Here is what the article says: Feds Knew About Medicare Advantage Overcharges Years Ago
This article is very disturbing. It is so easy to hate insurance companies and assume that this is all true without understanding the more complex story. I think we risk getting the "baby thrown out with the bath water" if we cannot spell out the value of risk adjustment and accountable care, compared with the failings of FFS healthcare.
I find that people get stopped at the headllines without understanding what it all really means because, unless you are involved in risk adjustment, it is difficult to understand. Let's use an example and see if this makes sense to you.
A pair of identical twins have the exact same health conditions and see the same doctor for care. The doctor is a great clinician, treats the twins exactly the same way and documents well in his charts, but he is lazy putting the diagnostic codes on the claims.
One of the twins has a Medicare Supplement policy while the other is enrolled in a Medicare Advantage plan.
Using the CMS risk adjustment model, the skimpy diagnostic codes are used to predict how much the expected health care costs would be for both twins in the coming year. Let us say that, using this methodology the Medicare Advantage plan receives $12,000 over the year based on the overly simplified ICD-9 codes supplied by the doctor. But, if the health plan had sent in a coder to read the doctor's charts to determine what the true health conditions were instead of relying solely on the claims data, the adjustments to the premiums from CMS would have been $24,000 annually. But the health plan did not do that and just received the $12,000.
Now fast forward a year and the higher costs come true because the twins were actually twice as sick as the ICD-9 codes from the claims suggested. Who pays for that doubled cost of care for each of the twins?
In the case of the twin with the Medicare Supplement, Medicare pays for it because they must. But for the twin with the Medicare Advantage plan, the health plan pays for it from the premiums received based on the risk adjusted payment model. However, the premiums were only half what they should have been and the health plan has to still pay for the actual health care provided.
The U.S. taxpayer, through Medicare, pays for the actual health care due to the true health conditions of the beneficiaries under Original Medicare, even if the diagnostic coding is poor. However, the Medicare Advantage plan receives underpayment for the same beneficiary because the diagnostic coding is poor.
If the Medicare Advantage health plan had sent in a coder and got the risk adjusted payment levels at the accurate levels, they would have received adequate payment for the health care costs based on the true burden of illness. That payment level would more closely approximate what Original Medicare ended up paying for the identical twin on the Medicare Supplement plan, since CMS is getting closer to paying MA plans at 100% of FFS levels now. The taxpayer is indifferent. Yet the diagnostic codes supplied for the one twin is twice the number of codes supplied for the other twin.
The punchline to this story then is that people that are alarmed by the much higher number of diagnostic codes associated with Medicare Advantage members compared with FFS Medicare beneficiaries are making the incorrect assumption that the health plans are over-coding to earn additional premiums to which they are not entitled. But the differences in coding levels is actually due to lazy diagnostic coding on the part of providers under a FFS system.
FFS Medicare is drastically under-coded for diagnoses, and if Medicare Advantage plans were simply passively accepting the same level of coding, the taxpayers would realize enormous short term savings in comparison to FFS Medicare costs. Of course, as time goes on, the healthplans would go broke subsidizing the undercoded beneficiaries.