Fred Schulte, KFF Health News

Federal officials resolved more than a decade ago to crack down on whopping government overpayments to private Medicare Advantage health insurance plans, which were siphoning off billions of tax dollars every year.

But Centers for Medicare & Medicaid Services officials have yet to demand any refunds — and over the years the private insurance plans have morphed into a politically potent juggernaut that has signed up more than 33 million seniors and is aggressively lobbying to stave off cuts.

Critics have watched with alarm as the industry has managed to deflate or deflect financial penalties and steadily gain clout in Washington through political contributions; television advertising, including a 2023 Super Bowl feature; and other activities, including mobilizing seniors. There’s also a revolving door, in which senior CMS personnel have cycled out of government to take jobs tied to the Medicare Advantage industry and then returned to the agency.

Sen. Chuck Grassley (R-Iowa) said Medicare Advantage fraud “is wasting taxpayer dollars to the tune of billions.”

“The question is, what’s CMS doing about it? The agency must tighten up its controls and work with the Justice Department to prosecute and recover improper payments,” Grassley said in a statement to KFF Health News. “Clearly that’s not happening, at least to the extent it should be.”

David Lipschutz, an attorney with the Center for Medicare Advocacy, a nonprofit public interest law firm, said policymakers have an unsettling history of yielding to industry pressure. “The health plans throw a temper tantrum and then CMS will back off,” he said.

Government spending on Medicare Advantage, which is dominated by big health insurance companies, is expected to hit $462 billion this year.

New details of the government’s failure to rein in Medicare Advantage overcharges are emerging from a Department of Justice civil fraud case filed in 2017 against UnitedHealth Group, the insurer with the most Medicare Advantage enrollees. The case is pending in Los Angeles. The DOJ has accused the giant insurer of cheating Medicare out of more than $2 billion by mining patient records to find additional diagnoses that added revenue while ignoring overcharges that might have reduced bills. The company denies the allegations and has filed a motion for summary judgment.

Records from the court case are surfacing as the Medicare Advantage industry ramps up spending on lobbying and public relations campaigns to counter mounting criticism.

While critics have argued for years that the health plans cost taxpayers too much, the industry also has come under fire more recently for allegedly scrimping on vital health care, even dumping hundreds of thousands of members whose health plans proved unprofitable.

“We recognize this is a critical moment for Medicare Advantage,” said Rebecca Buck, senior vice president of communications for the Better Medicare Alliance, which styles itself as “the leading voice for Medicare Advantage.”

Buck said initiatives aimed at slashing government payments may prompt health plans to cut vital services. “Seniors are saying loud and clear: They can’t afford policies that will make their health care more expensive,” she said. “We want to make sure Washington gets the message.”

AHIP, a trade group for health insurers, also has launched a “seven-figure” campaign to promote its view that Medicare Advantage provides “better care at a lower cost,” spokesperson Chris Bond said.

Revolving Door

CMS, the Baltimore-based agency that oversees Medicare, has long felt the sting of industry pressure to slow or otherwise stymie audits and other steps to reduce and recover overpayments. These issues often attract little public notice, even though they can put billions of tax dollars at risk.

In August, KFF Health News reported how CMS officials backed off a 2014 plan to discourage the health plans from overcharging amid an industry “uproar.” The rule would have required that insurers, when combing patients’ medical records to identify underpayments, also look for overcharges. Health plans have been paid billions of dollars through the data mining, known as “chart reviews,” according to the government.

The CMS press office declined to respond to written questions posed by KFF Health News. But in a statement, it called the agency a “good steward of taxpayer dollars” and said in part: “CMS will continue to ensure that the MA program offers robust and stable options for people with Medicare while strengthening payment accuracy so that taxpayer dollars are appropriately spent.”

Court records from the UnitedHealth case show that CMS efforts to tighten oversight stalled amid years of technical protests from the industry — such as arguing that audits to uncover overpayments were flawed and unfair.

In one case, Jeffrey Grant, a CMS official who had decamped for a job supporting Medicare Advantage plans, protested the audit formula to several of his former colleagues, according to a deposition he gave in 2018.

Grant has since returned to CMS and now is deputy director for operations at the agency’s Center for Consumer Information and Insurance Oversight. He declined to comment.

At least a dozen witnesses in the UnitedHealth case and a similar DOJ civil fraud case pending against Anthem are former ranking CMS officials who departed for jobs tied to the Medicare Advantage industry.

