qotd: More evidence of squishy risk adjustment for Medicare Advantage

The National Bureau of Economic Research
May 2015
NBER Working Paper No. 21222
Upcoding: Evidence from Medicare on Squishy Risk Adjustment
By Michael Geruso, Timothy Layton

Diagnosis-based subsidies, also known as risk adjustment, are widely
used in US health insurance markets to deal with problems of adverse
selection and cream-skimming. The widespread use of these subsidies has
generated broad policy, research, and popular interest in the idea of
upcoding — the notion that diagnosed medical conditions may reflect
behaviors of health plans and providers to game the payment system,
rather than solely characteristics of patients. We introduce a model
showing that coding differences across health plans have important
consequences for public finances and consumer choices, whether or not
such differences arise from gaming. We then develop and implement a
novel strategy for identifying coding differences across insurers in
equilibrium in the presence of selection. Empirically, we examine how
coding intensity in Medicare differs between the traditional
fee-for-service option, in which coding incentives are weak, and
Medicare Advantage, in which insurers receive diagnosis-based subsidies.
Our estimates imply that enrollees in private Medicare Advantage plans
generate 6% to 16% higher diagnosis-based risk scores than the same
enrollees would generate under fee-for-service Medicare. Consistent with
a principal-agent problem faced by insurers attempting to induce their
providers to upcode, we find that coding intensity increases with the
level of vertical integration between insurers and the physicians with
whom they contract. Absent a coding inflation correction, our findings
imply excess public payments to Medicare Advantage plans of around $10
billion annually. This differential subsidy also distorts consumers'
choices toward private Medicare plans and away from fee-for-service
Medicare.

http://www.nber.org/papers/w21222

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Social Science Research Network
January 28, 2015
Does Privatized Health Insurance Benefit Patients or Producers? Evidence
from Medicare Advantage
By Marika Cabral, Michael Geruso, and Neale Mahoney

The debate over privatizing Medicare stems from a fundamental
disagreement about whether privatization would primarily generate
consumer surplus for individuals or producer surplus for insurance
companies and health care providers. This paper investigates this
question by studying an existing form of privatized Medicare called
Medicare Advantage (MA). Using difference-in-differences variation
brought about by payment floors established by the 2000 Benefits
Improvement and Protection Act, we find that for each dollar in
increased capitation payments, MA insurers reduced premiums to
individuals by 45 cents and increased the actuarial value of benefits by
8 cents. Using administrative data on the near-universe of Medicare
beneficiaries, we show that advantageous selection into MA cannot
explain this incomplete pass-through. Instead, our evidence suggests
that insurer market power is an important determinant of the division of
surplus, with premium pass-through rates of 13% in the least competitive
markets and 74% in the markets with the most competition.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489999

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The Center for Public Integrity
May 29, 2015
McCaskill: Medicare Advantage billing fraud 'must be investigated'
By Fred Schulte

U.S. Senator Claire McCaskill wants federal officials to step up
oversight of privately-run Medicare Advantage health plans treating the
elderly, citing allegations by whistleblowers that some health plans are
overcharging the government for their services.

It is the second recent call by a U.S. Senator for enhanced scrutiny of
billing practices in the popular private health plans, which treat more
than 16 million seniors.

Last week, Senate Judiciary Committee Chairman Charles E. Grassley asked
Attorney General Loretta Lynch to tighten scrutiny of Medicare Advantage
health plans suspected of overcharging the government, saying billions
of tax dollars are at risk as the senior care program grows.

Both McCaskill, a Missouri Democrat, and Grassley, an Iowa Republican,
cited concerns over the accuracy of a billing tool called a "risk
score," which is intended to pay Medicare Advantage insurers higher
rates for taking sicker people and less for those with few medical needs.

http://www.publicintegrity.org/2015/05/29/17422/mccaskill-medicare-advantage-billing-fraud-must-be-investigated

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Comment by Don McCanne

By now there can be absolutely no lingering doubt that the Medicare
Advantage plans are ripping off the taxpayers. The NBER paper by Geruso
and Layton confirms that the "private Medicare Advantage plans generate
6% to 16% higher diagnosis-based risk scores than the same enrollees
would generate under fee-for-service Medicare."

Their paper also shows that the extra subsidy gained by upcoding
"distorts consumers' choices toward private Medicare plans and away from
fee-for-service Medicare." Also, the paper by Cabral, Geruso and Mahoney
shows that about 45 percent of the increased capitation is passed
through to the Medicare Advantage enrollees in the form of lower
premiums - the most important reason that increasing numbers of Medicare
beneficiaries are moving from the traditional Medicare program into the
private Medicare Advantage plans.

This investment of their fraudulent gains into reducing plan premiums
advances their goal of privatizing Medicare. Once they have drawn a
critical threshold of Medicare beneficiaries into their private plans,
their co-conspirators in Congress can ratchet down funding of the
traditional Medicare program, causing providers to bale out. What would
be left of the traditional Medicare program would likely be a
chronically underfunded welfare program that could be rolled into the
Medicaid program, now that Medicaid has expanded into a massive
bottom-tiered program that serves the poor.

Sen. Charles Grassley and Sen. Claire McCaskill have requested
investigation of these abuses. Of course they will be confirmed, but
what will be the response? It is likely that not much more will happen
other than an attempt made to close this loophole. But the insurers are
masters at innovation and will surely find many other loopholes through
which they can pursue their goal of complete privatization of Medicare.

Instead, we should be converting our health care financing system into a
program based on the principles of Canada's Medicare - a single payer
national health program - that is if we want equitable care for everyone.