Pre-Submission Risk Adjustment Audits: Preventing Medicare Advantage Plans from Draining Medicare Funds Dry

• Author: Casie C. Rodenberger
• Position: J.D. Candidate, The University of Iowa College of Law, 2018; M.S.W., Washington University in St. Louis, 2012; B.A., The University of Portland, 2011
• Pages: 841-870

Pre-Submission Risk Adjustment Audits: Preventing Medicare Advantage Plans from Draining Medicare Funds Dry Casie C. Rodenberger * ABSTRACT: The Centers for Medicare and Medicaid Services (“CMS”) pays private organizations on a capitated payment rate to provide medical services to Medicare beneficiaries in the Medicare Advantage Program. To decrease the risk of the capitated payment model, CMS uses risk adjustment to increase payment for beneficiaries with a higher risk score. The risk adjustment data submission process is at great risk for mistake given the complex nature of risk adjustment and fraud because Medicare Advantage plans stand to increase profit margins with higher risk adjustment data scores. CMS has overpaid Medicare Advantage plans by millions of dollars in the risk adjustment process. The current CMS process to validate and recover overpaid funds is not sufficient given the volume of payment errors and the inefficient system. CMS should require Medicare Advantage plans to comprehensively audit diagnosis data before being submitted for risk adjustment to reduce the number of payment errors that lead to overpayment. CMS should also improve the data validation procedures to make recovery a more efficient process. I. INTRODUCTION ............................................................................. 842 II. MEDICARE ADVANTAGE AND SYSTEMS OF PAYMENT ...................... 845 A. T RADITIONAL M EDICARE ......................................................... 845 B. M EDICARE A DVANTAGE ........................................................... 847 C. C APITATED P AYMENT AND R ISK A DJUSTMENT ........................... 849 D. R ISK A DJUSTMENT D ATA V ALIDATION ...................................... 852 E. F ALSE C LAIMS A CT .................................................................. 856 III. THE BURDEN OF RISK ADJUSTMENT .............................................. 858 A. R ISK A DJUSTMENT D ATA S UBMISSION P ROCESS ......................... 859 * J.D. Candidate, The University of Iowa College of Law, 2018; M.S.W., Washington University in St. Louis, 2012; B.A., The University of Portland, 2011. Thank you to the Volume 103 editors of the Iowa Law Review for their help and guidance. I would also like to thank my parents for their never-ending encouragement. 842 IOWA LAW REVIEW [Vol. 103:841 B. T HE S TRUGGLES A SSOCIATED WITH RADV ............................... 862 C. T HE U NINTENDED C OST OF R ISK A DJUSTMENT ......................... 863 IV. RISK ADJUSTMENT AUDITS AND RADV PROCESS IMPROVEMENTS ............................................................................. 866 A. M EDICARE A DVANTAGE P LAN I NTERNAL A UDITS ...................... 867 B. I MPROVING THE RADV P ROCESS .............................................. 869 V. CONCLUSION ................................................................................ 870 I. INTRODUCTION In the current political climate, conversations about the government’s role in subsidizing for its citizen’s services are common. Often, the conversations focus on the greatest cost offender. In 2015, national health expenditures accounted for nearly 17.8% of the U.S. Gross Domestic Product (“GDP”). 1 Historically, private payers represented the majority of the payment source for national health expenditures, but this trend has been slowly shifting. 2 The federal government currently accounts for 28.7% of national healthcare expenditures. 3 It is anticipated by the Centers for Medicare & Medicaid Services (“CMS”) that the federal government’s share of healthcare spending will only continue to rise given the aging population that will be eligible for Medicare, the expansion of subsidies programs under the Affordable Care Act (“ACA”), and the cost of the possible replacement of the ACA entirely. 4 1 . National Health Expenditure Fact Sheet , CTRS. FOR MEDICARE & MEDICAID SERVS., https://www. cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/ nhe-fact-sheet.html (last updated June 14, 2017, 3:11 PM) (explaining the expenditure amount reached three trillion, which is about $9,990 per person). 2 . See EARL DIRK HOFFMAN, JR. ET AL., U.S. DEP’T OF HEALTH & HUMAN SERVS., CTRS. FOR MEDICARE & MEDICAID SERVS., BRIEF SUMMARIES OF MEDICARE & MEDICAID: TITLE XVIII AND TITLE XIX OF THE SOCIAL SECURITY ACT 3 (2007), https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/downloads/Medicare MedicaidSummaries2007.pdf (describing that there has been a shift from a majority of private funding toward public funding due to cost sharing methods and out of pocket costs). 3 . See National Health Expenditure Fact Sheet , supra note 1 (noting that private households also have a majority share of 27.7%, while private businesses and state and local government have a minority share at 19.9% and 17.1% respectively). 