Marilyn Tavenner is one. She led the agency in 2014 when it backed off the overpayment regulation. She left in 2015 to head industry trade group AHIP, where she made more than $4.5 million during three years at the helm, according to Internal Revenue Service filings. Tavenner, who is a witness in the UnitedHealth case, had no comment.

And in October 2015, as CMS department chiefs were batting around ideas to crack down on billing abuses, including reinstating the 2014 regulation on data mining, the agency was led by Andy Slavitt, a former executive vice president of the Optum division of UnitedHealth Group. The DOJ fraud suit focuses on Optum’s data mining program.

In the legal proceedings, Slavitt is identified as a “key custodian regarding final decision making by CMS” on Medicare Advantage.

“I don’t have any awareness of that conversation,” Slavitt told KFF Health News in an email. Slavitt, who now helps run a health care venture capital firm, said that during his CMS tenure he “was recused from all matters related to UHG.”

‘Improper’ Payments

CMS officials first laid plans to curb escalating overpayments to the insurers more than a decade ago, according to documents filed in August in the UnitedHealth case.

In a January 2012 presentation, CMS officials estimated they had made $12.4 billion worth of “improper payments” to Medicare Advantage groups in 2009, mostly because the plans failed to document that patients had the conditions the government paid them to treat, according to the court documents.

As a remedy, CMS came up with an audit program that selected 30 plans annually, taking a sample of 201 patients from each. Medical coders checked to make sure patient files properly documented health conditions for which the plans had billed.

The 2011 audits found that five major Medicare Advantage chains failed to document from 12.3% to 25.8% of diagnoses, most commonly strokes, lung conditions, and heart disease.

UnitedHealth Group, which had the lowest rate of unconfirmed diagnoses, is the only company named in the CMS documents in the case file. The identities of the four other chains are blacked out in the audit records, which are marked as “privileged and confidential.”

In a May 2016 private briefing, CMS indicated that the health plans owed from $98 million to $163 million for 2011 depending on how the overpayment estimate was extrapolated, court records show.

But CMS still hasn’t collected any money. In a surprise action in late January 2023, CMS announced that it would settle for a fraction of the estimated overpayments and not impose major financial penalties until 2018 audits, which have yet to get underway. Exactly how much plans will end up paying back is unclear.

Richard Kronick, a former federal health policy researcher and a professor at the University of California-San Diego, said CMS has largely failed to rein in billions of dollars in Medicare Advantage overpayments.

“It is reasonable to think that pressure from the industry is part of the reason that CMS has not acted more aggressively,” Kronick said.

CMS records show that officials considered strengthening the audits in 2015, including by limiting health plans from conducting “home visits” to patients to capture new diagnosis codes. That didn’t happen, for reasons that aren’t clear from the filings.

In any case, audits for 2011 through 2015 “are not yet final and are subject to change,” CMS official Steven Ferraina stated in a July court affidavit.

“It’s galling to me that they haven’t recovered more than they have,” said Edward Baker, a whistleblower attorney who has studied the issue.

“The government needs to be more aggressive in oversight and enforcement of the industry,” he said.

Senior CMS official Cheri Rice recommended in the October 2015 email thread with key staff that CMS could devote more resources to supporting whistleblowers who report overbilling and fraud.

“We think the whistleblower activity could be as effective – or even more effective – than CMS audits in getting plans to do more to prevent and identify risk adjustment overpayments,” Rice wrote.

But the handful of cases that DOJ could realistically bring against insurers cannot substitute for CMS fiscal oversight, Baker said.

“Unfortunately, that makes it appear that fraud pays,” he said.

Spending Surge

In December, a bipartisan group of four U.S. senators, including Bill Cassidy (R-La.), wrote to CMS to voice their alarm about the overpayments and other problems. “It’s unclear why CMS hasn’t taken stronger action against overpayments, despite this being a longstanding issue,” Cassidy told KFF Health News by email.

In January, Sen. Elizabeth Warren (D-Mass.) and Rep. Pramila Jayapal (D-Wash.) called for CMS to crack down, including by restricting use of chart reviews and home visits, known as health risk assessments, to increase plan revenues.

Cassidy, a physician, said that “upcoding and abuses of chart review and health risk assessments are well-known problems CMS could address immediately.”

Advocates for Medicare Advantage plans, whose more than 33 million members comprise over half of people eligible for Medicare, worry that too much focus on payment issues could harm seniors. Their research shows most seniors are happy with the care they receive and that the plans typically cost them less out-of-pocket than traditional Medicare.

