GAO study finds $5.1 billion in Medicare Advantage overpayments

A report issued this week by the Government Accountability Office reports that the Centers for Medicare & Medicaid Services overpaid the Medicare Advantage program run by private health insurers by between $3.2 billion and $5.1 billion for the years 2010-2012.

The overpayments, according to GAO, were the result of CMS inadequately adjusting based on health status for members enrolled in Medicare Advantage. Insurers who run MA plans are paid a set amount per beneficiary, adjusted by a risk score that calculates the expected consumption of health services in the coming year for each beneficiary.

In practice, the risk scores for beneficiaries with the same health conditions and with the same demographic profile should be the same. However, the GAO discovered in its analysis that coding differences between Medicare Advantage enrollees and those enrolled in the traditional fee-for-service Medicare plan led to “inappropriately high MA risk scores and payments to MA plans.”

“CMS’s adjustment to risk scores for 2010 through 2012 to account for diagnostic coding differences was too low, resulting in estimated excess payments to MA plans of at least $3.2 billion,” the report noted.

The report comes in the midst of a 45-day comment period in advance of CMS setting Medicare Advantage rates for 2014. In its proposed rate-setting announced Feb. 15, CMS has said it plans to cut Medicare Advantage payments by 2.3 percent for 2014.

America’s Health Insurance Plans (AHIP) has launched a sustained campaign against any cuts to the program saying the proposal would lead to a combination of higher costs and reduced benefits to seniors if the payment cuts stand.

"Unless there are significant changes to the payment rates for 2014, millions of seniors and people with disabilities enrolled in Medicare Advantage will face higher out-of-pocket costs, a reduction in benefits and fewer choices,” said Karen Ignagni, president and CEO of AHIP in a late February press conference.

But congressional Democrats were quick to jump on the GAO report’s findings to contend that the proposed cuts for 2014 are needed and necessary.

“While CMS has continued to strengthen the Medicare Advantage program, today’s GAO report provides evidence that there is yet more to do," said Henry Waxman (D-Calif.), the top ranking Democrat on the House Energy and Commerce Committee, in a press statement. "One of the best ways to protect Medicare for generations to come is to ensure that the program isn’t overspending for care and services.”