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Dr. Richard Kronick

Federal officials need to do a better job ferreting out billing errors and overpayments to Medicare Advantage plans — mistakes which are estimated to cost taxpayers billions of dollars every year, a top government researcher says.

Medicare pays the privately-run Advantage health insurance plans, which cover more than 15 million elderly and disabled Americans, using a complex formula called a “risk score.” Sicker patients command higher rates than healthier ones, but the industry has been criticized for allegedly overstating how sick some patients are to boost Medicare revenue, a practice known as “upcoding.”

Researcher Richard Kronick, director of the Department of Health and Human Services’ Agency for Healthcare Research and Quality, said officials should consider tightening audit standards with an eye toward cutting payments to health plans that seem to diagnose much higher-than-expected rates of patient illness.

Medicare Advantage plans that have been “significantly more aggressive than average in reporting diagnoses (of illness) should receive a special [risk score] adjustment,” Kronick said in response to questions posed by the Center for Public Integrity. (Kronick required that questions be submitted in writing and responded to by email.)

Kronick co-authored a government study in July that showed some health plans reported unusually high levels of illness, suggesting they might be overpaid under the risk score formula. Though little known to the public, the federal research agency that employs Kronick is influential in advising policy makers on ways to make health care safer and more affordable.

Medicare expects to pay the privately run insurance plans — an alternative to traditional Medicare — some $160 billion this year. The plans are popular with seniors because they often provide extra benefits and can cost them less out-of-pocket than standard Medicare.

The industry also enjoys wide bipartisan support in Congress and in recent years has successfully lobbied to kill or scale back planned pay cuts to the health plans. America’s Health Insurance Plans, the industry’s primary trade group, spent nearly $5 million lobbying on a variety of issues, including Medicare Advantage, from January through June of 2014, according to the Senate records.

But critics argue that some health plans exaggerate how sick their patients are to snag higher payments, costs government can ill afford as Medicare faces severe financial stress. At least three whistleblower lawsuits pending in federal courts have accused Medicare Advantage plans of “upcoding” by overstating how sick patients are to boost profits. The health plans have denied the allegations.

“Inflating Medicare Advantage risk scores is a perfect scam,” said Patrick Burns, co-director of Taxpayers Against Fraud in Washington. “You simply systematically up-code conditions and that results in massive profits across a population over time.”

A Center for Public Integrity investigation published in June found that Medicare made nearly $70 billion in “improper” payments — mostly overcharges from inflated risk scores — to Medicare Advantage plans from 2008 through 2013 alone. The Center’s investigation also found that risk scores rose much faster in some health plans than others and that federal officials have largely stumbled in trying to recoup overpayments.

Clare Krusing, director of communications for America’s Health Insurance Plans, did not respond directly to a question about the payment controversy. In an email statement, she said that Medicare Advantage plans treat the “whole person,” adding: “That means identifying patients’ health status and needs early on and making sure they get the right treatment. The evidence is clear that this approach leads to improved delivery and better care overall.”

Despite the huge federal spending involved, the Medicare Advantage payment dispute is the sort of issue in Washington that barely registers outside of a small circle of policy wonks and industry lobbyists, who often rule the day in influencing government policy. In a Washington meeting last week, executives of the two biggest Medicare Advantage plans, UnitedHealth Group and Humana, vowed to fight any further rate cuts. The two insurers control about 40 percent of the Medicare Advantage market.

For their July study, Kronick and HHS colleague W. Pete Welch used government data never before made public to show wide variations in levels of diseases in some health plans, from complications of diabetes to serious depression. The study concluded that “further policy changes will likely be necessary,” but offered no specific recommendations.

Kronick said via email that some health plans may be more thorough in documenting patients’ health conditions than others, which could account for some of the variation. But the aggressive coding of diseases means that the same patient costs the government more money in Medicare Advantage than in the standard Medicare plan, without any added health benefits, he said.

“It is difficult to imagine how this would have much effect, either positively or negatively, on health care quality,” Kronick told the Center for Public Integrity.

Kronick said that the Centers for Medicare and Medicaid Services, the arm of HHS that oversees Medicare Advantage, had proposed as far back as 2008 that payments to some high-coding plans be cut, but did not follow through.

Kronick said the researchers were “unable to determine” whether health plans were coding “more completely…or whether they are engaging in fraud and reporting diagnoses that do not exist.”

CMS had no comment. “We can’t discuss what may or may not be coming down the road,” said spokesman Raymond Thorn. (The Center for Public Integrity in May sued CMS under the Freedom of Information Act to compel the agency to release risk score data filed by Medicare Advantage plans. The lawsuit, which is pending, does not ask for patient records.)

The accuracy of risk scores also is of growing importance in health care because the Affordable Care Act expands the payment system. Under the law, plans that sell policies will divide up a pool of money based on how sick their patients are.

Edwin Park, a health policy expert with the liberal Center on Budget and Policy Priorities, said federal officials should be alert for health plans that are “outliers” because they report abnormally high levels of codes for some diseases. “That should trigger a higher level of scrutiny,” Park said.

The billing process remains all but invisible to patients, who aren’t told their risk scores and aren’t likely to recognize if they accurately reflect the state of their health.

“We would love to see patients have access to that information. If they saw coding and had an opportunity to provide feedback it would be a help,” said Mark L. Graber, a physician and president of the Society to Improve Diagnosis in Medicine. “Patients don’t have any idea how they are being coded.”

Graber said that “risk” based payments, if not closely monitored, may compound worries that errors can creep into a patient’s medical chart and be hard to fix. He said little is known about implications that could have for a person’s health care.

Graber said that how behavioral issues or other sensitive diagnoses, such as drug or alcohol dependence, are coded may influence a patient’s treatment for years. “There are subtle effects on how serious people will take you. You’ve been labeled and everybody’s going to believe it,” he said.

Seth Chandler, a professor of law at the University of Houston Law Center and Obamacare critic, noted that people need to pay more attention to their medical records and what they contain.

“People know credit scores but don’t know how the government thinks about their health. You should be able to know your score,” he said.

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