CMS expands audits to crack down on Medicare Advantage overpayments

Dive Brief:

• The CMS will crack down on overpayments to Medicare Advantage plans, moving to significantly expand its capacity to audit whether insurers are inflating their enrollees’ illnesses, the agency said Wednesday. 
• Beginning immediately, the CMS will review all eligible MA contracts each payment year in newly initiated audits. The agency will also invest more resources to speed audits from payment years 2018 to 2024, planning to complete these older reviews by early 2026.
• To tackle a backlog of reviews from earlier payment years, the agency plans to use “enhanced technology” to quickly review medical records and significantly increase its workforce of medical coders, the CMS said in a press release.

Dive Insight:

The MA program, where private insurers contract with the federal government to manage beneficiaries’ care, has become increasingly popular among seniors, now enrolling more than half of the eligible Medicare population. 

However, MA has been dogged by accusations from researchers and lawmakers that the program is increasing costs for the federal government by exaggerating the sickness of its members for increased reimbursement. 

MA plans are paid a fixed amount each month per member, adjusted for enrollees’ health risks. Beneficiaries in the privatized plans tend to rack up more diagnosis codes than those in traditional Medicare, driving up their health risks and thus payments to insurers, according to a report by congressional advisory MedPAC published in March.

Medicare will spend $84 billion more on MA enrollees this year than it would if those beneficiaries were in the traditional fee-for-service program, mostly due to favorable selection of healthier beneficiaries and coding intensity, according to the MedPAC report.

The CMS conducts Risk Adjustment Data Validation audits to ensure that diagnoses used for payment are supported by medical records. But the agency said Wednesday it’s several years behind in completing these reviews, noting the last significant recovery of MA overpayments took place following an audit of payment year 2007. 

To manage the backlog, the CMS said it will deploy “advanced systems” to efficiently review medical records and flag potentially inflated diagnoses, according to a press release. 

Using technology will help the agency increase the number of audits from around 60 MA plans per year to about 550 plans, the CMS said. The agency also expected it can increase the records reviewed per plan each year from 35 to up to 200 records, based on the size of the health plan, according to the press release. 

The agency didn’t respond to a request for comment by press time on what kind of technology it will use.

Additionally, the CMS said it will increase its team of medical coders, who will manually verify flagged diagnoses, from 40 to about 2,000 by Sept. 1. The agency will also work with the HHS’ Office of Inspector General to recover overpayments identified in past audits. 

“We are committed to crushing fraud, waste and abuse across all federal healthcare programs,” CMS Administrator Dr. Mehmet Oz said in a statement. “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.”

The Better Medicare Alliance, a lobbying group for the MA industry, said the move is the “right approach” to ensure payment accuracy in the program. 

“Medicare Advantage already includes strong accountability mechanisms and consistently enforcing them will help the program work even better for seniors and taxpayers alike,” Mary Beth Donahue, BMA’s president and CEO, said in a statement. “We look forward to working with CMS to ensure the methodology is accurate and appropriate.”

Though its “difficult to size” the potential challenges for insurers from the expanded audit plans, it could be an “incremental headwind” for managed care organizations, especially insurers like Humana, CVS and UnitedHealth, J.P. Morgan analysts wrote in a Wednesday note. 

Oz, who was sworn in as head of the CMS last month, pledged to scrutinize MA insurers during his confirmation hearing earlier this year. Democrats had raised concerns about Oz’s previous advocacy for the privatized Medicare plans, as well as his financial ties to major MA insurer UnitedHealth. 

His plans to expand the CMS’ medical coding workforce also follows large-scale layoffs at the HHS. This spring, the department said it would reorganize and lay off 10,000 full-time employees, including cutting around 300 jobs at the CMS.