CMS’s Adjustment for Coding Differences for 2010 through 2012 Was Too Low, Resulting in Estimated Excess Payments to MA Plans of at Least $3.2 Billion

CMS’s risk score adjustment for diagnostic coding differences for 2010  through 2012 was too low. Specifically, we estimated that the cumulative  impact of coding differences on risk scores increased from 2010 through  2012 and was greater than CMS’s risk score adjustment of 3.4 percent for  each of the 3 years. In updating our analysis from the January 2012  report, we estimated that cumulative risk scores in 2010 were 4.2 percent  higher than they likely would have been if the same beneficiaries had  been enrolled continuously in FFS. Using the methodology described  earlier, we estimated that differences in diagnostic coding resulted in  2011 risk scores that were 4.6 to 5.3 percent higher than they likely would  have been if the same beneficiaries had been continuously enrolled in  FFS. This upward trend continued for 2012, with estimated risk scores   4.9 to 6.4 percent higher (see fig. Because CMS’s adjustment to risk scores for 2010 through 2012 to  account for diagnostic coding differences was too low, we estimated that  MA plans received excess payments of between $3.2 billion and   $5.1 billion over the 3-year period. CMS’s annual 3.4 percent reduction in  risk scores is equivalent to reducing total payments to MA plans by an  estimated $2.8 billion in 2010, $3.0 billion in 2011 and $3.2 billion in 2012. According to our estimates, the amount of the excess payments to MA  plans after accounting for CMS’s adjustments was $0.6 billion in 2010,  $1.1 billion to $1.6 billion in 2011, and $1.5 billion to $2.9 billion in 2012. 2.) CMS Did Not Change Its Risk Score Adjustment Methodology for 2013, but May Revisit It in Future Years

According to CMS officials, the agency used the same methodology to  determine the 2013 risk score adjustment as it used in 2011 and 2012,  resulting in a risk score adjustment of 3.4 percent for 2013. To conduct its data- based analysis, CMS officials reported that they used the same  methodology they used to calculate the 3.4 percent adjustment for 2010,  but incorporated more recent data. In addition to the results of their  data-based analysis, CMS officials told us that they took into account  other factors when determining the 2013 risk score adjustment, such as  payment changes made to the MA program under the Patient Protection  and Affordable Care Act, the stability of the MA program, and the  maintenance of benefits for seniors. However, the express purpose of the  requirements to conduct and incorporate a data-based analysis of coding  differences into the risk scores is to ensure payment accuracy. The  statute does not provide for factors other than the results of the analysis  to be incorporated into the adjustment, suggesting that accuracy would be  achieved through the incorporation of these analytical results by  themselves. CMS officials did not identify the specific source of  their authority to consider factors other than the required data-based  analysis when determining the adjustment amount, but stated that they  believed that there was policy discretion with respect to the most  appropriate adjustment factor for the payment year. While CMS did not  change its risk score adjustment methodology for 2013, agency officials  said they may revisit their methodology for future years. In our January 2012  report, we recommended that CMS take steps to improve the accuracy of  the adjustment to account for excess payments due to differences in  diagnostic coding. Agency Comments

We provided a draft of this report to CMS for comment. Estimating the Impact of Coding Differences 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,  2011, and 2012, we compared actual risk score growth for beneficiaries in  our MA study population with the estimated risk score growth these  beneficiaries would have had if they had been enrolled in Medicare FFS. To do these analyses,  we used Centers for Medicare & Medicaid Services (CMS) enrollment  and risk score data from 2004 through 2011. We used these data to calculate total risk-adjusted  payments for each MA plan before and after applying a coding  adjustment, and then used the differences between these payment levels  to estimate the percentage reduction in total projected payments to MA  plans resulting from adjustments for coding differences in 2010, 2011,  and 2012.associated with each adjustment to the estimated total payments to MA  plans—$114.8 billion in 2010, $122.9 billion in 2011, and $133.5 billion in  2012—and accounted for reduced Medicare Part B premium payments   Then we applied the percentage reduction in payments  received by CMS, which offset the reduction in MA payments (see   table 1).
Why GAO Did This Study

