How Medicare Advantage plans avoided auditors, overcharged taxpayers by millions


In April 2016, government auditors asked a Blue Cross Medicare Advantage health plan in Minnesota to turn over medical records of patients treated by a podiatry practice whose owner had been indicted for fraud.

Medicare had paid the Blue Cross plan more than $20,000 to cover the care of 11 patients seen by Aggeus Healthcare, a chain of podiatry clinics, in 2011.

Blue Cross said it couldn’t locate any records to justify the payments because Aggeus shut down in the wake of the indictment, which included charges of falsifying patient medical files. So Blue Cross asked the Centers for Medicare & Medicaid Services for a “hardship” exemption to a strict requirement that health plans retain these files in the event of an audit.

CMS granted the request and auditors removed the 11 patients from a random sample of 201 Blue Cross plan members whose records were reviewed.

A review of 90 government audits, released exclusively to KHN in response to a Freedom of Information Act lawsuit, reveals that health insurers that issue Medicare Advantage plans have repeatedly tried to sidestep regulations requiring them to document medical conditions the government paid them to treat.

The audits, the most recent ones the agency has completed, sought to validate payments to Medicare Advantage health plans for 2011 through 2013.

As KHN reported late last month, auditors uncovered millions of dollars in improper payments — citing overcharges of more than $1,000 per patient a year on average — by nearly two dozen health plans.

The hardship requests, together with other documents obtained by KHN through the lawsuit, shed light on the secretive audit process that Medicare relies on to hold accountable the increasingly popular Medicare Advantage health plans — which are an alternative to original Medicare and primarily run by major insurance companies.

Reacting to the audit findings, Sen. Chuck Grassley (R-Iowa) called for “aggressive oversight” to recoup overcharges.

“CMS must aggressively use every tool at its disposal to ensure that it’s efficiently identifying Medicare Advantage fraud and working with the Justice Department to prosecute and recover improper payments,” Grassley said in a written statement to KHN.

Medicare reimburses Medicare Advantage plans using a complex formula called a risk score that computes higher rates for sicker patients and lower ones for healthier people.

But federal officials rarely demand documentation to verify that patients have these conditions, or that they are as serious as claimed. Only about 5% of Medicare Advantage plans are audited yearly.

When auditors came calling, the previously hidden CMS records show, they often found little or no support for diagnoses submitted by the Advantage plans, such as chronic obstructive pulmonary disease, diabetes, or vascular disease. Though auditors look at the records of a relatively small sample of patients, they can extrapolate the error rate to the broad population of patients in the Medicare Advantage health plan and calculate millions of dollars in overpayments.

Overall, CMS auditors flagged diagnostic billing codes — which show what patients were treated for — as invalid more than 8,600 times. The audits covered records for 18,090 patients over the three-year period.

In many cases, auditors found that the medical credentials of the healthcare provider who made the diagnosis were unclear, the records provided were unacceptable, or the record lacked a signature as required. Other files bore the wrong patient’s name or were missing altogether.

The rates of billing codes rejected by auditors varied widely across the 90 audits. The rate of invalid codes topped 80% at Touchstone Health, a defunct New York HMO, according to CMS records. The company also was shown to have the highest average annual overcharges — $5,888 per patient billed to the government.

By contrast, seven health plans had fewer than 10% of their codes flagged.

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