Private Medicare Advantage (MA) insurers have long received overpayments from Medicare due to their “upcoding,” which makes MA enrollees appear less healthy than they are — and a recent court decision could worsen the problem. As policymakers look to strengthen Medicare, eliminating upcoding should be high on their agenda.
While two-thirds of Medicare enrollees participate in the traditional, federally run Medicare program, a third receive their benefits through MA plans. Medicare pays MA plans a fixed amount per enrollee that is “risk-adjusted” to reflect each enrollee’s health status, as measured by the health conditions with which he or she has been diagnosed. That gives MA plans a financial incentive to ensure that their providers record all possible diagnoses: more diagnoses lead to higher risk scores and, in turn, higher payments. In contrast, traditional Medicare pays many providers (particularly doctors) based on the procedures they perform, so they have no incentive to report more diagnoses.
More and more research documents the impact of upcoding. The Medicare Payment Advisory Commission (MedPAC) concludes that risk scores are about 8 percent higher, on average, for MA enrollees than for similar beneficiaries in traditional Medicare, although the gap varies considerably from plan to plan. Federal law requires the Centers for Medicare & Medicaid Services (CMS) to adjust MA risk scores across the board to make them more consistent with scores for traditional enrollees. But even after this “coding intensity” adjustment, upcoding adds an average of about 2 percent to MA payments, MedPAC says. Some plans likely receive much larger payment increases. \
– Center on Budget and Policy Priorities