CMS pays plans in MA--the private plan alternative to 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 for each beneficiary. Risk scores should be the same among all beneficiaries with the same health conditions and demographic characteristics. Differences in diagnostic coding between MA plans and Medicare FFS led to inappropriately high MA risk scores and payments to MA plans, and CMS adjusted for coding differences in 2010. In January 2012, GAO reported that CMS's adjustments to risk scores did not sufficiently correct for coding differences, resulting in excess payments to MA plans. Since completing the analysis for the January 2012 report, risk score data for two additional years have become available. GAO (1) determined the extent to which differences, if any, in diagnostic coding between MA plans and Medicare FFS affected MA risk scores and payments to MA plans in 2010, 2011, and 2012; and (2) identified what changes, if any, CMS made to its risk score adjustment methodology for 2013 and intends to make for future years. 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 for 2010 and projected the growth to 2011 and 2012, and determined if there were changes to CMS's methodology by reviewing agency documentation and interviewing agency officials.

What GAO Found

GAO found that the cumulative impact of coding differences on risk scores increased from 2010 through 2012 and was greater than the Centers for Medicare & Medicaid Services' (CMS) risk score adjustment of 3.4 percent for each of the 3 years. In updating the analysis from its January 2012 report, GAO estimated that cumulative Medicare Advantage (MA) risk scores in 2010 were 4.2 percent higher than they likely would have been if the same beneficiaries had been enrolled continuously in Medicare fee-for-service (FFS). For 2011, GAO estimated that differences in diagnostic coding resulted in risk scores that were 4.6 to 5.3 percent higher than they likely would have been if the same beneficiaries had been continuously enrolled in FFS. This upward trend continued for 2012, with estimated risk scores 4.9 to 6.4 percent higher.
CMS's adjustment to risk scores for 2010 through 2012 to account for diagnostic coding differences was too low, resulting in estimated excess payments to MA plans of at least $3.2 billion. CMS's annual 3.4 percent reduction in risk scores is equivalent to $2.8 billion in 2010, $3.0 billion in 2011 and $3.2 billion in 2012. According to GAO's estimates, the amount of the excess payments to MA plans after accounting for CMS's adjustments was $0.6 billion in 2010, between $1.1 billion and $1.6 billion in 2011, and between $1.5 billion and $2.9 billion in 2012. Cumulatively across the 3 years, this equals excess payments of between $3.2 billion and $5.1 billion.
For 2013, CMS continues to use the risk score adjustment of 3.4 percent it used in 2010, 2011, and 2012. To conduct its data-based analysis, CMS officials reported that they used the same methodology used in 2010, but they incorporated more recent data. CMS officials told us that, in addition to the results of the data analysis, they incorporated additional factors such as recent payment changes made to the MA program under the Patient Protection and Affordable Care Act and the maintenance of benefits for seniors. The Social Security Act does not prescribe CMS's methodology for adjusting for differences in diagnostic coding. However, the express purpose of the requirements to conduct and incorporate into the risk scores a data-based analysis of coding differences is to ensure payment accuracy. The act does not provide for factors other than the results of the analysis to be incorporated into the adjustment, suggesting that accuracy would be ensured solely through the incorporation of analytical results. CMS officials stated that they believed there was policy discretion with respect to the most appropriate adjustment factor but did not identify the specific source of their authority to consider factors other than the required data analysis when determining the adjustment amount. While CMS did not change its risk score adjustment methodology for 2013, agency officials said they may revisit their methodology for future years.
GAO's findings underscore the importance for CMS to implement the recommendation from GAO's January 2012 report that the agency improve the accuracy of its MA risk score adjustments by taking steps such as using the most current data available and incorporating adjustments for additional beneficiary characteristics.
CMS reviewed a draft of this report and stated that it had no comments.