Medicare Advantage Plans May Be Overpaid Billions Over the Next Decade

Coding intensity may lead to $200 billion in unnecessary spending from Medicare Advantage plans by 2026.

Current methods to determine patient risk scores will likely lead to Medicare overpaying Medicare Advantage (MA) plans through 2026, which could lead to more than $200 billion in unnecessary payments, according to a study published by Health Affairs.

The Centers for Medicare and Medicaid Services (CMS) typically reimburses MA plans at a higher rate when they enroll patients who are expected to use a high volume of services, and conversely at a lower rate when they are expected to use a smaller volume.

This provides MA plans with a financial incentive to report as many diagnoses as they can, which is called coding intensity. Traditional fee-for-service (FFS) models do not present this incentive.

In the study, the investigators found that MA enrollees are not sicker compared with FFS patients. In fact, other studies suggest that MA enrollees may be healthier.

If coding intensity continues, Medicare could overpay MA plans by $200 billion by 2026, according to the study.

"Congress and CMS have the opportunity to establish a payment system that will protect taxpayers from the strategies used by MA plans to increase the payments they receive," said Richard Kronick, PhD. "The projected $200 billion in overpayments over the next ten years is stunningly large in absolute dollar terms. To provide some perspective, federal support for community health centers is approximately $5 billion per year."

Currently, patient demographic and diagnostic information is used to calculate a risk score for each to determine adequate payment. By these standards, spending on an 85-year-old is expected to be greater than a 65-year-old patient. Plans will be reimbursed higher for patients with heart disease, depression, or diabetes, compared with patients who do not have a chronic disease.

Over the past 10 years, the risk score for MS enrollees increased, compared with those enrolled in FFS, according to the study.

"More than 30 percent of Medicare beneficiaries are enrolled in Medicare Advantage,” said Dr Kronick. “The problem could be largely solved if CMS adjusted for coding intensity using the principle that Medicare Advantage beneficiaries are no healthier and no sicker than demographically similar fee-for-service Medicare beneficiaries.”

CMS has the ability to adjust payments to MA plans to account for coding intensity, and to avoid overpayment. The agency has also taken action to prevent MS plans from increasing risk scores unnecessarily, according to the study.

"In the three decades that Medicare has been contracting with health organizations and plans, figuring out how to pay the plans accurately and fairly has posed a persistent challenge," Dr Kronick said.

The researchers hope that this study reveals how MA plans may cost Medicare billions, and lead to additional CMS actions to mitigate these costs.

"I hope these findings foster a discussion of how to best measure and adjust for differential coding between Medicare Advantage and fee-for-service Medicare,” Dr Kronick concluded. “Solving this problem is an important prerequisite to the establishment of a stable and equitable future for the current Medicare Advantage and could save the federal government approximately $200 billion.”