At the start of 2023, an estimated 2.5 million Americans age 65 and older began using Medicare Advantage programs. Some made this choice in response to aggressive marketing campaigns. This brings the total enrollment of Medicare Advantage plans to nearly 31 million.
One unexpected “benefit” of these plans is an offer by the insurance company sponsoring the plan to send a nurse or physician’s assistant, often from a startup company, to an individual’s home. There is no charge for the visit, and the insurance company may even pay the beneficiary for agreeing to do this. Some companies call relentlessly to get the offer accepted.
Before explaining whose interests these visits serve, it helps to tease out the roles of the players. Health insurance companies do not deliver health care. That’s what medical providers and groups do. The primary role of insurance companies is to pay the bills; they profit by taking in more money from beneficiaries than they pay for the medical care they need. To be sure, this distinction is getting murky: some health insurers have bought medical provider groups, and some health systems offer health insurance.
When an individual signs up for Medicare Advantage, which they get through a private insurance company instead of through the federal government, Medicare no longer directly pays providers for their services. Instead, it pays a fixed fee to the insurance company, which establishes its own rules for how much and when it pays providers.
Here’s the catch: the amount the insurer collects from Medicare is based on risk-score codes. The more diagnoses individuals have, the higher their risk scores, and the higher the risk score, the more the insurance company collects from Medicare.
In theory, that sounds reasonable. In reality, some Medicare Advantage insurers assign diagnoses and risk codes that generate higher premiums regardless of whether these diagnoses actually affect an individual’s health or whether they are being treated for the condition. This is where the free at-home physicals come in. Even though Medicare already offers those it covers annual comprehensive wellness visits with their primary care providers, some Medicare Advantage insurers push for at-home visits to find additional risk codes that allow them to secure higher fixed fees from Medicare. This is referred to as upcoding. Even though traditional Medicare beneficiaries are often sicker than Medicare Advantage beneficiaries, the use of custom software, specially trained professionals, and business consultants have created an entire industry dedicated to gaming the system.
The rewards for upcoding are not trivial. A company might get paid about $6,700 for an older man with uncomplicated diabetes. But adding a single code for vascular disease — which may or may not be influencing the treatment decisions by the individual’s health care provider — can increase what Medicare pays the insurance company by 45%. And because only 5% of Medicare Advantage insurers are audited annually, companies often get away with upcoding.
Medical provider groups may also use upcoding to increase profits, typically on people insured by their own Medicare Advantage plans. Richard Kronick, the former director of the federal Agency for Healthcare Research and Quality, has estimated that upcoding will increase Medicare spending by about $20 billion per year over the next decade. To put that in perspective, that overcharge could completely support current federal expenditures for biomedical research on cancer, heart disease, Alzheimer’s disease, diabetes, mental health, and childhood illnesses.
How can insurer profits be redirected from what Richard Gilfillan and Donald Berwick, former leaders of the Centers for Medicare and Medicaid Services, have labeled the “money machine,” to instead serve the health needs of Medicare beneficiaries.
First on the list is developing a scorecard that measures what truly matters to people: maintaining functional capabilities and quality of life. Many of the quality measures currently used to rate health insurers simply reflect what health care providers do, like order blood tests on a regular schedule, instead of whether the benefits of care delivered are leading to longer or better lives, fewer medical errors, or fewer preventable deaths. This is the essence of value-based care: paying health care providers on the outcomes of the patients they serve, not just what they do to their patients.
Because of Medicare Advantage upcoding abuses, new measures also need to be designed with anti-gaming provisions. Instead of rewarding insurers for adding premium-raising codes to medical records, codes should be counted only if providers are actively managing those conditions. To combat gaming schemes, Medicare will soon release a new auditing policy that will identify when insurance companies are using risk adjustment inappropriately. The audits could force companies to repay tens of millions of dollars. But the industry is prepared to fight back, as STAT reported, possibly by suing the Biden administration to block the audits.
When health insurance profits grow unchecked, less money is available for other social needs, such as food, housing, education, and clean energy, to name a few. Health care in the United States is the biggest sector in the largest economy in the history of the world. Unjustifiable upcoding inflates costs without helping patients. This beast must be tamed. Putting an end to it helps us all.
Robert M. Kaplan is a faculty member at Stanford University’s Clinical Excellence Research Center, a former associate director of the National Institutes of Health, and a former chief science officer for the Agency for Healthcare Research and Quality. Paul Tang is a primary care internist, faculty member at Stanford’s Clinical Excellence Research Center, and former medical informatics executive.
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