Introduction

Outside the Government Accountability Office building. Flickr/kafka4prez

A Congressional committee has taken aim at waste in the popular Medicare Advantage health insurance program for seniors, ordering an extensive audit of billing errors and overcharges by insurers — mistakes estimated to cost taxpayers billions of dollars every year.

The Government Accountability Office, the watchdog arm of Congress, is conducting the probe at the request of the House Ways and Means Committee. Results are due next spring.

GAO auditors will target efforts by the Centers for Medicare and Medicaid Services (CMS), which runs the senior care program, to ensure the privately run health plans are paid accurately and that any overpayments are recovered for taxpayers. Medicare Advantage is an alternative to standard Medicare and is mostly run by private insurance carriers.

“Right now everything is on the table,” said James Cosgrove, who heads the GAO’s health care division. “This is not something we have focused on before.”

The GAO audit comes in the wake of the Center for Public Integrity’s “Medicare Advantage Money Grab” series published in June, which showed that the government has struggled for years to stop the health plans from charging too much.

The series found that federal officials made nearly $70 billion in “improper” payments to health plans — mostly inflated fees from overstating patients’ health risks — from 2008 through 2013 alone.

Medicare pays health plans using a complex formula known as a risk score, which is supposed to raise rates for sicker patients and lower them for people in good health. But the industry has long faced criticism that some plans overstate how sick some patients are to boost Medicare revenue, a practice known as “upcoding.”

“Given the prevalence of upcoding by some MA plans, we hope that the GAO audit will result in CMS paying plans more accurately and fairly while reducing wasteful overpayments,” said David A. Lipschutz, an attorney with the Center for Medicare Advocacy in Washington.

America’s Health Insurance Plans, the industry’s trade group, wouldn’t comment on the GAO audit. CMS had no comment either.

Medicare Advantage has grown explosively under the risk-scoring formula, which Congress put in place in 2004. Officials expect the program to cost taxpayers as much as $160 billion this year, as enrollment nears 16 million, or about one in three elderly and disabled people on Medicare.

In the past, however, CMS officials have stated that inflated risk scores drain billions from the treasury. CMS has largely trusted health plans to identify and return any money paid in error and has repeatedly scaled back its efforts to go after overpayments, often in the face of industry lobbying and pressure.

GAO reviewers are zeroing in on Medicare’s primary tactic for recouping overcharges, a secretive audit process called Risk Adjustment Data Validation, or RADV.

Medicare officials have quietly conducted these audits since 2008. But they have never imposed stiff financial penalties for overcharges that have been uncovered through the RADV process, despite evidence that billing errors have been deeply rooted and waste tax dollars at an alarming clip, records show.

For instance, audits of six plans found that health plans couldn’t justify payments from the government for 40 percent or more of their patients. The resulting overpayments were pegged at nearly $650 million for 2007 alone — just for those six plans.

The Center for Public Integrity investigation confirmed in June that federal officials, after years of haggling with health plans, settled the six audits for pennies on the dollar. One New York state health plan that federal auditors said may have been overpaid by as much as $41 million in 2007, coughed up just $157,777 to settle the matter in December 2013, for instance.

The Obama administration has taken years to get a new round of the RADV audits underway amid quibbling with the industry over the details.

In early November 2013, CMS officials notified as many as 30 Medicare Advantage plans that they had been selected for audit. But more than 500 Medicare Advantage contracts are now in force, so it would take the government years to make sure all the plans are billing accurately.

CMS officials have declined to name the companies chosen for the 30 audits this year, or the results. So it’s not clear if any have been completed. The Center for Public Integrity in May sued CMS under the Freedom of Information Act, in part to secure a list of the audited plans and the results.

GAO auditors also want to know why CMS has not enlisted the help of private collection agencies to crack down on billing fraud by Medicare Advantage groups.

These private firms, known as Recovery Audit Contractors in Washington bureaucratese, have been pursuing fraud by doctors and hospitals for years. The firms get to keep a percentage of any billing fraud they uncover, though medical groups have criticized them for being overly aggressive.

The Medicare Advantage industry has enjoyed bipartisan support in Congress as the program has grown. In recent years, the industry has successfully lobbied to scale back planned pay cuts to the health plans.

America’s Health Insurance Plans, the industry trade group, spent nearly $5 million lobbying on a variety of issues, including Medicare Advantage, from January through June of 2014, according to the Senate records.

While government fraud investigations have lagged, whistleblower lawsuits that allege overcharging by Medicare Advantage insurers are stacking up in federal courts.

In one case, Miami physician Olivia Graves alleged that a Humana-affiliated clinic had diagnosed an abnormally high number of patients with conditions such as diabetes with complications, which boosted Medicare payments, but were “not supported by the medical records.”

The suit alleges that Humana knew about the practices and did nothing to stop the overcharging. The suit argues that Medicare paid thousands of dollars for each patient who was wrongly diagnosed. Humana has denied the allegations.

In a separate civil case, Josh Valdez, a former Bush administration health official, alleges that two Puerto Rico Medicare Advantage health plans bilked the government out of as much as $1 billion by inflating patient risk scores. The plans, which at the time were owned by a subsidiary of New-Jersey based Aveta, Inc., denied the allegations.