Were patients really sicker? Lawsuits say Medicare Advantage plans inflated diagnoses to boost payments

By Lisa Schencker  | November 22, 2014

For an 82-year-old man with diabetes and rheumatoid arthritis, the CMS will pay a Medicare Advantage plan a certain amount of money each month. Add renal failure and hemiplegia to the list of maladies, and the CMS’ monthly payment to his plan skyrockets. It could mean $2,282 a month versus $1,149, experts say.

The CMS pays private Medicare Advantage plans under a severity-adjusted model designed to give insurers a financial incentive to take sicker enrollees. But critics, including HHS’ Office of the Inspector General, say the severity-adjusted payment model is being abused by some plans and providers, costing taxpayers billions annually.

A few federal whistle-blower cases filed under the False Claims Act have become public, with more thought to be in the pipeline. The lawsuits allege that providers and Advantage plans, some operated by the nation’s largest insurers, have defrauded the Medicare program by manipulating Advantage members’ medical data to make the members appear sicker than they were to get higher capitation payments.

Legal experts say the number of such cases is likely to grow because of the potentially large recoveries whistle-blowers stand to receive and the OIG’s plan to investigate improper payments based on faulty risk scores.

The OIG estimated that in fiscal 2013 alone, Medicare made $11.8 billion in improper payments—$9.3 billion in overpayments and $2.6 billion in underpayments—because of errors related to risk adjustment.

“The incentive to manipulate that risk adjustment is huge,” said Pam Brecht, a partner at Pietragallo Gordon Alfano Bosick & Raspanti in Philadelphia, who represents whistle-blowers.

According to a 2013 Government Accountability Office report, cumulative Medicare Advantage risk scores were 4.2% higher in 2010 than they likely would have been if the same beneficiaries had been enrolled in traditional Medicare. That difference likely exists because in traditional fee-for-service Medicare, there’s no financial incentive to maximize a beneficiary’s diagnosis, said Gretchen Jacobson, an associate director with the Kaiser Family Foundation’s Program on Medicare Policy.

If the number of lawsuits over risk adjustment grows, it could create a political problem for insurers, who already face a strong effort by the Obama administration to reduce Advantage payment rates as mandated by the Patient Protection and Affordable Care Act. That rate pressure has led to fierce annual lobbying battles by insurers to moderate or reverse cuts proposed by the CMS.

In auditing six Advantage plans for payments in 2007, the OIG found the plans were overpaid by more than $600 million because of risk scores that weren’t properly supported by medical diagnoses.

The plans disputed the negative audit findings, blaming them on “statistically invalid methodology” used by the OIG, poor physician record-keeping and difficulty locating medical records because of the time lag between the diagnoses and the audits.

The OIG now plans to target improper payments to Advantage plans based on risk scores. In its 2015 work plan, the OIG said: “We will review the medical-record documentation to ensure that it supports the diagnoses organizations submitted to CMS for use in CMS’ risk-score calculations and determine whether the diagnoses submitted complied with federal requirements.”

“The fact that it’s in their work plan for 2015 is a big deal,” said Patrick Burns, co-director of the Taxpayers Against Fraud Education Fund, a not-for-profit partly funded by whistle-blowers and law firms representing them. He said that tells him the government has received cases that still are under seal and that it understands the scope of the potential fraud.

Similar statements have been in the OIG’s work plans for years. But Brecht said a number of whistle-blower cases alleging fraudulent risk adjustment may not have been made public yet. Cases sometimes can stay under seal for three or four years before the Justice Department announces whether it will intervene in a case.

In whistle-blower cases, individual plaintiffs can file a lawsuit on behalf of the government and the government can decide later whether to join the case. If the government joins, that significantly increases the odds of recoveries. In two cases that recently became public, the Justice Department decided not to join. “I think things are going to start popping on these cases at the end of this year and the beginning of next,” Brecht said.

Clare Krusing, a spokeswoman for America’s Health Insurance Plans, which represents the health insurance industry, said, “Medicare Advantage plans recognize that improving quality and health outcomes for seniors can’t be done with a body-part-by-body-part approach. It requires treating the whole person. 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.”

Advantage plan enrollment rose to 15.7 million members in 2014 from 9.7 million in 2008, according to the Kaiser Family Foundation. Nearly one-third of all Medicare beneficiaries are enrolled in Advantage plans, and that percentage is expected to increase. The CMS was projected to pay Advantage plans $156 billion in 2014, accounting for about one-third of all Medicare spending, according to Kaiser.

