Medicare Advantage Fraud – CMS Shortcomings

Nolan Auerbach & White are experienced Medicare Fraud Attorneys helping courageous whistleblowers.

The Centers for Medicare & Medicaid Services (CMS) has estimated that nearly 10 percent – about $16 billion – of Medicare Advantage payments have been improper. The improper payment rate compounds the concerns about Medicare overall, given that Medicare has already been designated as a high-risk program based on its size, complexity, and susceptibility to mismanagement and improper payments.  Note that “improper payments” include payments that are made in error,  and payments made due to Medicare Advantage Fraud.

About two-thirds of Medicare beneficiaries are enrolled in traditional, fee-for-service (FFS) Medicare.  The remaining third are enrolled in Medicare Advantage.  According to the GAO, Medicare paid approximately $200 billion to Medicare Advantage organizations.

In contrast to FFS, Medicare pays Medicare Advantage organizations a fixed amount every month for each enrollee, with no connection to the services the enrollee actually uses in that month.  In order to root out improper payments related to Medicare Advantage, CMS has two methods:

  • National risk adjustment data validation (national RADV) audits
  • Contract-level RADV audits.

Both types of audits review whether the codes that the MAOs submit have the relevant documentary support, and thus determine the extent of any improper payments.

Interestingly, CMS calculates a beneficiary’s “risk score,” which is meant to help project how much the beneficiary will cost the Medicare system, and then it couples that with other Medicare data to find possible improper payments.

While CMS is conducting the audits mentioned above to improve the integrity of Medicare Advantage, the GAO has found that a number of things have hampered CMS’s efforts.  Those hindering factors are as follows:

  1. Targeted Audits. CMS has failed to select contracts for audit that have the greatest potential for payment recovery.  In other words, CMS is not quite looking in the right place with its audits to find improper payments.
  2. Completing Audits. Delays in conducting and completing the contract-level RADV audits has also hindered CMS’s effort to root out improper payments, to include Medicare Advantage fraud.
  3. Coordinating Auditing Contractors. CMS also lacks specific plans for incorporating Recovery Audit Contractors (RACs) into the Medicare Advantage program to identify and recover improper payments. 

CMS’s method for calculating the risk of improper payments for each contract (which is based on the diagnoses reported for beneficiaries of those contracts) is somewhat faulty.  Specifically, CMS uses “coding intensity scores” to identify those Medicare Advantage contracts that are good candidates for an audit.  Increases in coding intensity measure the extent to which the estimated medical needs of the beneficiaries in a contract increase from year to year.  Thus, those contracts in which the beneficiaries appear to be getting “sicker” at a relatively fast pace (based on provider information given to CMS) will have a correspondingly high “coding intensity score.”

Those coding intensity scores, however, do not correspond to the percentage of unsupported diagnoses under that contract.  Thus, as noted above, CMS is not quite auditing the contracts where there is the most improper payment risk.

Also, CMS reportedly does not always use information at its disposal to select those contracts with the highest improper-payment risk, to include selecting for audit those contracts with (i) the highest coding intensity score; (ii) use results from prior contract-level RADV audits; (iii) account for contract consolidation; or (iv) account for contracts with high enrollment.

Medicare is a massive government system, full of complexities, and vulnerable to mismanagement and fraud.  Any large government program will have those difficulties.  That said, the almost $1 trillion yearly spent on the Medicare and Medicaid programs needs to be watched carefully primarily because it is such a large part of the government’s budget. Medicare Advantage represents a significant portion of this amount.

Kathleen Hawkins

Dignity Health
$37 million

Kathleen Hawkins, RN MSN, had been employed by Defendant, Catholic Healthcare West (CHW) for approximately 6 years when she decided she had had enough of trying to change the hospital system from within.

CHW, a California not-for-profit corporation that operated hospitals in California, Arizona, and Nevada, was at the time the eighth largest hospital system in the nation and the largest not-for-profit hospital provider in California.


Joe Strom

Johnson & Johnson
$184 Million

Joe Strom contacted us in 2005. We were very grateful that he did. We immediately formed an all-star legal team and a process to stop a very harmful pharmaceutical marketing strategy. It was this process we set into motion that ultimately returned hundreds of millions of dollars to the U.S. Treasury, and a portion of that, very well-deserved, into Joe’s bank account.

Joe told us a very troubling story about the off-label promotion of a pharmaceutical drug for patients who already suffered from chronic heart failure.


Bruce A. Moilan Sr.

$27 Million

Bruce Moilan was a seasoned hospital systems expert by the time he contacted our Firm. At the time he decided to file his qui tam lawsuit, he was employed by South Texas Health System as a System Director for Materials Management. In this position, he oversaw $24 million in annual purchases of supplies and equipment and helped determine budget, reduction and cost analysis throughout the contract bidding and negotiations process. His job was to insure proper implementation for purchasing, receiving and management of inventory, for McAllen Hospitals, L.P.


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