Medicare Advantage plans overcharged government hundreds of millions, get to hang onto the money

The health insurance industry had long feared that the federal Centers for Medicare & Medicaid Services would demand repayment of billions of dollars in overcharges that Medicare Advantage health plans received going as far back as 2011. But, in a surprise action, the agency says it will require next to nothing from insurers for any excess payments they got from 2011 through 2017. Getty Images

Medicare Advantage plans for seniors have dodged a major financial hit as federal officials decided to give them a reprieve on returning hundreds of millions of dollars or more in government overpayments some dating back a decade or more. The health insurance industry had long feared that the federal Centers for Medicare & Medicaid Services would demand repayment of billions of dollars in overcharges the popular health plans received going as far back as 2011.But, in a surprise action, CMS announced it would require next to nothing from insurers for any excess payments they received from 2011 through 2017. And the agency which is part of the federal Department of Health and Human Services won't impose major penalties until audits for payment years 2018 and beyond are conducted, which have yet to be started.The decision ultimately could cost Medicare Advantage plans billions of dollars in the future, but it will be years before any penalty comes due. And health plans will be allowed to pocket hundreds of millions of dollars in overcharges and possibly much more for audits before 2018. Exactly how much isn't clear because audits as far back as 2011 have yet to be completed.In late 2018, CMS officials said the agency would collect an estimated $650 million in overpayments from 90 Medicare Advantage audits conducted for 2011 through 2013, the most recent ones available. Some analysts calculated overpayments to plans of at least twice that much for that three-year period. CMS is now conducting audits for 2014 and 2015.

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The estimate for the 2011-13 audits was based on an extrapolation of overpayments found in a sampling of patients from each health plan. For these reviews, auditors examine medical records to confirm whether patients had the diseases for which the government reimbursed health plans for treatment.Through the years, those audits and others conducted by government watchdogs have found that health plans often can't document that they deserved extra payments for patients they said were sicker than average.The decision to take earlier audit findings off the table means that CMS has spent tens of millions of dollars conducting audits as long ago as 2011 much more than the government will be able to recover.In 2018, CMS said it pays $54 million annually to conduct 30 of the audits. Without extrapolation for years 2011 to 2017, CMS won't come near to recovering that much.

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Dara Corrigan, deputy administrator of the federal Medicare agency, called the final rule a "commonsense approach to oversight." 

Dara Corrigan, deputy administrator, U.S. Centers for Medicare and Medicaid Services: "commonsense approach to oversight."Provided

Corrigan said she did not know how much money would go uncollected from years prior to 2018.Health and Human Services Secretary Xavier Becerra said the rule takes "long-overdue steps to move in the direction of accountability."

Health and Human Services Secretary Xavier Becerra: "steps to move in the direction of accountability" for Medicare Advantage plans.Andrew Harnik / AP

"Going forward, this is good news. We should all be happy that they are doing that [extrapolation]," said Ted Doolittle, a former CMS official. But he also said: "I do wish they were pushing back further" and extrapolating earlier years. "That would seem to be fair game."David Lipschutz, a lawyer with the Center for Medicare Advocacy, said, "It is our hope that CMS would use everything within their discretion to recoup overpayments made to Medicare Advantage plans." But Lipschutz said, "It is unclear if they are using all of their authority."Mark Miller, executive vice president of health care policy for Arnold Ventures, who formerly worked for the Medicare Payment Advisory Commission, a congressional advisory board, said extrapolating errors found in medical coding always has been a part of government auditing. "It strikes me as ridiculous to run a sample and find an error rate and then only collect the sample error rate, as opposed to what it presents to the entire population or pool of claims," Miller said.A week ago, KHN reported details of the 90 audits from 2011 to 2013, obtained through a Freedom of Information Act lawsuit. The audits found that about $12 million in net overpayments for the care of 18,090 patients sampled for the three years.Seventy-one of the 90 audits uncovered net overpayments, which topped $1,000 per patient, on average, in 23 audits. CMS paid the remaining plans too little on average, anywhere from $8 to $773 per patient, the records show.Since 2010, the Centers for Medicare & Medicaid services has threatened to crack down on billing abuses in the health plans, which now cover more than 30 million Americans. Medicare Advantage, a fast-growing alternative to original Medicare, is run primarily by major insurance companies including Humana, UnitedHealthcare, Centene and CVS/Aetna.

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But the industry has successfully opposed extrapolation of overpayments, even though the audit tool is widely used to recover overcharges in other parts of the Medicare program.That has happened despite dozens of audits, investigation, and whistleblower lawsuits accusing Medicare Advantage plans of overcharges costing taxpayers billions of dollars a year.Corrigan said CMS expects to collect $479 million from overpayments in 2018, the first year of extrapolation. Over the next decade, it could recover $4.7 billion, she said.Medicare Advantage plans also face the possibility of hundreds of millions of dollars in "clawbacks" from a set of unrelated audits conducted by the Health and Human Services Department's inspector general. The audits include an April 2021 review that accused a Humana Medicare Advantage plan in Florida of overcharging the government by nearly $200 million in 2015.

Carolyn Kapustij, the Department of Health and Human Services Office of the Inspector General's senior adviser for managed care.Provided

Carolyn Kapustij, the HHS Office of the Inspector General's senior adviser for managed care, said the agency has conducted 17 such audits that found widespread payment errors 69%, on average, for some medical diagnoses. In these cases, the health plans "did not have the necessary support" for these conditions "in the medical records, which has caused overpayments," Kapustij said. "Although the [Medicare Advantage] organizations usually disagreed with us, they almost always had little disagreement with our finding that their diagnoses were not supported."While taking years to conduct the Medicare Advantage audits, CMS also has faced criticism for permitting lengthy appeals, which can stretch out for years. These delays have drawn criticism from the Government Accountability Office, the watchdog arm of Congress.Leslie Gordon, an acting director of the GAO health team, said that, until CMS speeds up the process, it "will fail to recover improper payments of hundreds of millions of dollars annually."

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Contributing: Phil GalewitzKHN (Kaiser Health News) is a national newsroom that produces in-depth journalism on health issues.