4. HOFFMAN ET AL., supra note 2, at 4–5; see Exec. Order No. 13,765, 82 Fed. Reg. 8351 (Jan. 20, 2017) (indicating that the Trump Administration intended to repeal the ACA, but the plan to take its place had yet to be decided on). In an attempt to replace the ACA, the House passed the American Health Care Act. Mara Lee, Fate of Obamacare Now is in the Senate , MOD. HEALTHCARE (May 4, 2017), http://www.modernhealthcare.com/article/20170504/NEWS/ 170509944. However, the replacement of the ACA remains in limbo as the vote for the Senate replacement proposal, a Better Care Reconciliation Act, was delayed and the measure to partially repeal the ACA, the Healthcare Freedom Act, was rejected. See Juliet Eilperin et al., Senate Rejects 2017] PRE-SUBMISSION RISK ADJUSTMENT AUDITS 843 Federal healthcare programs—such as Medicare and Medicaid—have somewhat quietly become one of the greatest drains on federal funds, despite questions from politicians and taxpayers alike about how much money is being spent by the government. The Congressional Budget Office projects that federal healthcare program spending will increase from just over six percent to ten percent of the GDP in the next 30 years. 5 Of the over $3 trillion that the federal government spent on healthcare costs in 2015, Medicare costs were approximately $646.2 billion, which is 20% of all healthcare costs. 6 Federal spending on Medicare accounted for 15% of the federal budget in 2016. 7 One of the largest growing components of Medicare is the Medicare Advantage program. 8 Medicare Advantage, or Part C of Medicare, is an alternative choice for beneficiaries who are eligible for traditional Medicare but prefer the costs and benefits that Medicare Advantage offers compared to Measure to Partly Repeal Affordable Care Act, Dealing GOP Leaders a Major Setback , WASH. POST (July 28, 2017), https://www.washingtonpost.com/powerpost/senate-gop-leaders-work-to-round-up-votes-for-modest-health-care-overhaul/2017/07/27/ac08fc40-72b7-11e7-8839-ec48ec4cae25_ story.html; Danielle Kurtzleben, Senate Health Care Bill Revisions Released in Attempt to Appease GOP Critics , NPR (July 13, 2017, 12:13 PM), http://www.npr.org/2017/07/13/537040114/senate-gop-releases-revised-affordable-care-act-repeal-and-replace-plan. It was estimated that from 2016 to 2025, repealing the ACA in full would raise the cost of Medicare by $802 billion, $350 billon of which would be related to repealing provisions related to Medicare Advantage. CONG. BUDGET OFFICE, CONG. OF THE U.S., BUDGETARY AND ECONOMIC EFFECTS OF REPEALING THE AFFORDABLE CARE ACT 10 (2015), https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/ 50252-Effects_of_ACA_Repeal.pdf; JULIETTE CUBANSKI ET AL., THE HENRY J. KAISER FAMILY FOUND., WHAT ARE THE IMPLICATIONS OF REPEALING THE AFFORDABLE CARE ACT FOR MEDICARE SPENDING AND BENEFICIARIES? 2 (2016), http://files.kff.org/attachment/Issue-Brief-What-Arethe-Implications-of-Repealing-the-Affordable-Care-Act-for-Medicare-Spending-and-Beneficiaries. 5. Jonathan Nicholson, Aging Population Only Second-Biggest Reason Health Care Spending to Grow: CBO Director , BLOOMBERG BNA (Nov. 4, 2016), http://www.bna.com/aging-population-secondbiggest-b57982082317. 6 . National Health Expenditure Fact Sheet , supra note 1. 7. JULIETTE CUBANSKI & TRICIA NEUMAN, THE HENRY J. KAISER FAMILY FOUND., THE FACTS ON MEDICARE SPENDING AND FINANCING 1 (2017), http://files.kff.org/attachment/Issue-Brief-The-Facts-on-Medicare-Spending-and-Financing (discussing that of the $3.9 trillion that was spent in the federal budget, Medicare spending accounted for $588 billion). 8. Scott Gottlieb, The Politics of Why Medicare Advantage Is Capturing Seniors , FORBES: PHARMA & HEALTHCARE (Jan. 23, 2015, 8:56 AM), http://www.forbes.com/sites/scottgottlieb/2015/01/ 23/who-benefits-as-medicare-burns. While it is anticipated that there may be upcoming changes to traditional Medicare and the ACA, the popularity of Medicare Advantage and the support for private insurers managing senior benefits may lead to additional growth of the Medicare Advantage program under the Trump administration. Bruce Japsen, Aetna Won’t Need Humana If Paul Ryan Privatizes Medicare , FORBES: PHARMA & HEALTHCARE (Jan. 24, 2017, 8:07 AM), http://www.forbes.com/sites/brucejapsen/2017/01/24/aetna-wont-need-humana-if-paul-ryan-privatizes-medicare; Susan Morse, Insurers Await Trump Admin’s Medicare Advantage Payment Rates , HEALTHCARE FIN. (Jan. 27, 2017), http://www.healthcarefinancenews.com/news/insurers-await-trump-admins-medicare-advantage-payment-rates. 844 IOWA LAW REVIEW [Vol. 103:841 traditional Part A and B Medicare. 9 Unlike traditional Medicare that utilizes a fee-for-service model of reimbursement, Medicare Advantage reimburses based on a set monthly amount of reimbursement per patient, or what is called a capitated amount. 10 Given the risk that the capitated amount represents to insurers as they are paid a set amount no matter what the amount paid out for an enrollee’s...