Medicare Advantage Risk-Scoring Fraud
Part I
Medicare Managed Care Organizations (MCOs) are facing one of the major compliance challenges in the history of the entitlement in the Fall of 2010 and Winter of 2011: Risk Adjustment Data Validation Audits. Stated simply, a new Payer reimbursement model, implemented between 2003 and 2008, which was deployed by CMS to update Payer reimbursement, will be the object of a far-reaching, systematic audit by CMS of its member managed care organizations. The necessity for the audit and its objectives will be discussed below; first, however, it is informative to review the evolution of Managed Medicare Plan payments systems.
Initially referred to as “reasonable-cost, pre-paid health insurance under Medicare A and B,” Medicare Managed Care has been in existence since 1965. Later, the formal designation “Part C” or “Medicare + Choice” was employed for this program, designed to control costs by fixed, prospective payment. With the addition of non-traditional benefits to “Managed Medicare” and higher than anticipated admin costs and member utilization, Medicare + Choice ultimately has become 10-12% more expensive than traditional, fee-for-service Medicare. According to CBO findings, this additional cost was without an overarching incremental clinical value proposition.
Medicare + Choice Plans paid physicians based on a mix of capitation and fee-for-service claims, though plans were reimbursed in turn by HCFA and CMS on an experience-based, demographic, fully-capitated model. Plans submitted costs to CMS by beneficiary, but CMS aggregated this experience into demographic “rate cells” which did not recognize illness burden for members. For the following year, plans were paid prospectively based on rate cell occupancy. This “AAPCC” (average adjusted per capita cost) methodology recognized dually-eligibles, gender, county of residence, nursing home occupancy, aged-non-aged, and ESRD status (less than 1% of Medicare beneficiaries). Except for modifiers for this small ESRD population (dialysis and chronic renal failure patients), no individual member morbidity or “burden of illness” went into aggregate rate cell values.
In response to the failure of the Medicare + Choice reimbursement methodology to control costs, the “Medicare Modernization Act of 2003” (The Medicare Prescription Drug Improvement and Modernization Act of 2003, “MMA”, PL 108-173, signed into law by President G. W. Bush on 12/8/2003) created Medicare Advantage, which relies on the “Hierarchical Condition Category” (HCC) system to formulate payments for participating managed care plans.
HCC payment is designed to match the individual health risk profile of each Medicare Advantage member with the premiums paid to the plan bearing the risk. Age-sex modifiers play a minor role in determining premium rate-setting. The HCC system utilizes ICD-9 diagnostic information as the primary indicator of each member’s health status. Thousands of ICD-9 codes are mapped to specific HCC disease categories, which ultimately dictate the premiums paid to the Medicare Advantage plan. This prospective payment system is known as “health status based risk adjustment”, or, in its abbreviated form, “risk adjustment”.
The HCC risk adjusted payment system is designed to reimburse plans more for members with higher burden of illness and expected costs and utilization. The system also reimburses less for members inferred to be “healthier”, based on more favorable, less morbid diagnosis profiles. (By law, the HCC system is designed to be revenue-neutral, so that plans with “healthier” members would see a significant drop in their reimbursement.)
Physician and hospital claims are submitted monthly to CMS, which then maintains a risk score by beneficiary based on current claims documentation. The beneficiary’s array of diagnoses is refreshed annually. Thus, for example, if a complex diabetic (kidney disease, heart disease, peripheral vascular disease) has provider claims submitted lacking the appropriate ICD-9 diagnoses at least annually, that patient’s premium reimbursement to the plan devolves to a lower rate, although the patient remains medically complex and at high risk for utilization. As stated in the 2007 Medicare Managed Care Manual, “Beneficiary risk scores are used to adjust each plan’s base payment rate for member health status. The risk score is computed for each beneficiary for a given year and applied prospectively. The risk score follows the beneficiary for one calendar year” (Continued in Part II.)