Medicare Advantage Has a Multi-Billion Dollar Problem
Policy + Politics

Medicare Advantage Has a Multi-Billion Dollar Problem

For years, experts and reformists have scrutinized the way the federal government calculates benefits for the Medicare Advantage program—saying the formula inflates patients’ health risks and costs the government billions of unnecessary dollars a year. 

The Government Accountability Office estimated that improper payments from the program cost $12 billion in 2014 alone. Some experts suggest that much of those erroneous payments stemmed from billing errors related to the way the government determines how much to pay for each of the 16 million people enrolled in Medicare Advantage. 

Related: Medicare Advantage Isn’t Reducing Health Care Costs 

Unlike traditional Medicare’s standard fee-for-service payment system, Medicare Advantage uses “risk scores” which measure how healthy or sick patients are. The rating determines how much money the government pays into the plan. The sicker the patient, the higher the score. The higher the score, the greater the cost. 

Though it’s not certain, many have suggested that the formula allows for patients’ ratings to be inflated—so that the government ends up paying more money than it should—potentially billions more. 

A study commissioned by the federal government back in 2009 reached this conclusion. However, the study was mysteriously never published. 

The under wraps study was recently unearthed by the Center for Public Integrity through a Freedom of Information Act request. 

The study reviewed the growth in risk scores beginning in 2004, when the formula was first used, through 2008. It found that during that timeframe, risk scores for Medicare Advantage patients grew twice as fast as those in traditional Medicare. 

Related: $8 Billion Wasted on Medicare Bonus Program 

For example, the study zeroed in on rates for people with diabetes and found that twice as many people were reported to have diabetes with health complications in Medicare Advantage compared to those in standard Medicare. 

“It seems extremely unlikely that the actual distribution of diabetics changed substantially in MA plans…and “almost surely reflects MA efforts to more fully document members’ diagnoses,” the study said, according to the Centers for Public Integrity. 

The more likely explanation, they concluded, is that the formula overstates how sick patients are and thus “results in inappropriate payment levels.” 

Reports about the potentially flawed formula aren’t new. The Center for Public Integrity previously reported that improper payments resulting from risk score errors cost the government nearly $70 billion between 2008 and 2013. 

Related: Medicare by the Numbers 

Still, the fact that the government didn’t publish the study is concerning, especially since the problem is costing billions of dollars. 

For its part, a spokesperson from the Centers for Medicare and Medicaid Services, the agency that commissioned the report, told the Center for Public Integrity that it didn’t publish the study because it needed to be “substantially shortened.” However, the agency didn’t revise it because of “competing workload demands.” 

The report comes just as the Obama administration proposes to cut about $36 billion from the Medicare Advantage program, which is expected to cost around $150 billion this year. 

The proposed cuts have activated an aggressive lobbying assault on Capitol Hill, from advocates who say the cuts would be devastating for seniors enrolled in the program. 

“Medicare Advantage has been subject to billions in real cuts for each of the last four years. These annual cuts have resulted in higher out-of-pocket costs and lost benefits for seniors across America," the Better Medicare Alliance interim executive director, Krista Drobac, said in a statement after the president’s proposal was released.

But proponents of the cuts say that Medicare Advantage has racked up billions of dollars in waste every year and needs to be scaled back.

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