Medicare Advantage was introduced as a mechanism for capturing some of the oft-extolled efficiencies of the private health insurance market. Instead of paying providers for services directly, as in traditional Medicare, the government pays Medicare Advantage insurers a predetermined, risk-adjusted amount of money per patient to cover all medical expenses for the year. The risk adjustment ensures that companies insuring Medicare Advantage patients with chronic diseases — who will likely need more intensive, expensive care — receive additional funds to help cover those costs. For each qualifying condition a patient has, the Medicare Advantage plan receives on average an additional $3000 annually.
While the risk adjustment of Medicare Advantage payments was well intentioned and economically rational, it appears to have opened up an avenue for significant abuse on the part of Medicare Advantage insurers. The Department of Justice recently joined a lawsuit against UnitedHealth, a large provider of Medicare Advantage plans, for allegedly defrauding the government out of hundreds of millions, if not billions, of dollars. The complaint alleges that UnitedHealth “upcoded” its risk-adjustment claims by submitting for conditions patients did not actually have and refusing to correct false claims when it discovered or should have discovered them. In essence, the company allegedly realized it could extract more money out of the government by making the patients it covers appear sicker than they actually are, and took full advantage of that.
According to the qui tam relator, a former UnitedHealth executive, this widespread fraud was the result of an intense corporate culture in which employees were subject to a “business goal” of increasing risk adjustment scores by 3%, irrespective of the patient population’s actual health status. Attainment of these goals was connected both to performance reviews and annual bonuses. The practice of extracting increased revenue from the federal government through upcoding was so pervasive it gave rise to an entire business model where consulting companies would look over patient data and identify the most plausible places an insurer could add conditions for Medicare Advantage patients. The consulting company’s employees were instructed to only look for diagnoses that would lead to increased payments and not to asses the accuracy of any diagnoses in patient charts. Claims were submitted on the possible diagnoses they identified, even though no diagnoses had been made by the patients’ primary care physicians and the patients were not being treated for those diagnoses.
At first blush, this case seems like another reason why Medicare Advantage may be a failed experiment. Since 2004, there has been substantial debate surrounding whether Medicare Advantage is actually promoting cost-savings and efficiency. While the per-beneficiary cost to the Medicare program from Medicare Advantage has been slightly lower than that from traditional Medicare, for many years this was not the case. Now, in addition to its dubious financial benefits, it turns out Medicare Advantage may be a substantial avenue for fraud by the very insurance companies that supported its creation.
But this case may actually indicate that Medicare Advantage has significant potential. It’s true that Medicare Advantage has yet to conclusively demonstrate its viability as a means of reducing overall expenditures by the Medicare Program, but it appears as though the payments Medicare has been making to Medicare Advantage insurers have included hundreds of millions or billions of dollars for fraudulent claims. This means that the real cost of Medicare Advantage — without fraud — is substantially less than what the government has been paying. Given that the per-beneficiary cost of Medicare Advantage is already close to that of traditional Medicare, if you subtract the fraudulent payments, Medicare Advantage has the potential to be significantly cheaper than traditional Medicare.
The potential savings of Medicare Advantage are just one benefit of the program. Medicare Advantage plans often cover more services than traditional Medicare, sometimes pay for administrative and infrastructural functions of ACOs and other multi-specialty practices which aren’t covered by traditional Medicare, and in many cases are preferred by providers to traditional Medicare. For example, Atrius Health — the largest physician-led health care organization in the Northeast — recently switched to only accepting new Medicare patients with Medicare Advantage plans. It was unclear these benefits were worth it when it appeared that Medicare Advantage was more expensive than traditional Medicare, but if the real Medicare Advantage bill is billions less than previously thought, Medicare Advantage could very well be providing a better product at a lower price.
The false claims case against UnitedHealth — and the associated question of the financial viability of Medicare Advantage — is particularly relevant as Congress considers overhauling the Medicare system. The proposal from Speaker of the House Paul Ryan would convert all of Medicare to Medicare-Advantage-style insurance. There are certainly problems that would need to be addressed for such a system to work. For example, the amount of money paid to insurers would need to be enough that those who can’t afford additional premiums still have coverage, and the tendency of sicker individuals to leave Medicare Advantage for traditional Medicare would need to be properly investigated and addressed. But the financial promise of Medicare Advantage — in light of this fraud case — may mean there are real benefits to introducing competition into the Medicare system. Some of the funds recouped from UnitedHealth will need to go towards fraud prevention and detection mechanisms to ensure similar overpayments don’t happen in the future. But if the true price tag of Medicare Advantage really is billions of dollars less than the government has been paying over the past decade, maybe Medicare Advantage for all isn’t such a bad idea.