GAO Report Finds that CMS Overpaid Medicare Advantage Plans in 2010, 2011 and 2012

by King & Spalding
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On March 4, 2013, the GAO released a report titled, Substantial Excess Payments Underscore Need for CMS to Improve Accuracy of Risk Score Adjustments, in which the GAO concluded that CMS overpaid Medicare Advantage plans (MA) at least $3.2 billion—and perhaps as much as $5.1 billion—from 2010 through 2012 because CMS’s adjustment to risk scores was too low during this time.  CMS pays MA plans a set amount per beneficiary to provide healthcare services for beneficiaries in the MA program.  The amount per beneficiary is adjusted by a risk score, which is a measure of a beneficiary’s health status.  Beneficiaries in an MA plan and the Medicare fee-for-service program with the same diagnoses, health conditions and demographics should have the same risk scores; however, risk scores for beneficiaries enrolled in an MA plan tend to be higher.  This is because MA plans have an incentive to ensure that all diagnoses for their members are comprehensively coded to increase their members’ risk scores and ultimately their payments from CMS.  As a result, CMS is required to conduct an annual analysis of the coding differences and make an adjustment to MA plan payments to account for the difference.

The GAO released a report in January 2012 concluding that CMS’s risk score adjustment was too low in 2010.  CMS reduced MA plan beneficiaries’ risk scores by 3.4 percent, but the GAO concluded that the difference in diagnostic coding between Medicare fee-for-service providers and MA plans was between 4.8 and 7.1 percent.  Since its January 2012 report, two more years of data became available, so the GAO enhanced the methodology it used in the January 2012 report and updated its prior analysis.  In 2011 and 2012, CMS continued to adjust MA plan beneficiaries’ risk scores by 3.4 percent, but the GAO found that the actual coding differences were greater and the adjustment should have been larger.  In its recent report, the GAO found that the excess payments to MA plans in 2010 was $0.6 billion; was between $1.1 billion and $1.6 billion in 2011; and was between $1.5 billion and $2.9 billion in 2012.  The GAO also reported that CMS is continuing to use a 3.4 percent risk score adjustment in 2013, but that CMS officials reported that the agency may revisit their methodology in future years. 

A copy of the report is available by clicking here

Reporter, Kate Stern, Atlanta, +1 404 572 4661, kstern@kslaw.com.

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