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Medicare Advantage plan “honor system” can breed fraud

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Written by Diane Archer

The federal government today pays commercial health insurance companies nearly $200 billion a year to provide Medicare benefits to the 20 million people now enrolled in Medicare Advantage plans.  How these commercial health plans spend that money is largely hidden from public view. An opinion piece in StatNews makes the case that the “honor system” in which Medicare Advantage plans operate is one that can breed fraud.

Medicare Advantage plans, which are in the business of maximizing profits, have an incentive to spend as little as possible on patient care. The federal government pays them not based on the number of services they cover but rather a fixed or capitated rate per enrollee. What the Medicare Advantage plans don’t spend on patient care they get to keep. Not surprisingly, in 2018, the US Department of Health and Human Services Office of the Inspector General found widespread delays and denials of care in the Medicare Advantage program.

To maximize profits, Medicare Advantage plans also have an incentive to claim that their patients are in poorer health than they in fact are. That drives up health care spending and hurts taxpayers. Several False Claims suits have been filed against insurers for doing just that. Recently, HealthCare Partners Holdings LLC settled a lawsuit and paid $270 million. It had been charged with overstating the health needs of its Medicare Advantage enrollees.  Another recent False Claims suit was filed against Sutter Health, a hospital system in California. It too was charged with overstating the health needs of its enrollees in order to generate higher government revenues and increase its profits.

The Centers for Medicare and Medicaid Services (CMS) estimates that as much as 10 percent of the money it pays Medicare Advantage plans–$16 billion in FY 2016–is improper. The Government Accountability Office reports that CMS is not using the appropriate tools to detect these improper payments, suggesting that overpayments to Medicare Advantage plans could be far higher.

The challenge is that CMS cannot easily detect fraud in these Medicare Advantage plans given the cloud of secrecy in which they operate. Usually, it takes a False Claims Act lawsuit by a whistleblower working at one of these companies to expose the fraud and lead the government to take action.

Here’s more from Just Care:

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