CMS Needs to Rein in Medicare Advantage Overpayments and Heighten Oversight of Insurance Industry

Center Comments Regarding CMS’ Advanced Payment Notice and Proposed Part C & D Rule

The Center for Medicare Advocacy recently submitted comments to the Centers for Medicare & Medicaid Services (CMS) regarding their Advance payment rule (comments were due March 4; the Center’s comments are posted here, and their proposed Part C & D rule (comments were due March 7; the Center’s comments are posted here). 

As discussed further below, our comments concerning these documents focused on CMS’ failure to use their discretion to address wasteful Medicare Advantage (MA) overpayments, as well as a call for further enhancing oversight of MA plans.  First, we address MA overpayments and profits.

MA Payments and Profits

Last week, we issued a CMA Alert highlighting that most members of Congress seem to avoid tackling or even acknowledging that MA plans are overpaid.  This is despite growing evidence that the MA program is paid more than the amount that traditional Medicare would spend on the same beneficiary.  

Evidence of windfall insurance industry profit is growing, too. For example, Georgetown University, McCourt School of Public Policy, Center on Health Insurance Reforms (CHIR) recently issued a blog post titled “Where the Bread is Really Buttered: Insurers’ Q4 Earnings Reports Show Heavy Reliance on Government Business” (March 7, 2022) by Megan Houston. The post highlights that public programs are driving insurance profit:

Health insurers have weathered the pandemic ups and downs better than many industries. In their fourth quarter earnings reports, large for-profit insurers reported strong financial performance in 2021, thanks in large part to revenue from Medicare and Medicaid. For most major insurers, their profits in 2021 exceeded those in 2020, which was widely seen as an unusually profitable year, thanks to the depressed utilization of preventive and elective health care services during the height of the COVID-19 pandemic.

The CHIR blog includes a chart referencing net earnings for major health insurance companies for 2020 and 2021 (including, e.g., $17.3 billion in 2021 full year profits for UnitedHealth).  In a section titled “Insurers Fight for Market Share in Medicare Advantage”, the CHIR post states:

Medicare Advantage enrollment has experienced significant growth; enrollment in the program has more than doubled in the last ten years. Health plans are taking notice of the business opportunity. On its earnings call, UnitedHealth identified the Medicare Advantage program as a key source of their successful financial performance in 2021. However, Humana reported a loss in its fourth quarter, after reducing their expectations for Medicare Advantage membership in 2022. Humana executives largely attributed the loss to unexpected COVID-19 costs. They remain undaunted, however, and announced plans to invest $1 billion into expanding its Medicare Advantage business. […]

The CHIR post concludes:

Although the health insurance industry has generally opposed government coverage programs such as the public option, they appear to be thriving under government-run programs like Medicare and Medicaid. These two programs were the biggest source of revenue growth for insurers in 2021. As the U.S. economy navigates its way out of the pandemic with uneven results, the profitability of the health insurance industry stands out, thanks in large part to the largesse of federal and state taxpayers.

Members of Congress and administration officials are tasked with being responsible stewards of such taxpayer spending.  As discussed below, these duties appear to be largely neglected.

Advance Payment Notice

Every year, CMS releases and solicits public comment on proposed payment policy changes for Medicare Advantage and Part D drug programs for the following year. The Center’s comments to the 2023 Advance Notice (available here) expressed disappointment that CMS is not proposing to use the tools at their disposal to rein in excessive MA payment, primarily their discretion to increase the statutory minimum coding intensity adjustment, meant to adjust for differences in patterns of coding between MA and traditional Medicare.  The Center also urged CMS to substantially revise the quality bonus payment program, which analysts have found to be both flawed and ineffective in improving quality.  Finally, the Center applauded CMS for focusing on health equity by proposing to better measure social risk factors and develop a Health Equity index, but we urged CMS

to ensure that plan sponsors do not use these measures and criteria simply as a means of further increasing coding intensity and thereby further boosting payment; plans must be held accountable for actually addressing disparities. In addition, while we recognize the value of both screening for and provision of health-related social needs such as food, housing and transportation, we note that MA plans provide such services largely through the excess payment they receive in relation to spending on beneficiaries in traditional Medicare, to whom such benefits remain unavailable.  Both Congress and CMS have exacerbated the disparities between MA and traditional Medicare, and we urge CMS to do everything within its authority to reverse this trend.

The Medicare Payment Advisory Commission (MedPAC) is an independent congressional agency established by federal legislation to advise Congress on issues affecting the Medicare program. MedPAC submitted comments on the Advanced Notice (March 3, 2022) that focused on Medicare Advantage coding pattern adjustment.  After describing the purpose of risk adjusted payment based on medical condition and anticipated costs, the comments explained that in order for payment to be accurate, diagnoses must be coded with the same intensity in both traditional Medicare and MA, but “[b]ecause MA plans have significant financial incentives to code as many diagnoses as possible, coding intensity is higher in MA than in [traditional] Medicare, and payments to MA plans are thus higher than intended.”

