The latest issue of Bloomberg Businessweek features John Tozzi’s brief article on the unexpected results of an effort to reduce Medicare expenses.
Two years ago, Anita Silingo accused health insurance companies of brazenly ripping off the government. Silingo, who worked at a company called MedXM that consulted for health insurance companies, filed a sealed whistleblower lawsuit claiming that MedXM exaggerated or outright fabricated illnesses to get its clients higher fees from Medicare. The Justice Department hasn’t taken up the suit and the companies have sought to dismiss it in court. But new research suggests that the kind of inflated diagnoses Silingo described costs the government billions a year. …
… Until about 15 years ago, the U.S. government didn’t care how sick people were for the purposes of paying for health care. Medicare generally paid physicians directly for each procedure performed. In the mid-2000s, the government tried to reduce costs by promoting privately managed Medicare Advantage plans, which pay insurance companies a fixed sum to manage health care for a group of patients. To keep insurers from cherry picking the healthiest people, the contracts pay more if sicker people sign up. The extra payment is based on a risk score calculated from diagnostic codes that physicians submit. This approach, called risk adjustment, has now permeated the U.S. health-care system—and it gives health plans incentives to do exactly what Silingo alleges they did.
“If you look back over 15 years ago, almost no American consumers were enrolled in a risk-adjusted health insurance market,” says Michael Geruso, an economist at the University of Texas at Austin who recently co-authored a working paper on the practice. He estimates that 50 million people are enrolled in health plans that get paid more depending on diagnoses. That includes about 16 million in Medicare Advantage plans, as well as many patients in Medicaid managed care and health plans in the Obamacare exchanges.
The big money at stake has bred a cottage industry of consultants and software that promises to maximize health plans’ payouts. Insurance companies can hire companies such as MedXM to conduct checkups on enrollees in their homes, which helps insurers record medical conditions that influence how much revenue they get for that patient. Insurers also use software that scans medical records and suggests diagnoses that may have been overlooked, says Timothy Layton, a Harvard Medical School economist and Geruso’s co-author.
The two estimate that inflated risk scores cost Medicare about $2 billion in 2014, or $120 for each of the 16 million Medicare Advantage enrollees. It would cost even more if the federal government hadn’t attempted to address the problem, starting in 2010. That year, Medicare began to apply a blanket reduction in rates paid to Medicare Advantage plans to compensate for differences in what the government calls “coding intensity”—the tendency of Medicare Advantage plans to report overall sicker patients.
