Medicare Delays a Full Crackdown on Private Health Plans

After intense lobbying by insurers, U.S. health officials say curbs aimed at overbilling by Medicare Advantage will be eased in over 3 years.

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By Reed Abelson and Margot Sanger-Katz

The Biden administration on Friday finalized new rules meant to cut down on widespread overbilling by private Medicare Advantage insurance plans, but softened the approach after intense lobbying by the industry.

Regulators are still moving forward with rules that will lower payments to insurers by billions of dollars a year. But they will phase in the changes over three years, rather than all at once, and that will lessen the immediate effects.

In the short term, private health plans will still be able to receive payments that Medicare officials do not think are appropriate. The system will eventually eliminate extra funds the plans receive for covering patients under 2,000 diagnoses, including 75 that appear to be the subject of widespread manipulation by the plans.

But the extended timetable could also mitigate concerns raised by health plans, doctors and others that the broad policy change might result in unintended consequences, such as increases in premiums or reductions in benefits for Medicare Advantage beneficiaries.

The nation’s top Medicare official acknowledged on Friday that the industry’s feedback influenced the shape of the new rules.

We were really comfortable in our policies, but we always want to hear what stakeholders have to say,” said Chiquita Brooks-LaSure, the administrator of the Centers for Medicare and Medicaid Services. She said desire for a slower policy change was “something that we really heard come through from our comments, and we wanted to be responsive.”

The new payment formula is a reaction to mounting evidence over more than a decade that private insurers have been exploiting a payment formula to extract overpayments from the federal government. Plans are eligible for extra payments for patients whose illnesses could be costlier to cover, which has encouraged many plans to go to great lengths to diagnose their customers with as many health conditions as possible. Insurers are collecting tens of billions of dollars in extra payments a year, according to various estimates.

Nearly every large insurer in the program has settled or is facing a federal fraud lawsuit for such conduct. Evidence of the overpayments has been documented by academic studies. government watchdog reports and plan audits.

Medicare Advantage now enrolls about half of all Medicare beneficiaries, and its plans are paid more than $400 billion a year. It is popular among its customers, who often enjoy lower premiums and benefits — like vision and dental services — that the basic government Medicare plan doesn’t include.

The program has also become profitable for the largest insurance companies. Recent research from the Kaiser Family Foundation found that insurers make about double the gross margins with Medicare plans that they make with their other lines of business. Humana recently announced that it would stop offering commercial insurance to focus on Medicare, which serves older and disabled Americans, and Medicaid, which mostly serves low-income populations.

The new rule will eventually eliminate the extra payments for many diagnoses that Medicare Advantage plans were commonly reporting but that Medicare data did not show were actually associated with more medical care. Those diagnosis codes included a few that private plans had specifically targeted, like diabetes “with complications” and a form of severe malnutrition that is typically seen in countries experiencing famine.

These Diagnoses Are Much More Common in Medicare Advantage Than Traditional Medicare

Medicare is proposing to remove bonus payments for patients diagnosed with these conditions.

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