MedPAC’s comments then discuss CMS’ mandate under federal law to study the impact of coding differences on MA payments and requirement to make a corresponding adjustment to MA risk scores.  “To date” notes MedPAC, “the Secretary has reduced MA risk scores by the minimum amount required by law and has not produced another study of the impact of coding intensity. For 2023, CMS proposes once again to apply the minimum required adjustment of 5.9 percent.” As a result, MedPAC states:

over time, coding intensity has generated tens of billions of dollars in excess payments to MA plan sponsors. The cost of those payments is borne by taxpayers, Medicare beneficiaries, and state Medicaid agencies who fund the Medicare program. We assert that the evidence documented by MedPAC and others over many years indicates that stronger action to address coding intensity is needed. […] Failure to stem the excess spending created by coding intensity further jeopardizes the Medicare program’s already

challenging fiscal sustainability. We urge the Secretary and CMS to increase the coding intensity adjustment to more fully reflect the magnitude of this excess spending [citations omitted].

MedPAC notes that “CMS’s adjustment does not fully account for coding differences, inflating payments to MA plans by more than $91 billion between 2007 and 2022” (emphasis in original).  The effects of coding intensity are exacerbated by the rapid growth in MA enrollment.  MedPAC continues:

The combination of enrollment growth and coding intensity will result in excess Medicare spending of almost $15 billion in 2022 alone. […] If CMS implements its proposal to apply the minimum 5.9 percent adjustment in 2023, we estimate that Medicare spending for coding intensity will rise by $16.2 billion, to a total of more than $107 billion since 2007. Given the financial status of the Medicare program, it is imperative that CMS act now to fully account for the impact of coding intensity (emphasis added).

MedPAC describes how coding intensity drives MA enrollment, in part, by paying for extra benefits not covered by traditional Medicare:

Although the resources devoted to coding intensity offer no societal benefit, coding intensity likely increases MA enrollment as added extra benefits influence more Medicare beneficiaries to choose to enroll in an MA plan rather than FFS Medicare. For 2022, annual extra benefits in MA average nearly $2,000 (a historic high for the sixth straight year) and account for about 15 percent of payments to MA plans. Extra benefits for reduced cost sharing may be financially beneficial to MA enrollees, but policy makers have no information about the value of the supplemental benefits that plans offer nor about beneficiaries’ use of them.

MedPAC concludes by stating that it “strongly believes that Medicare should share in the savings associated with MA”.

The Center is encouraged that not all policymakers are shying away from taking on MA overpayments.  On March 4, 2022, Representative Pramila Jayapal issued a press release regarding her comments to the Advanced Notice, titled “Jayapal Leads Members in Urging Secretary Becerra and Administrator Brooks-LaSure to Stop Medicare Advantage Profiteering, Redistribute Funds to Seniors.”  The press release quotes Center Executive Director Judy Stein:

“For too long, policymakers who praise Medicare Advantage have ignored growing evidence that MA costs more per beneficiary than traditional Medicare and is straining Medicare’s finances” said Judith Stein, Executive Director of the Center for Medicare Advocacy.  “These excessive payments to MA should end, and the funding should be used to expand critical benefits, such as dental, hearing, vision, and a cap on out-of-pocket costs for all Medicare beneficiaries.”

Proposed Part C & D Rule

Similar to the Advance Payment notice discussed above, in most years CMS issues an annual notice outlining proposed rules for Part C (Medicare Advantage) and Part D for the following calendar year.  The Center for Medicare Advocacy, joined by California Health Advocates, submitted comments to the proposed rule, available here.

As noted in the introduction to our comments, “[o]n the one hand, this proposed rule signals a renewed dedication to providing oversight of MA and Part D plans – a welcome development given the trend of regulatory rollback in recent years.  There are a number of provisions in the proposed rule that will considerably help consumers, and which the Center support.”  For example, we generally supported the proposed changes to dual eligible special needs plans (D-SNPs) aimed at improving integration of Medicare and Medicaid programs.  We also supported proposals to expand the scope of review of a plan sponsor’s past performance before approving new or expanded contracts, along with efforts to increase transparency surrounding plans’ medical loss ratio (MLR) reporting requirements.

“On the other hand,” we noted, “this proposed rule falls short of providing needed consumer protections and industry oversight, and, at best, reflects a bare minimum of effort to reimpose critical oversight.  Even those who serve the insurance industry have called these proposals ‘modest in scope’ and note that ‘[i]n the main, CMS is reversing some policies adopted in the prior Administration’” [citation omitted].  For example, we expressed disappointment that CMS did not reinstate and strengthen prior MA network adequacy requirements (while we generally supported their proposal to require adequate networks before plans offer a new product or expand their service area).  Similarly, we strongly supported reinstatement of a requirement regarding multi-language inserts in specified plan materials, and were encouraged by nominal disclosure requirements for third-party marketing organizations (TPMOs), but were troubled that CMS is not taking additional, necessary steps to rein in marketing misconduct, and has not reinstated previous consumer protections such as the clear distinction between marketing and educational events.

As we noted in a CMA Alert summarizing the proposed rule when it was first issued, and noting what was missing from the rule, “CMS does not make every effort within their authority to address the imbalance between MA and traditional Medicare, nor does it impose the greater level of oversight of private Medicare plans that is required to ensure both adequate consumer protections and safeguarding of program spending.”