Government halts plan to curb excessive Medicare Advantage billing after industry resistance

A decade ago, federal officials devised a plan to stop Medicare Advantage health insurers from overbilling the government by billions of dollars, but then abruptly backed down amid an “uproar” in the industry, according to recently released court documents.

The Centers for Medicare & Medicaid Services published a draft regulation to this effect in January 2014. The regulation would have required health insurance companies to determine any overpayments made by CMS when examining patients' medical records and to repay them to the state.

But in May 2014, CMS dropped the idea without public explanation. Recently released court documents show that agency officials repeatedly expressed concern about industry pressure.

The 2014 CMS decision and related events are at the center of a multibillion-dollar Justice Department civil fraud case against UnitedHealth Group pending in federal court in Los Angeles.

The Justice Department alleges the giant health insurer defrauded Medicare of more than $2 billion by reviewing patient records to find additional diagnoses, generating extra revenue while ignoring excessive fees that could have lowered bills. The company “buried its head in the sand and did nothing but keep the money,” the Justice Department said in a court document.

Medicare pays health insurance companies higher premiums for more seriously ill patients, but requires that insurers only bill for services that are properly documented in the patient's medical record.

In a court filing, UnitedHealth Group denies any wrongdoing and argues it should not be penalized for “failing to follow a rule that CMS considered a decade ago but then declined to implement.”

This month, the parties in the lawsuit released thousands of pages of testimony and other documents that offer a rare glimpse into the Medicare agency's long-running battle to prevent private health insurers from siphoning billions out of taxpayers' pockets.

“It's easy to criticize Medicare Advantage plans, but CMS has turned them into a total waste of money,” says Richard Lieberman, a Colorado-based health data analytics expert.

Spokespeople for the Justice Department and CMS declined to comment for this article. In an email, UnitedHealth Group spokeswoman Heather Soule said the company's “business practices have always been transparent, lawful and consistent with CMS regulations.”

Missing diagnoses

Medicare Advantage insurance plans have exploded in recent years and now have about 33 million members, more than half of all Medicare-eligible people. In the meantime, the industry has been the target of dozens of whistleblower lawsuits, government audits and other investigations alleging that insurers often exaggerate their patients' sick leave to collect unwarranted Medicare payments – including through so-called chart reviews, which are supposedly used to find overlooked diagnostic codes.

As early as 2013, CMS officials knew that some Medicare health plans were hiring medical coding and analytics consultants to conduct intensive scours of patient records, but they doubted the agency had the authority to require health plans to search for and delete unfounded diagnoses as well.

The regulation proposed in January 2014 stipulated that medical record reviews “must not be designed solely to identify diagnoses that would lead to additional payments to health insurance funds”.

CMS officials backed down in May 2014 because of “concerns and resistance from stakeholders,” Cheri Rice, then director of the CMS Medicare Plan Payment Group, testified in a 2022 testimony released this month. A second CMS official, Anne Hornsby, described the industry response as “uproar.”

It is not yet clear from the court records who exactly made the decision to withdraw the request for a review of the medical records.

“We were instructed that the final rule should contain only those provisions that had broad support among stakeholders,” Rice testified.

“That's why we didn't make any progress at the time,” she said. “Not because we didn't think it was the right thing or the right policy, but because there were mixed reactions from those involved.”

The CMS press office declined to make Rice available for an interview. Hornsby, who has since left the agency, declined to comment.

But Erin Fuse Brown, a professor at Brown University School of Public Health, said the decision reflects a pattern of timid CMS oversight of mainstream health insurance plans for seniors.

“The fact that CMS saves taxpayers money is not a sufficient reason to incur the wrath of very powerful health insurance companies,” said Fuse Brown.

“This is extremely worrying.”

Invalid codes

The fraud lawsuit against UnitedHealth Group, which operates the nation's largest Medicare Advantage plan, was filed in 2011 by a former company employee. The Justice Department took over the whistleblower lawsuit in 2017.

The Justice Department alleges that Medicare paid the insurer more than $7.2 billion from 2009 to 2016 based on medical record reviews alone. If the company had deleted unsupported billing codes, it would have received $2.1 billion less, the government says.

The government argues that UnitedHealth Group knew many of the illnesses it billed for were not supported by medical records, and yet chose to pocket the overpayments. In 2011, for example, the insurer billed Medicare nearly $28,000 for treating a patient who had cancer, heart failure and other serious health problems that were not recorded in the person's medical record, the Justice Department alleged in a 2017 filing.

In total, the Justice Department claims that UnitedHealth Group should have deleted more than 2 million invalid codes.

Instead, company executives signed annual statements certifying that the billing information submitted to CMS was “accurate, complete and truthful.” These actions violated the False Claims Act, a federal law that prohibits the submission of false invoices to the government, the Justice Department alleges.

The complex case was marked by years of legal maneuvering, during which even the memories of key CMS officials – including several who have since left government service to work in industry – clashed with those of UnitedHealthcare executives.

Diversionary tactic

Court documents describe a 45-minute video conference arranged by then-CMS Administrator Marilyn Tavenner on April 29, 2014. Tavenner testified that she arranged the meeting between UnitedHealth and CMS staff at the request of Larry Renfro, a UnitedHealth Group executive, to discuss the impact of the draft rule. Neither Tavenner nor Renfro attended.

Two UnitedHealth Group executives who participated in the call said in testimony that CMS officials told them the company was not required to disclose erroneous codes at the time. One of the executives, Steve Nelson, called it a “very clear answer” to the question. Nelson has since left the company.

Four of the five CMS employees who attended the conversation said in their testimony that they could not remember what was said. Unlike the company's team, none of the government officials took detailed notes.

“All I can tell you is that I felt very uncomfortable at the meeting,” Rice said in her 2022 testimony.

But Rice and another CMS official said they recalled reminding executives that even without the medical records review rule, the company was required to make a good faith effort to bill only for verified codes — or face penalties under the False Claims Act. And CMS officials reiterated that view in follow-up emails, court records show.

The Justice Department called the fuss over the ill-fated arrangement a “diversionary tactic” in a court filing, claiming that when UnitedHealth requested the meeting in April 2014, it knew its medical records audits had already been under investigation for two years. In addition, the company was “struggling with a projected $500 million budget deficit,” according to the Justice Department.

Data collector

Medicare Advantage plans defend medical record reviews against criticism that they do little more than artificially inflate government costs.

“Medical record review is one of many tools Medicare Advantage plans use to help patients identify chronic conditions and prevent those conditions from getting worse,” says Chris Bond, a spokesman for AHIP, an industry association for health insurance.

Whistleblowers have argued that the small industry of analytics and programming firms that has sprung up to conduct these investigations has touted their services as a huge source of money for health insurers — and little else.

“It was never lawful,” said William Hanagami, a California lawyer who represented whistleblower James Swoben in a 2009 case alleging that health insurers improperly inflated Medicare payments through medical record reviews. In a 2016 decision, the 9th Circuit Court of Appeals wrote that health insurers must exercise “due diligence” to ensure they report accurate data.

Since then, other insurers have settled Justice Department allegations that they billed Medicare for unconfirmed diagnoses that resulted from medical record reviews. In July 2023, Martin's Point Health Plan, a Portland, Maine, insurer, paid $22,485,000 to settle allegations by a whistleblower that it improperly billed for conditions ranging from diabetes with complications to morbid obesity. The plan denied all liability.

A December 2019 report by the Department of Health and Human Services' Office of Inspector General found that 99% of record reviews added new medical diagnoses, costing Medicare an estimated $6.7 billion in 2017 alone.

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