Medicare costs inflated through fraud

The government frequently has a reputation of being inefficient, so one can imagine how proponents of Medicare Advantage probably pitched the idea of letting private insurance companies take over: let private industry, unshackled by government bureaucracy, innovate and find new ways of improving quality while also decreasing costs. However, KFF Health News reported on a civil fraud case against the health insurance company administering the largest Medicare Advantage plan. Although Medicare was to pay a predetermined dollar amount per patient per month (thus potentially leaving private insurance companies with extra costs if patients needed more care), it turns out that the dollar amount per patient could vary, depending on how sick the patient was. On one level, it makes sense that sicker patients will need more treatment (and therefore cost more) than healthy patients. Practically, however, this policy gave insurance companies a strong incentive to find reasons to classify their patients as sicker than average. The fraud case against this particular insurance company started in 2011 and was taken over by the Department of Justice (DOJ) in 2017. At the heart of the case is whether or not the insurance company improperly claimed that patients were sicker than they actually were. In one case, for example, "the insurer billed Medicare nearly $28,000 in 2011 to treat a patient for cancer, congestive heart failure, and other serious health problems that weren't recorded in the person's medical record." Notably, this insurer was not the only one accused of wrongdoing.

So, does Medicare Advantage save the government money? Apparently not. The Commonwealth Fund reports that "Older and more recent studies alike have largely found that Medicare Advantage plans cost the government and taxpayers more than traditional Medicare on a per beneficiary basis. In 2023, that additional cost was about 6 percent, down from a peak of 17 percent in 2009." In addition to sampling patient records for appropriateness, perhaps Medicare should consider a policy where insurers that consistently cost more than Medicare's average would either be ineligible to continue operating Medicare Advantage plans, or would need to charge its patients the difference in higher premiums.