Medicare Advantage Insurers Face Massive New Cost Curbs in Trump’s Reimbursement Plan

Editor’s Note: This story is from KFF Health News.

Medicare Advantage health plans are rejecting a federal proposal this week that would keep their reimbursement rates flat next year while making other payment changes.

But some health policy experts say the plan could help cut billions of dollars in overpayments that have been common in the system for more than a decade.

On Jan. 26, officials from the Centers for Medicare & Medicaid Services announced that they plan to increase the amount paid to health plans by less than one-tenth of a percent by 2027, much less than the industry had expected.

Some of the largest, publicly traded insurance companies, such as UnitedHealth Group and Humana, have seen their stock prices fall as a result, while industry groups have threatened that people 65 and older could see reduced service if the government doesn’t kick in more money.

In Medicare Advantage, the federal government pays private insurance companies to manage health care for people age 65 and older or with disabilities. But little attention has been paid to the conflict of standards: CMS has also proposed plans to limit the performance of so-called “chart reviews” to their clients.

These updates can lead to new medical diagnoses, sometimes including conditions that patients haven’t even asked their doctors to treat, increasing government payments to Medicare Advantage plans.

The practice has been criticized for more than a decade by government auditors who say it has caused billions of dollars in overpayments to health plans.

Earlier this month, the Justice Department announced a record $556 million settlement with nonprofit health plan Kaiser Permanente over allegations the company added nearly half a million illnesses to its Advantage patient charts from 2009 to 2018, generating nearly $1 billion in improper payments.

KP did not admit wrongdoing as part of the deal.

“I think the administration is serious about ending overpayments,” said Spencer Perlman, a health care policy analyst in Bethesda, Maryland.

Perlman said that while the Trump administration remains very supportive of Medicare Advantage, officials are “concerned” by plans that receive unfair benefits by using chart review to bill the government for medical conditions or no treatment provided.

In a news release, CMS Director Mehmet Oz said curbing the practice would ensure more accurate payments to programs while “protecting taxpayers from unnecessary spending that is not intended to address real health needs.”

“These proposed payment policies are about making sure that Medicare Advantage works better for the people it serves,” Oz said.

Richard Kronick, a former health policy researcher and professor at the University of California-San Diego, called the proposal “at least a mildly encouraging sign,” though he said he suspected health systems could eventually find a way around it.

Kronick has argued that switching seniors to Medicare Advantage plans has cost taxpayers tens of billions of dollars more than keeping them in the federally run Medicare program, due to unregulated medical coding excesses. Insurance plans have grown significantly in recent years and now enroll nearly 34 million members, or more than half of the population eligible for Medicare.

David Meyers, an associate professor at Brown University School of Public Health, called the limit proposed in the chart review “a step in the right direction.”

“I think the administration has been showing very strongly that they want to reduce inefficiencies,” he said.

The outcry from the industry, particularly directed at the proposal to hold Medicare Advantage payment levels flat, was swift and sharp.

“If finalized, this proposal could result in reduced benefits and higher costs for 35 million seniors and people with disabilities when they renew their Medicare Advantage coverage in October 2026,” said Chris Bond, a spokesman for AHIP, formerly known as America’s Health Insurance Plans.

CMS is accepting public comment on the proposal and says it will issue a final decision on payment rates and other provisions in early April.

Meyers said health plans are often forced to cut benefits if they are dissatisfied with CMS payments. But that rarely happens, he said.

He said the programs can still make money. “Many times they make a big profit, not just a profit as the shareholders expected.”

The government pays for Medicare Advantage plans to pay higher prices for sick patients. But over the past decade, a flurry of lawsuits, government audits, and other investigations have alleged that health plans exaggerate how sick their customers are by overcharging them, a tactic known in the industry as “coding.”

Many Medicare Advantage health plans employ medical coding and statistical consultants to review patients’ medical charts for new diagnoses that they then bill to the government. Medicare rules require health plans to document — and treat — all medical conditions they bill for.

Yet federal audits have shown for years that many health systems’ billing practices cannot be audited.

A December 2019 report by the inspector general of the Department of Health and Human Services found that health plans “almost always” use chart reviews to add, rather than remove, diagnoses. “More than 99 percent of the chart reviews in our review added a diagnosis,” the investigators said.

The report found that diagnoses reported only in chart reviews — not in any service records — led to an estimated $6.7 billion in payments in 2017.

This week’s proposal is not the first time CMS has tried to end chart review.

In January 2014, government officials drafted a plan to curb the practice, but they abruptly backed down a few months later amid what one federal official described as “upheaval” from the industry.

The health insurance industry has for years relied on aggressive lobbying and public relations campaigns to fight efforts to tighten overpayments or reduce taxpayer costs for Medicare Advantage.

What happens this time will say a lot about whether the Trump administration is committed to ending the controversial, long-standing payment practices in the system.

Perlman, the policy analyst, said it’s “common” for CMS to back down in the face of industry opposition, such as pausing reforms for a few years to soften the blow on health plans.

David Lipschutz, an attorney with the Center for Medicare Advocacy, a nonprofit public law firm, said finalizing the chart review proposal “would be a meaningful step to restore overpayments in Medicare Advantage plans.”

But in the past, he said, even a small change in Advantage payments has led the industry to protest that “the sky will fall because of that, and the proposal is often reduced.”

“It’s hard to say at this point how this will go,” said Lipschutz.

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