In the overpayment dispute,health plans want CMS to scale back — if not kill off — an enhancedaudit tool that, for the first time, could force insurers to coughup millions in improper payments they've received. (Photo:Shutterstock)

Health insurers that treat millions of seniors have overchargedMedicare by nearly $30 billion the past three years alone, but federal officialssay they are moving ahead with long-delayed plans to recoup atleast part of the money.

Officials have known for years that some Medicare Advantageplans overbill the government by exaggerating how sick theirpatients are or by charging Medicare for treating serious medicalconditions they cannot prove their patients have.

Getting refunds from the health plans has proved daunting, however. Officials with the Centers for Medicare& Medicaid Services repeatedly have postponed, or backed off,efforts to crack down on billing abuses and mistakes by theincreasingly popular Medicare Advantage health plans offered byprivate health insurers under contract with Medicare. Today, suchplans treat over 22 million seniors, more than 1 in 3 people onMedicare.

Related: Trends, innovations and helpful solutions in theMedicare Advantage space

Now CMS is trying again, proposing a series of enhanced auditstailored to claw back $1 billion in Medicare Advantage overpaymentsby 2020 — just a tenth of what it estimates the plans overchargethe government in a given year.

At the same time, the Department of Health and Human ServicesInspector General's Office has launched a separate nationwide roundof Medicare Advantage audits.

As in past years, such scrutiny faces an onslaught of criticismfrom the insurance industry, which argues the CMS audits especiallyare technically unsound and unfair and could jeopardize medicalservices for seniors.

America's Health Insurance Plans, an industry trade group,blasted the CMS audit design when details emerged last fall,calling it “fatally flawed.”

Insurer Cigna Corp. warned in a May financial filing: “If adopted in its current form, [the audits]could have a detrimental impact” on all Medicare Advantage plansand “affect the ability of plans to deliver high quality care.”

But former Sen. Claire McCaskill, a Missouri Democrat who nowworks as a political analyst, said officials must move pastpowerful lobbying efforts to hold health insurers accountable anddemand refunds for “inappropriate” billings.

“There's a lot of things that could cause Medicare to go broke.This would be one of the contributing factors,” she said. “Tenbillion dollars a year is real money.”

Catching overbilling with a wider net

In the overpayment dispute, health plans want CMS to scale back— if not kill off — an enhanced audit tool that, for the firsttime, could force insurers to cough up millions in improperpayments they've received.

For over a decade, audits have been little more than an irritantto insurers because most plans go years without being chosen forreview and often pay only a few hundred thousand dollars in refundsas a consequence. When auditors uncover errors in the medicalrecords of patients they paid the companies to treat, CMS hassimply required a rebate for those patients for just the yearaudited — relatively small sums for plans with thousands ofmembers.

The latest CMS proposal would raise those stakes enormously byextrapolating error rates found in a random sample of 200 patientsto the plan's full membership — a technique expected to triggermany multimillion-dollar penalties. Though controversial,extrapolation is common in medical fraud investigations — exceptfor investigations into Medicare Advantage. Since 2007, theindustry has successfully challenged the extrapolation method and,as a result, largely avoided accountability for pervasive billing errors.

“The public has a substantial interest in the recoupment ofmillions of dollars of public money improperly paid to healthinsurers,” CMS wrote in a Federal Register notice late last yearannouncing its renewed attempt at using extrapolation.

Penalties In limbo

In a written response to questions posed by Kaiser Health News,CMS officials said the agency has already conducted 90 of thoseenhanced audits for payments made in 2011, 2012 and 2013 — andexpects to collect $650 million in extrapolated penalties as aresult.

Though that figure reflects only a minute percentage of actuallosses to taxpayers from overpayments, it would be a hugeescalation for CMS. Previous Medicare Advantage audits haverecouped a total of about $14 million, far less than it cost toconduct them, federal records show.

Though CMS has disclosed the names of the health plans in the crossfire, it has not yet toldthem how much each owes, officials said. CMS declined to say when,or if, they would make the results public.

This year, CMS is starting audits for 2014 and 2015, 30 peryear, targeting about 5% of the 600 plans annually.

This spring, CMS announced it would extend until the end of August the audit proposal's publiccomment period, which was supposed to end in April. That could be asignal the agency might be looking more closely at industryobjections.

Health care industry consultant Jessica Smith said CMS might betaking additional time to make sure the audit protocol can passmuster. “Once they have their ducks in a row, CMS will come backhard at the health plans. There is so much money tied to this.”

But Sean Creighton, a former senior CMS official who now advisesthe industry for health care consultant Avalere Health, saidpayment error rates have been dropping because many health plans“are trying as hard as they can to become compliant.”

Still, audits are continuing to find mistakes. The first HHSinspector general audit, released in late April, found thatMissouri-based Essence Healthcare Inc. had failed to justify feesfor dozens of patients it had treated for strokes or depression.Essence denied any wrongdoing but agreed it should refund $158,904in overcharges for those patients and ferret out any othererrors.

Essence also faces a pending whistleblower suit filed by CharlesRasmussen, a Branson, Mo., doctor who alleges the health planillegally boosted profits by overstating the severity of patients'medical conditions. Essence has called the allegations “whollywithout merit” and “baseless.”

Essence started as a St. Louis physician group, then grew into abroader holding company in 2007 backed by prominentSilicon Valley venture capitalist John Doerr with his brother, St.Louis doctor and software designer Thomas Doerr. Neither wouldcomment on the allegations.

How we got here

CMS uses a billing formula called a “risk score” to pay for eachMedicare Advantage member. The formula pays higher rates for sickerpatients than for people in good health.

Congress approved risk scoring in 2003 to ensure health plansdid not shy away from taking sick patients who could incurhigher-than-usual costs from hospitals and other medicalfacilities. But some insurers quickly found ways to boost risk scores — and their revenues.

In 2007, after several years of running Medicare Advantage aswhat one CMS official dubbed an “honor system,” the agency launched“Risk Adjustment Data Validation,” or RADV, audits. The idea was tocut down on undeserved payments that cost CMS nearly $30 billionover the past three years.

The audits of 37 health plans revealed that on average auditorscould confirm just 60% of the more than 20,000 medical conditionsCMS had paid the plans to treat.

Extra payments to plans that had claimed some of its diabeticpatients had complications, such as eye or kidney problems, werereduced or invalidated in nearly half the cases. The overpaymentsexceeded $10,000 a year for more than 150 patients, though healthplans disputed some of the findings.

But CMS kept the findings under wraps until the Center forPublic Integrity, an investigative journalism group, sued the agency under the Freedom of Information Act to makethem public.

Despite the alarming results, CMS conducted no audits forpayments made during 2008, 2009 and 2010 as they faced industrybacklash over CMS' authority to conduct them, and the threat ofextrapolated repayments. Some inside the agency also worried thathealth plans would abandon the Medicare Advantage program if CMSpressed them too hard, records released through the FOIA lawsuitshow.

CMS officials resumed the audits for 2011 and expected to finishthem and assess penalties by the end of 2016. That has yet tohappen amid the continuing protests from the industry. Insurerswant CMS to adjust downward any extrapolated penalties to accountfor coding errors that exist in standard Medicare. CMS standsbehind its method — at least for now.

At a minimum, argues AHIP, the health insurers association, CMSshould back off extrapolation for the 90 audits for 2011-13 andapply it for 2014 and onward. Should CMS agree, it would write offmore than half a billion dollars that could be recovered for theU.S. Treasury.

Kaiser Health News isa nonprofit news service covering health issues. It is aneditorially independent program of the Kaiser Family Foundation,which is not affiliated with Kaiser Permanente.

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