The CMS pays Medicare Advantage on a per-member, per-month basis, adjusted for each member’s medical risk score, which is based on the member’s age, sex and diagnoses. The CMS began using risk scores for paying plans in 2004. Patients generally don’t see their risk scores.

An entire industry has developed around helping Advantage plans maximize their revenue through patient risk scores, said Dr. David Wennberg, an associate professor at the Dartmouth Institute for Health Policy & Clinical Practice in Lebanon, N.H.

MH TAKEAWAYS Critics say the Advantage program’s patient risk-score payment model offers a strong incentive to manipulate the scores, though plans say allegations of improper risk scoring are the result of invalid audit methods.

The Center for Public Integrity, a not-for-profit news organization, reported this year that in 1,000 counties nationwide, risk scores shot up between 2007 and 2011, costing taxpayers $36 billion more than the estimated cost of caring for patients in traditional Medicare.

For many plans, their members’ average score jumped 10% to 30%. For example, a plan offered by Physicians United Plan in Florida saw a 29% increase in its average score between 2007 and 2011. A plan operated by Humana in Arizona saw its average risk score increase by 11% between 2008 and 2011, according to Center for Public Integrity analysis.

At least two whistle-blower cases alleging risk- score manipulation are pending. In September, a case became public involving MedXM, a company based in Santa Ana, Calif., that contracts with Advantage plans to send medical examiners to Advantage plan members’ homes to assess their health. Such home assessments are one way plans obtain the medical data they need to assign risk scores. Plans also get that data when patients are examined in hospitals and physician offices.

In the lawsuit, whistle-blower Anita Silingo, a former MedXM compliance officer, alleged that MedXM coders advised the company’s contracted medical examiners to perform exams to alter patients’ medical records to make patients appear sicker to increase Medicare payments to the health plans.

The lawsuit also names as defendants plans that contracted with MedXM, including WellPoint, Anthem Blue Cross and Blue Shield, Health Net, Health Net of California, Alameda Alliance for Health, Molina Healthcare of California, Molina Healthcare of California Partner Plan, Visiting Nurse Service of New York and Molina Healthcare. The government has declined to join the case.

Silingo alleged that the insurers “all turned a blind eye to the truth in exchange for receiving … risk-assessment data that increased their risk scores and thereby increased their capitation revenue from CMS.”

According to the complaint, filed in August 2013 in a U.S. District Court in California, MedXM’s medical examiners allegedly made certain diagnoses without necessary equipment, such as portable EKG machines, and without asking patients to disrobe or conducting blood tests. In some cases, doctors made diagnoses without actually seeing patients face to face, according to the lawsuit. MedXM CEO Sy Zahedi said he could not comment.

WellPoint spokeswoman Lori McLaughlin said, “We believe the allegations regarding WellPoint lack merit. We intend to vigorously defend this case.” The other named insurers either declined to comment or did not respond to requests for comment.

In a second case that’s become public, a whistle-blower alleged in a lawsuit filed in the U.S. District Court in the Southern District of Florida that a physician made false diagnoses, leading to improper Medicare payments to Humana’s Advantage plan. The plaintiff said Humana, named as a defendant, “turned a blind eye” to the abuses. The Justice Department has declined to join the case.

Humana refused to comment. But in a Securities and Exchange Commission filing this year, Humana listed as a potential financial risk factor litigation brought by whistle-blowers alleging the company submitted false claims “resulting from coding and review practices under the Medicare risk-adjustment model,” though it did not cite a specific case.

As more cases come to light, it could raise awareness about alleged risk-adjustment fraud, inspiring more whistle-blowers to step forward, said Kirsten Mayer, a Boston-based partner at Ropes & Gray, who defends companies in False Claims Act litigation.

Mayer said the emergence of more such suits also may prompt insurers and providers to take a closer look at their practices. “In my experience, when you see a concentration of False Claims Act litigation on a particular theory, what you see is the industry focus on what they’re doing to comply with the law,” she said.

Jennifer Weaver, head of Waller Lansden Dortch & Davis’ government investigations practice group, said healthcare defendants often are under pressure to settle such cases because they fear being excluded from Medicare if they are found liable.

Burns, of Taxpayers Against Fraud, said overpayments would not significantly exceed underpayments if improper payments were due to honest mistakes. “All of the error is moving in one direction,” he said. “If it’s always coming up heads or tails, that’s loaded.”

But Weaver said honest mistakes are certainly possible. “The issue is whether the diagnosis is supported by the underlying medical records, and like any medical necessity-type case, that is really never black and white,” she said. “Reasonable minds can differ.”

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