With v28, coding intensity has come down, now there is the debate on favorable selection
For years MedPAC and opponents of Medicare Advantage (MA) have been touting studies that say MA rates are entirely too high. The healthcare and mainstream press have picked up on the claims. The same is true for Capitol Hill. But at least some of the winds will be taken out of the sails of MedPAC and MA opponents due to a new risk model that has been implemented.
The realignment
Much to MA plans’ chagrin, back in 2024 the Centers for Medicare and Medicaid Services (CMS) began implementing v28 of the risk adjustment model. The model essentially reforms the risk adjustment process by changing how diagnosis codes map to risk-adjusted payments. CMS removed a large number of previously payable diagnosis codes and changed how some conditions are weighted, aiming to better reflect true health cost drivers. It had the effect of reducing the upcoding that occurs in risk adjustment.
The effect of all this is that the critics of MA will have less and less to rely on in their attacks. Because the full effect of v28 did not hit entirely until 2026, the press continues to pick up on inflated figures from prior years that continue to be cited by the critics. But more information is slowly coming out that shows the dramatic impact of v28 on overall structural overpayments.
A recent MedPAC analysis (I call MedPAC a critic for its frequent and sometimes misleading attacks on MA) said that in 2026 overpayments will amount to $76B. But here is the catch. The risk adjustment coding intensity amount has dropped from 10% after the coding intensity adjustment to just 4% in its model. An analysis by CMS of the impact of v28 puts the coding intensity overpayment at just 2%. I would note that MedPAC continues to claim in 2026 that MA is over-reimbursed by about 14% due to an over 10% beneficial selection calculation. I don’t totally reject the idea that plan design and enrollee preferences could create some beneficial selection in MA. But I think MedPAC’s assumptions along with others’ spurious analyses conflict with a good set of other data that shows MA serves low-income, social-needs populations with very complex needs and conditions – and MA plans do a better job on outcomes. And some case can be made that MA is actually the preferred enrollment place for those on fixed incomes who cannot afford expensive Medicare Supplement policies.
More changes are coming on v28. One change proposed for the 2027 payment year updates years in the model to address emerging differences between MA and traditional FFS coding. The more recent data captures the most recent trends in FFS coding and the update better maintains payment accuracy in MA. Another excludes from the risk adjustment calculation audio-only services and diagnoses that are not supported by corresponding medical encounters (e.g., manual chart reviews and health risk assessments). Together these will further reduce the coding intensity overpayment calculation.
CMS, too, has significantly committed to risk adjustment data validation (RADV) audits, which would include auditing every contract each payment year. While the agency continues on its approach, the governing rule that allows the agency to implement the audits has been tossed by a court. That includes extrapolated penalties and targeting audits to diagnosis code submissions that could have the greatest risk of abuse as well as retroactive application. It will need to refile a more reasonable rule to carry out what it wants to do.
The biggest plans are the culprits
As I said, many studies paint MA overpayments with a broad brush, saying the entire system is over-reimbursed. But a new study backs up something I have said for a long time – that a small number of larger MA plans receive a disproportionate benefit from these risk adjustment overpayment schemes by using aggressive or even fraudulent coding. The study by the Alliance of Community Health Plans (ACHP), a group that represents local and regional nonprofit payers, finds something similar to a few other studies that have zeroed in on the real culprits giving all of MA a bad name.
ACHP’s study finds that UnitedHealthcare, the biggest MA insurer, collected up to $785 more per beneficiary than local nonprofit plans in 2023, costing Medicare more than $6 billion in excess payments that year. Humana, the second-biggest MA payer, collected $423 more per beneficiary that year than if those members were in ACHP member plans, costing Medicare an additional $4 billion.
UnitedHealthcare’s average risk scores were 36.2% higher and Humana’s were 19.2% higher than nonprofit health plan members of ACHP. Earlier studies show annual overpayments for United were $14 billion in 2021.
Other studies back up the ACHP findings:
- Richard Kronick and his colleagues at the University of San Diego looked at data from 2015 to 2021 and examined the differential persistence and new incidence of risk scoring in the MA world compared with traditional fee-for-service (FFS). They say the average MA risk scores were 18.5% higher than the average in FFS in 2021. This led to an estimated $33 billion in overpayments to MA plans that year. I do not think all of these payments are suspect because the FFS world tends to “under capture” risks. But it is far lower than the $80 to $100 billon or more estimates we often hear. Indeed, the researchers admitted that undercoding in FFS could be a phenomenon. The researchers, who published their work in the Annals of Internal Medicine, did find that the suspect coding revenue varied widely by MA plan. It found that UnitedHealth Group’s MA market share was 27% in 2021, but United received 42% ($13.9 billion) of that $33 billion sum. United’s estimated per-member revenue increase of $1,863 was the biggest, with the MA industry average at $1,220 per member. See an article at the end for a link to the study. They also found that chart reviews and home-based health risk assessments (HRAs) accounted for about half of the difference in MA risk scores.
- A study published in Health Affairs found that MA plans that conduct in-home and other HRAs are adding considerably to revenue through coding diagnoses from these encounters. The study, based on 2019 data, found that when an HRA is present, risk scores increase by about 12.8 percent on average. Restricting their use for such purposes could save between $4.5 billion to $12.3 billion.
- The Health and Human Services Office of Inspector General (HHS OIG), which studied HRAs for the 2017 calendar year, determined that diagnoses reported only on HRAs (and on no other service records) that year led to an estimated $2.6 billion in additional risk-adjusted payments.
- The HHS OIG came back in late 2021 with an additional study using the same data from 2016 and combining the HRA issue with manual chart reviews. It found that 20 of the 162 MA plans drove a disproportionate share of payments related to diagnoses that were reported only on chart reviews and HRAs and no other service events. HHS OIG pegged the overall universe of potential overpayments across all the plans at $9.2 billion. HHS OIG said that the higher share of payments to the 20 plans could not be explained by their enrollment size. The companies generated payments that were more than 25 percent higher than their share of enrolled MA beneficiaries. The 20 companies drove 54% of the $9.2 billion. One company drove 40% of the total amount. That was United.
The inequity
ACHP’s CEO Ceci Connolly says big national plans have aggressively coded and created a disadvantage for smaller, community-based plans. Connolly advocates for a far simpler risk adjustment system focused on demographic data, social risk factors, and high-impact, high-cost diagnoses. The reform proposal is not a bad idea. The risk adjustment system is likely far too complex, and a trimmer list of conditions could adequately compensate plans for the risk of members they enroll.
As Connolly seemingly points out, big plans have taken advantage of the system by bringing huge resources to bear to artificially drive revenue. The changes level the playing field and have less impact (although some material hit) on plans that have acted cautiously on risk adjustment over the years. And as she notes, too, community plans are taking on more risk as national plan exits move perhaps sicker cohorts into their plans. Ongoing abuse of risk adjustment hurts them and would take away increasingly tight resources in the future.
#medicareadvantage #riskadjustment #overpayments
— Marc S. Ryan
