Risk Adjustment fraud is a major problem estimated to cost Medicare billions of dollars per year. Here is how it works. Medicare pays Medicare Advantage plans a “capitated” rate per insured. That is, they pay a flat rate per covered person per month. However, to compensate plans for the fact that some insureds are at a higher risk for expensive treatment, Medicare allows for higher, risk adjusted, payments for certain insureds. The risk level is partially determined by the ICD-9 diagnosis codes healthcare providers use in evaluating patients. Sometimes HMOs will manipulate the codes to make a patient appear to be more sick and a higher risk than they really are, thereby collecting higher payments from Medicare than they earned.
A recent example of this is U.S. ex rel. Sewell v. Freedom Health, Inc., et al., No. 8:09-cv-1625 (M.D. Fla.). The case settled for $32.5 million. According to the complaint, the government alleged that Freedom Health submitted or caused others to submit unsupported diagnosis codes to CMS, which resulted in inflated reimbursements from 2008 to 2013 in connection with two of their Medicare Advantage plans operating in Florida. It also alleged that Freedom Health made material misrepresentations to CMS regarding the scope and content of its network of providers (physicians, specialists and hospitals) in its 2008 application to CMS to expand in 2009 into new counties in Florida and in other states.
Some hospitals and other medical facilities appear to game the system in a similar manner. In this context, it’s typically referred to as “coding creep” or “upcoding.” Here, medical providers are reimbursed different amounts by Medicare based on the complexity of the patient’s visit, from levels 1 to 5. For example, a level 4 visit can be reimbursed at almost 4 times the rate of a level 2 visit. Therefore, providers have an incentive to exaggerate the complexity of a visit. To make matters worse, some hospitals provide bonuses to staff doctors partially based on the average complexity of their visits. The more complex a visit, the more RVUs (Relative Value Units) a doctor can accrue towards a bonus. The hospitals sometimes assist doctors to make sure visits are “properly” coded to maximize reimbursement. Given the incentives, it’s not surprising that sometimes creative coding crosses the line into fraud.
If you have information leading to a potential case involving any of these practices, we would love to hear from you.
