Penalties in limbo
In a written response to questions posed by Kaiser Health News, CMS officials said the agency has already conducted 90 of those enhanced audits for payments made in 2011, 2012 and 2013 – and expects to collect $650 million in extrapolated penalties as a result.
Though that figure reflects only a minute percentage of actual losses to taxpayers from overpayments, it would be a huge escalation for CMS. Previous Medicare Advantage audits have recouped a total of about $14 million, far less than it cost to conduct them, federal records show.
Though CMS has disclosed the names of the health plans in the crossfire, it has not yet told them 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 per year, targeting about 5% of the 600 plans annually.
This spring, CMS announced it would extend until the end of August the audit proposal’s public comment period, which was supposed to end in April. That could be a signal the agency might be looking more closely at industry objections.
Health care industry consultant Jessica Smith said CMS might be taking additional time to make sure the audit protocol can pass muster. “Once they have their ducks in a row, CMS will come back hard at the health plans. There is so much money tied to this.”
But Sean Creighton, a former senior CMS official who now advises the industry for health care consultant Avalere Health, said payment 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 HHS inspector general audit, released in late April, found that Missouri-based Essence Healthcare Inc. had failed to justify fees for dozens of patients it had covered for strokes or depression. Essence denied any wrongdoing but agreed it should refund $158,904 in overcharges for those patients and ferret out any other errors.
Essence also faces a pending whistle-blower suit filed by Charles Rasmussen, a Branson, Mo., doctor who alleges the health plan illegally boosted profits by overstating the severity of patients’ medical conditions. Essence has called the allegations “wholly without merit” and “baseless.”
Essence started as a St. Louis physician group, then grew into a broader holding company backed by prominent Silicon Valley venture capitalist John Doerr with his brother, St. Louis doctor and software designer Thomas Doerr, in 2007. Neither would comment on the allegations.
How we got here
CMS uses a billing formula called a “risk score” to pay for each Medicare Advantage member. The formula pays higher rates for sicker patients than for people in good health.
Congress approved risk scoring in 2003 to ensure health plans did not shy away from taking sick patients who could incur higher-than-usual costs from hospitals and other medical facilities. But some insurers quickly found ways to boost risk scores – and their revenues.
In 2007, after several years of running Medicare Advantage as what one CMS official dubbed an “honor system,” the agency launched “Risk Adjustment Data Validation,” or RADV, audits. The idea was to cut down on undeserved payments that cost CMS nearly $30 billion over the past 3 years.
The audits of 37 health plans revealed that on average auditors could confirm just 60% of the more than 20,000 medical conditions CMS had paid the plans to treat.
Extra payments to plans that had claimed some of its diabetic patients had complications, such as eye or kidney problems, were reduced or invalidated in nearly half the cases. The overpayments exceeded $10,000 a year for more than 150 patients, though health plans disputed some of the findings.
But CMS kept the findings under wraps until the Center for Public Integrity sued the agency under the Freedom of Information Act to make them public.
Despite the alarming results, CMS conducted no audits for payments made during 2008, 2009 and 2010 as they faced industry backlash over CMS’ authority to conduct them, and the threat of extrapolated repayments. Some inside the agency also worried that health plans would abandon the Medicare Advantage program if CMS pressed them too hard, records released through the FOIA lawsuit show.
CMS officials resumed the audits for 2011 and expected to finish them and assess penalties by the end of 2016. That has yet to happen amid the continuing protests from the industry. Insurers want CMS to adjust downward any extrapolated penalties to account for coding errors that exist in standard Medicare. CMS stands behind its method – at least for now.
At a minimum, argues AHIP, the health insurers association, CMS should back off extrapolation for the 90 audits for 2011-13 and apply it for 2014 and onward. Should CMS agree, it would write off more than half a billion dollars that could be recovered for the U.S. Treasury.
Kaiser Health News is a nonprofit national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation that is not affiliated with Kaiser Permanente.