Buck, the spokesperson for the Better Medicare Alliance, said that as the annual open enrollment period starts in mid-October, seniors may see “fewer benefits and fewer plan choices.”

The group has ramped up total spending in recent years to keep that from happening, IRS filings show.

In 2022, the most recent year available, the Better Medicare Alliance reported expenses of $23.1 million, including more than $14 million on advertising and promotion, while in 2023, it paid for a Super Bowl ad featuring seniors in a bowling alley and left viewers with the message: Cutting Medicare Advantage was “nuts.”

Bruce Vladeck, who ran CMS’ predecessor agency from 1993 through 1997, said that when government officials first turned to Medicare managed care groups in the 1990s, they quickly saw health plans enlist members to help press their agenda.

“That is different from most other health care provider groups that lobby,” Vladeck said. “It’s a political weapon that Medicare Advantage plans have not been at all reluctant to use.”

The Better Medicare Alliance reported lobbying on 18 bills this year and last, according to OpenSecrets. Some are specific to Medicare Advantage, such as one requiring insurers to report more detailed data about treatments and services and another to expand the benefits they can offer, while others more broadly concern health care costs and services.

Proposed reforms aside, CMS appears to believe that getting rid of health plans that allegedly rip off Medicare could leave vulnerable seniors in the lurch.

Testifying on behalf of CMS in a May 2023 deposition in the UnitedHealth Group suit, former agency official Anne Hornsby said some seniors might not “find new providers easily.” Noting UnitedHealth Group is the single biggest Medicare Advantage contractor, she said CMS “is interested in protecting the continuity of care.”

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A decade ago, federal officials drafted a plan to discourage Medicare Advantage health insurers from overcharging the government by billions of dollars — only to abruptly back off amid an “uproar” from the industry, newly released court filings show.

The Centers for Medicare & Medicaid Services published the draft regulation in January 2014. The rule would have required health plans, when examining patient’s medical records, to identify overpayments by CMS and refund them to the government.

But in May 2014, CMS dropped the idea without any public explanation. Newly released court depositions show that agency officials repeatedly cited concern about pressure from the industry.

The 2014 decision by CMS, and events related to it, are at the center of a multibillion-dollar Justice Department civil fraud case against UnitedHealth Group pending in federal court in Los Angeles.

The Justice Department alleges the giant health insurer cheated Medicare out of more than $2 billion by reviewing patients’ records to find additional diagnoses, adding revenue while ignoring overcharges that might reduce bills. The company “buried its head in the sand and did nothing but keep the money,” DOJ said in a court filing.

Medicare pays health plans higher rates for sicker patients but requires that the plans bill only for conditions that are properly documented in a patient’s medical records.

In a court filing, UnitedHealth Group denies wrongdoing and argues it shouldn’t be penalized for “failing to follow a rule that CMS considered a decade ago but declined to adopt.”

This month, the parties in the court case made public thousands of pages of depositions and other records that offer a rare glimpse inside the Medicare agency’s long-running struggle to keep the private health plans from taking taxpayers for a multibillion-dollar ride.

“It’s easy to dump on Medicare Advantage plans, but CMS made a complete boondoggle out of this,” said Richard Lieberman, a Colorado health data analytics expert.

Spokespeople for the Justice Department and CMS declined to comment for this article. In an email, UnitedHealth Group spokesperson Heather Soule said the company’s “business practices have always been transparent, lawful and compliant with CMS regulations.”

Missed Diagnoses

Medicare Advantage insurance plans have grown explosively in recent years and now enroll about 33 million members, more than half of people eligible for Medicare. Along the way, the industry has been the target of dozens of whistleblower lawsuits, government audits, and other investigations alleging the health plans often exaggerate how sick patients are to rake in undeserved Medicare payments — including by doing what are called chart reviews, intended to find allegedly missed diagnosis codes.

By 2013, CMS officials knew some Medicare health plans were hiring medical coding and analytics consultants to aggressively mine patient files — but they doubted the agency’s authority to demand that health plans also look for and delete unsupported diagnoses.

The proposed January 2014 regulation mandated that chart reviews “cannot be designed only to identify diagnoses that would trigger additional payments” to health plans.

CMS officials backed down in May 2014 because of “stakeholder concern and pushback,” Cheri Rice, then director of the CMS Medicare plan payment group, testified in a 2022 deposition made public this month. A second CMS official, Anne Hornsby, described the industry’s reaction as an “uproar.”

Exactly who made the call to withdraw the chart review proposal isn’t clear from court filings so far.

