Whistleblower Alleges MA Plans Overstated Risk, Overcharged Medicare

A whistleblower action brought by a former Medicare Advantage (MA) plan executive  alleges that two MA plans in Puerto Rico systematically inflated members’ risk adjustment scores to indicate that the members were more seriously ill than they actually were. The risk adjustment factor (RAF) is a multiplier used to assure that plans are compensated for the additional financial risks  involved in undertaking to provide all needed care for chronically ill members. In the complaint, which was recently released from the mandatory seal, the relator, José Valdez, alleged that Aveta, Inc., the parent company, and its subsidiaries, MMM Healthcare, Inc. and PMC Medicare Choice, Inc., which operated the plans, used the inflated scores as an essential part of their business strategy.

The Risk Adjustment Scores

The government makes monthly capitated payments—that is, pays the plan a set amount for each member each month. The amount paid for each member is based on a risk score, a number that is supposed to reflect the risk the plan undertakes to provide all the services that the member needs, minus the beneficiary’s copayments and deductibles. The risk scores are based on patients’ medical records, which include both written descriptions and numeric codes of patients’ conditions and the services furnished. The plans use their own data to determine the RAF for each member. Unless CMS takes specific action to audit an MA plan, it does not review the underlying data, but accepts the scores assigned by the plans, and relies on the plans to disclose errors and return overpayments.

Valdez’s complaint alleges that Aveta and its affiliates targeted their marketing efforts to patients with chronic illnesses in order to maximize the capitated payments they would receive for each member. It’s interesting to note that the  risk adjustment score methodology was established in order to remove any incentives for plans to “cherry-pick” beneficiaries, that is, to target their marketing efforts toward younger, healthier beneficiaries in order to maximize profit. In a recent study of MA payments, the Center for Public Integrity (CPI) reported that former CMS Administrator Thomas Scully established generous rates for MA plans when the agency implemented changes under the Medicare Modernization Act (MMA) (P.L. 108-173) to encourage insurance companies to cover the chronically ill.  According to the study, Scully told the author, “We very intentionally tried to overpay them a little bit.”

Incentives to Inflate Scores

According to Valdez’s complaint, Aveta went beyond marketing to sicker beneficiaries and telling its investors that this strategy increased profits. It created incentives for providers to inflate the medical information in the medical status visit (MSV) reports that were used to determine members’ risk scores. In a communication to providers, the company allegedly wrote that the MSV was its primary source of “crucial information” to identify high-risk members and identify “areas of opportunity.”  It added, “Another added benefit of the MSV for the provider is the maximization of the RAF of the member.” The compensation of many providers included a share of 50 percent or more of the “surplus” that the plan earned on each of the providers’ member patients.

Response to the Risk of Audits

Valdez alleges that he repeatedly discussed the “MSV issue,” i.e., the discrepancy between the risk scores and the supporting medical records, with the Aveta’s upper management, stating that Aveta’s chief executive officer(CEO) admitted that an internal audit showed that 67 percent of the MSV forms lacked adequate support in the medical records. The liability to the government was estimated at more than $300 million. The executive team decided to develop a reserve fund in order to repay the overpayments if the federal government audited the plans. It did not ask providers to repay prior overpayments, but reduced future surplus payments in order to build the reserve fund. They also built up the reserve fund by choosing not to pay money it owed to nonparticipating providers who furnished emergency services and to withhold required rate increases from some participating providers. According to the complaint, the executive team never considered reporting or repaying the overpayment unless the plans were audited. They did, however, borrow $100 million to pay dividends to shareholders, of whom the largest was the founder and chair. Valdez objected to the dividend payment, and he was fired shortly thereafter.