	Background

CMS’s method of adjusting payments to MA plans to reflect beneficiary  health status has changed over time. CMS estimated that 3.41 percent of 2010 MA beneficiary risk scores was  attributable to differences in diagnostic coding between MA and Medicare  FFS since 2007. Diagnostic Coding Differences Accounted for Estimated MA Risk Score Growth of at Least $3.9 Billion in 2010, with Likely Larger Impacts in 2011 and 2012

We found that diagnostic coding differences exist between MA plans and  Medicare FFS and that these differences had a substantial effect on  payment to MA plans. We estimated that risk score growth due to coding  differences over the previous 3 years was equivalent to $3.9 billion to  $5.8 billion in payments to MA plans in 2010 before CMS’s adjustment for  coding differences. Before CMS reduced 2010 MA beneficiary risk  scores, we found that these scores were at least 4.8 percent, and  perhaps as much as 7.1 percent, higher than the risk scores likely would  have been as a result of diagnostic coding differences, that is, if the same  beneficiaries had been continuously enrolled in FFS (see fig. Furthermore, CMS also found that the impact of coding differences   While we did not have more recent data,  increased from 2004 to 2008. the trend of coding differences through 2008 suggests that the impact of  coding differences in 2011 and 2012 could be larger than in 2010. First, CMS did not include data  from 2008. CMS did not update its estimate in 2011 and 2012 with more current data,  even though data were available. By continuing to  implement the same 3.41 percent adjustment for coding differences in  2011 and 2012, we believe CMS likely substantially underestimated the  impact of coding differences in 2011 and 2012, resulting in excess  payments to MA plans. We confirmed CMS’s finding that  differences in diagnostic coding caused risk scores for MA beneficiaries  to be higher than those for comparable Medicare FFS beneficiaries in  2010. This finding underscores the importance of continuing to adjust MA  risk scores to account for coding differences and ensuring that these  adjustments are as accurate as possible. Such steps could include, for example, accounting for additional  beneficiary characteristics, including the most current data available,  identifying and accounting for all years of coding differences that could  affect the payment year for which an adjustment is made, and  incorporating the trend of the impact of coding differences on risk scores. In its comments, CMS stated that it found our methodological approach  and findings informative and suggested that we provide some additional  information about how the coding differences between MA and FFS were  calculated. CMS did not comment on our recommendation for executive action. Estimating the Impact on MA Risk Scores

To determine the extent to which differences, if any, in diagnostic coding  between MA plans and Medicare FFS affected MA risk scores in 2010,  we used Centers for Medicare & Medicaid Services (CMS) enrollment  and risk score data from 2004 to 2008, the most current data available at  the time of our analysis, and projected the estimated impact to 2010. In addition, for beneficiaries who were enrolled in Medicare FFS and  switched to MA in 2005, 2006, or 2007, we included data for 1 year of Medicare FFS enrollment immediately preceding their MA enrollment.Our MA study population included three types of beneficiaries, each of  which we analyzed separately for each period:
MA joiners—beneficiaries enrolled in Medicare FFS for the entire first  year of each period and then enrolled in MA for all of the following  year,
MA plan stayers—beneficiaries enrolled in the same MA plan for the  first and second year of the period, and
MA plan switchers—beneficiaries enrolled in one MA plan for the first  year of the period and a second MA plan in the following year. 2).
Why GAO Did This Study

The Centers for Medicare & Medicaid Services (CMS) pays plans in Medicare Advantage (MA)the private plan alternative to Medicare fee-for-service (FFS)a predetermined amount per beneficiary adjusted for health status. To make this adjustment, CMS calculates a risk score, a relative measure of expected health care costs, for each beneficiary. Risk scores should be the same among all beneficiaries with the same health conditions and demographic characteristics. Policymakers raised concerns that differences in diagnostic coding between MA plans and Medicare FFS could lead to inappropriately high MA risk scores and payments to MA plans. CMS began adjusting for coding differences in 2010. GAO (1) estimated the impact of any coding differences on MA risk scores and payments to plans in 2010 and (2) evaluated CMSs methodology for estimating the impact of these differences in 2010, 2011, and 2012. To do this, GAO compared risk score growth for MA beneficiaries with an estimate of what risk score growth would have been for those beneficiaries if they were in Medicare FFS, and evaluated CMSs methodology by assessing the data, study populations, study design, and beneficiary characteristics analyzed.

What GAO Found

GAO found that diagnostic coding differences exist between MA plans and Medicare FFS. Using data on beneficiary characteristics and regression analysis, GAO estimated that before CMSs adjustment, 2010 MA beneficiary risk scores were at least 4.8 percent, and perhaps as much as 7.1 percent, higher than they likely would have been if the same beneficiaries had been continuously enrolled in FFS. The higher risk scores were equivalent to $3.9 billion to $5.8 billion in payments to MA plans. Both GAO and CMS found that the impact of coding differences increased over time. This trend suggests that the cumulative impact of coding differences in 2011 and 2012 could be larger than in 2010.
In contrast to GAO, CMS estimated that 3.4 percent of 2010 MA beneficiary risk scores were attributable to coding differences between MA plans and Medicare FFS. CMSs adjustment for this difference avoided $2.7 billion in excess payments to MA plans. CMSs 2010 estimate differs from GAOs in that CMSs methodology did not include more current data, did not incorporate the trend of the impact of coding differences over time, and did not account for beneficiary characteristics other than age and mortality, such as sex, health status, Medicaid enrollment status, beneficiary residential location, and whether the original reason for Medicare entitlement was disability.
CMS did not update its coding adjustment estimate in 2011 and 2012 to include more current data, to account for additional years of coding differences, or to incorporate the trend of the impact of coding differences. By continuing to implement the same 3.4 percent adjustment for coding differences in 2011 and 2012, CMS likely underestimated the impact of coding differences in 2011 and 2012, resulting in excess payments to MA plans.
GAOs findings underscore the importance of both CMS continuing to adjust risk scores to account for coding differences and ensuring that those adjustments are as complete and accurate as possible.
In its comments, CMS stated that it found our findings informative. CMS did not comment on our recommendation.

What GAO Recommends

GAO recommends that CMS should improve the accuracy of its MA risk score adjustments by taking steps such as incorporating adjustments for additional beneficiary characteristics, using the most current data available, accounting for all relevant years of coding differences, and incorporating the effect of coding difference trends.