Medicare Advantage Plans Overpaid by 22 to 39 Percent: A Review of the Drivers and Consequences

Medicare Advantage (MA) plans are overpaid by 22 to 39 percent, according to a Center for American Progress analysis. The overpayments are primarily driven by MA plans' intense risk-coding efforts and selection bias. The analysis estimates overpayments of $83 billion to $127 billion in 2024.

The Centers for Medicare & Medicaid Services (CMS) has announced an immediate expansion of audits for Medicare Advantage (MA) plans, following concerns about overpayments and potential fraud. This move comes amid growing scrutiny of the financial practices of MA plans, which have been under fire for inflating costs and potentially denying justifiable care.

CMS's decision to audit all MA contracts and complete overdue audits from 2018 to 2024 is part of a broader effort to address overpayments. The Medicare Payment Advisory Commission (MedPAC) estimates that MA plans may overbill the government by up to $43 billion annually, with overpayments ranging from 5 to 8 percent in completed audits for payment years 2011-2013 [1].

The audits will focus on verifying the accuracy of diagnoses submitted by MA plans for risk-adjusted payments. CMS plans to deploy advanced systems to efficiently review medical records and increase its workforce of medical coders from 40 to approximately 2,000 by September 1, 2025 [1]. This expansion aims to address the significant backlog of audits and ensure that MA plans comply with federal requirements.

The audits will target four major healthcare insurers: UnitedHealth Group (UNH), Elevance Health (ELV), CVS Health's Aetna (CVS), and Humana (HUM). These insurers have faced scrutiny for aggressive diagnosis practices, known as upcoding, which can inflate reimbursements [1].

The overpayments are primarily driven by MA plans' intense risk-coding efforts and selection bias, according to a Center for American Progress analysis. The analysis estimates overpayments of $83 billion to $127 billion in 2024 [2]. The audit expansion is intended to recover these overpayments and ensure that MA plans provide accurate and comprehensive care to beneficiaries.

The audits are expected to have significant implications for the healthcare industry, potentially leading to changes in reimbursement rates and care delivery models. The expansion also highlights the ongoing efforts to address waste, fraud, and overpayments in the Medicare program.

References:

[1] https://www.thestreet.com/retirement/medicare-advantage-plans-come-under-fire-from-doge
[2] https://www.thestreet.com/retirement/medicare-advantage-plans-come-under-fire-from-doge