“The direction that we received was that the rule, the final rule, needed to include only those provisions that had wide, you know, widespread stakeholder support,” Rice testified.

“So we did not move forward then,” she said. “Not because we didn’t think it was the right thing to do or the right policy, but because it had mixed reactions from stakeholders.”

The CMS press office declined to make Rice available for an interview. Hornsby, who has since left the agency, declined to comment.

But Erin Fuse Brown, a professor at the Brown University School of Public Health, said the decision reflects a pattern of timid CMS oversight of the popular health plans for seniors.

“CMS saving money for taxpayers isn’t enough of a reason to face the wrath of very powerful health plans,” Fuse Brown said.

“That is extremely alarming.”

Invalid Codes

The fraud case against UnitedHealth Group, which runs the nation’s largest Medicare Advantage plan, was filed in 2011 by a former company employee. The DOJ took over the whistleblower suit in 2017.

DOJ alleges Medicare paid the insurer more than $7.2 billion from 2009 through 2016 solely based on chart reviews; the company would have received $2.1 billion less if it had deleted unsupported billing codes, the government says.

The government argues that UnitedHealth Group knew that many conditions it had billed for were not supported by medical records but chose to pocket the overpayments. For instance, 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, DOJ alleged in a 2017 filing.

In all, DOJ contends that UnitedHealth Group should have deleted more than 2 million invalid codes.

Instead, company executives signed annual statements attesting that the billing data submitted to CMS was “accurate, complete, and truthful.” Those actions violated the False Claims Act, a federal law that makes it illegal to submit bogus bills to the government, DOJ alleges.

The complex case has featured years of legal jockeying, even pitting the recollections of key CMS staff members — including several who have since departed government for jobs in the industry — against those of UnitedHealthcare executives.

‘Red Herring’

Court filings describe a 45-minute video conference arranged by then-CMS administrator Marilyn Tavenner on April 29, 2014. Tavenner testified she set up the meeting between UnitedHealth and CMS staff at the request of Larry Renfro, a senior UnitedHealth Group executive, to discuss implications of the draft rule. Neither Tavenner nor Renfro attended.

Two UnitedHealth Group executives on the call said in depositions that CMS staffers told them the company had no obligation at the time to uncover erroneous codes. One of the executives, Steve Nelson, called it a “very clear answer” to the question. Nelson has since left the company.

For their part, four of the five CMS staffers on the call said in depositions that they didn’t remember what was said. Unlike the company’s team, none of the government officials took detailed notes.

“All I can tell you is I remember feeling very uncomfortable in the meeting,” Rice said in her 2022 deposition.

Yet Rice and one other CMS staffer said they did recall reminding the executives that even without the chart review rule, the company was obligated to make a good-faith effort to bill only for verified codes — or face possible penalties under the False Claims Act. And CMS officials reinforced that view in follow-up emails, according to court filings.

DOJ called the flap over the ill-fated regulation a “red herring” in a court filing and alleges that when UnitedHealth asked for the April 2014 meeting, it knew its chart reviews had been under investigation for two years. In addition, the company was “grappling with a projected $500 million budget deficit,” according to DOJ.

Data Miners

Medicare Advantage plans defend chart reviews against criticism that they do little but artificially inflate the government’s costs.

“Chart reviews are one of many tools Medicare Advantage plans use to support patients, identify chronic conditions, and prevent those conditions from becoming more serious,” said Chris Bond, a spokesperson for AHIP, a health insurance trade group.

Whistleblowers have argued that the cottage industry of analytics firms and coders that sprang up to conduct these reviews pitched their services as a huge moneymaking exercise for health plans — and little else.

“It was never legitimate,” said William Hanagami, a California attorney who represented whistleblower James Swoben in a 2009 case that alleged chart reviews improperly inflated Medicare payments. In a 2016 decision, the 9th Circuit Court of Appeals wrote that health plans must exercise “due diligence” to ensure they submit accurate data.

Since then, other insurers have settled DOJ allegations that they billed Medicare for unconfirmed diagnoses stemming from chart reviews. In July 2023, Martin’s Point Health Plan, a Portland, Maine, insurer, paid $22,485,000 to settle whistleblower allegations that it improperly billed for conditions ranging from diabetes with complications to morbid obesity. The plan denied any liability.

A December 2019 report by the Health and Human Services Inspector General found that 99% of chart reviews added new medical diagnoses at a cost to Medicare of an estimated $6.7 billion for 2017 alone.

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.

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