to review insurers' data submissions. But in 2016, the U.S. Government Accountability Office (GAO) criticized these "risk-adjustment data validation" audits as flawed.

The Medicare agency wasn't focusing on plans with the highest risk of overpayments, the GAO said. And there were substantial delays with recovering money, due in part to lengthy appeals by insurers.

With billions of dollars at stake, insurers and government officials have battled in court for years over the fairness of "extrapolation," which estimates the overall impact using a subset of data. In one lawsuit, the insurer Humana claims the process overstates problems by not adjusting for the diagnosis data errors in original Medicare.

The controversy would already be resolved if extrapolation had been written into law, said Anna Bonelli, director of health policy at the Committee for a Responsible Federal Budget. Congress "should have addressed this a long time ago, because payments are out of control."

The Committee for a Responsible Federal Budget, with bipartisan leadership including former U.S. Rep. Tim Penny of Minnesota, applauded the Trump administration's announcement in May of a new push to address a backlog of risk adjustment audits.

The influence of health insurer lobbying and the threat of litigation "puts a lot of pressure on [Medicare] to be extremely cautious," Bonelli said. "If there's any suggestion that [Medicare] might not prevail in a legal challenge, they have a huge incentive to pull back."

In early 2014, federal officials proposed a new Medicare Advantage rule aimed at bolstering diagnostic coding accuracy. But the insurance industry pushed back and the agency dropped it.

The rule was meant to address concerns that insurers were reviewing charts only to look for extra revenue-generating diagnosis codes without also trying to fix errors in previously submitted data, said Cheri Rice, a CMS Medicare payment administrator, in a 2022 court deposition. But "the direction we received" was to exclude provisions that lacked "widespread stakeholder support," Rice said.

"So we did not move forward with the medical record review provision, not because we didn't think it was the right thing to do," she said.

Anne Hornsby, another Medicare payment administrator, said in a 2022 court deposition, "There was a general uproar, and the industry lobbied hard against it."

Federal officials have long had authority to impose an across-the-board pay cut to Medicare Advantage insurers to address alleged upcoding.

The Medicare agency started doing so in 2010, yet researchers cite evidence that the adjustments don't fully counteract high risk scores at many Medicare Advantage insurers.

Lawmakers and federal officials want the Medicare Advantage program to succeed. They know funding cuts could make insurance plans more expensive and cause some insurers to exit less-profitable markets, which could hurt seniors, said Richard Kronick, a researcher who studies Medicare payment policy at the University of California San Diego.

"The career staff working at [Medicare] know the adjustments should be larger," Kronick said. Even so, there "is always uncertainty, and both career staff and many political appointees often err on the side of caution."

A Medicare spokesperson said in a statement that the agency annually reviews the adjustments and "is committed to considering commenters' concerns and evaluating coding patterns for future policy consideration."

The Trump administration recently initiated risk-adjustment validation audits for 2019 covering all eligible contracts, and will soon expand the effort to more recent years. Medicare officials say the agency may have failed a decade ago to enact one proposal to improve coding accuracy, but they point to other requirements designed to prevent or correct coding fraud and waste.

Federal officials are "committed to ensuring that Medicare Advantage payments are accurate, that private plans are held accountable and that taxpayer dollars are protected," the Medicare spokesperson said.

In 2023, the Biden administration adopted a series of Medicare Advantage reforms dubbed "V28 being implemented over three years.

The changes are "aimed at making payment more accurate and should be viewed as the government trying to do a better job with respect to how it spends taxpayer dollars," said David Lipschutz, co-director of the Center for Medicare Advocacy, a Connecticut-based nonprofit.

The new system, for example, cracks down on diagnosing peripheral artery disease, which many seniors have without necessarily needing treatment, said Dr. Donald Berwick, a former Medicare administrator in the Obama administration.

V28 "doesn't totally fix the problem," Berwick said, "but it substantially reduces the opportunities for over-coding."

With billions of federal dollars at stake, there are still plenty of opportunities for "gaming" that the government could address through a more simplified system, said Ceci Connolly, CEO of the Alliance of Community Health Plans, a trade group for nonprofit health insurers.

Alliance Vice President Michael Bagel agreed: "We spend, as an industry, billions if not tens of billions of dollars in administrative costs on risk adjustment. That's literally just on documenting risk so that we can get paid properly. ... Is that a good use of taxpayer dollars?"

Yet the financial incentives have pushed more plans to try pumping up risk adjustment revenue, said Miller, the former MedPAC executive director.

"I think a lot of plans didn't want to take the risk to get in initially, because the upcoding might get shut down," said Miller, who today is executive vice president of health care at Houston-based Arnold Ventures. "But then as they saw more and more insurers doing it, they probably felt like they had to get into the game to stay competitive."

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