Unbiased Analysis of Today's Healthcare Issues

Medicare Advantage and Upcoding

Written By: Jason Shafrin - Feb• 06•17

Medicare’s cost are growing due to an aging population, technological advances, and other factors.  One of those factors may be upcoding that is occurring among Medicare Advantage plans.  Rick Kronick writes in Health Affairs that:

Over the past decade, the average risk score for Medicare Advantage (MA) enrollees has risen steadily relative to that for fee-for-service Medicare beneficiaries, by approximately 1.5 percent per year. The Centers for Medicare and Medicaid Services (CMS) uses patient demographic and diagnostic information to calculate a risk score for each beneficiary, and these risk scores are used to determine payment to MA plans. The increase in relative MA risk scores is largely the result of successful efforts by MA plans to identify additional diagnoses, also known as coding intensity, and not of changes in enrollees’ true health. In this article I estimate the effects of coding intensity on Medicare spending over the next decade. Under the moderately conservative assumption that coding intensity will decelerate, Medicare expenditures are expected to increase by approximately $200 billion.

How does Dr. Kronick propose to fix this issue?

The problem could be largely solved if CMS adjusted for coding intensity using the principle that MA beneficiaries are no healthier and no sicker than demographically similar fee-for-service Medicare beneficiaries, returning to the budget-neutrality approach that was introduced in 2004 and later abandoned.

This approach is clearly not the theoretically correct answer, but could be a practical solution.  It is very unlikely that MA beneficiaries are “no healthier and no sicker” then demographically similar fee-for-service beneficiaries.  A first-best solution clearly would aim to accurately capture these differences and use risk adjustment to ensure reimbursement is tied to disease severity.

However, in a world with up-coding, coding accuracy may vary systematically between Medicare FFS and MA as only for the later does reimbursement depend on patient severity.  In other words, in the MA case, disease severity is not an exogenous factor.

It is likely the case that MA patients are in general healthier than patients in FFS Medicare.  Thus, Kronick’s approach would be conservative (from the perspective of MA plans) since he would set reimbursement at parity.

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