Health care update (MA)

Recent/upcoming developments… Improper upcoding by MA plans is gaining some visibility amongst regulators and policymakers.  Last week, it was reported that the DOJ had initiated a civil fraud investigation into UnitedHealth’s MA billing practices, focusing on whether the company recorded questionable diagnoses to secure higher payments for its MA plans.  And following the headlines regarding DOJ’s investigation, Senate Judiciary Chair (and former Finance Chair) Grassley (R-IA) sent a letter to UnitedHealth demanding detailed information (by March 10) related to the company’s compliance programs, training manuals, and audit results, and seeking to assess the accuracy of its diagnosis codes submitted for MA enrollees.

* As part of the DOJ probe, investigators are examining the company’s MA Intermediate Physician Incentive program and its use of software to suggest diagnoses and offered bonuses to physicians who document these conditions – which DOJ believes could be contributing to unlawful upcoding.  At this stage, it is unclear whether the probe was initiated before President Trump took office or was initiated since his inauguration.

* These developments come on the heels of yet another HHS Office of the Inspector General (OIG) report on health risk assessments (HRA) and chart reviews in the MA program.  Alongside the Government Accountability Office (GAO), OIG has issued reports on these issues in 2013, 2019, 2021, and 2024.  These reports have raised concerns that MA plans may use these assessments to inflate risk scores and increase payments by adding unsupported diagnoses to beneficiary records.  According to OIG’s most recent report from October 2024, diagnoses reported only on enrollees’ HRAs and HRA-linked chart reviews resulted in at least $7.5b in improper MA risk-adjusted payments for 2023.

Our outlook… The rash of scrutiny around upcoding in the MA program is reflective of the general populist discontent around health insurance costs and “waste, fraud, and abuse” in public payer programs.  And while Republicans remain uniformly supportive of the MA program and are reluctant to pursue policy changes that would disrupt coverage/access, their engagement on this issue highlights the fact that – at least in some corners of the party – there is some softening in that long-running support.  At this stage, we believe the upcoding issue is most likely to be addressed through litigation and oversight, which allows regulators to punish unlawful upcoding and chill conduct more broadly in the market without running into legal or political hurdles.  Regulatory action eliminating HRAs and chart reviews from MA risk adjustment calculations is possible, though potential legal challenges and access considerations diminish the likelihood of this outcome.  While legislative changes would generate savings and there is a catalyst for Congress to act (Republicans’ partisan reconciliation bill), legislation constraining upcoding appears unlikely at this stage as this issue is not well-developed in Congress and the narrow Congressional margins increase the odds of industry lobbying derailing such an effort.

* If the DOJ finds evidence that UnitedHealth submitted inflated diagnoses, it could face False Claims Act (FCA) charges, which carry treble damages and per-claim penalties of up to ~$27k.  Under the Civil Monetary Penalties Law (CMPL), UnitedHealth could also face fines for knowingly retaining improper payments, with penalties reaching $11k per violation and the potential for exclusion from federal healthcare programs in severe cases (the latter is an unlikely outcome given the reliance interests of the company’s MA beneficiaries).  For DOJ, however, the penalties/fines are of secondary importance, as the real goal of an enforcement action would be to chill conduct elsewhere in the market.

* An Obama-era proposal regarding HRAs and chart reviews is instructive as to the legal and political risks associated with regulatory changes to address upcoding.  In 2014, CMS proposed a rule that would have excluded diagnoses from HRAs and chart reviews from MA risk scores absent a documented subsequent clinical encounter justifying the diagnosis.  The proposal was made under Section 1853 of the Social Security Act, which gives CMS authority over risk adjustment methodologies, but it was ultimately abandoned due to industry lobbying and concerns over legal and operational risks.  Insurers argued that the change would reduce payments, harm beneficiaries, and violate statutory requirements for risk adjustment accuracy, while legal experts warned of potential litigation under the Administrative Procedure Act.  Rather than finalizing the rule, CMS opted to increase oversight and auditing of MA risk scores, a policy direction that has continued under subsequent administrations.

* Projections as to the financial impact of excluding both HRAs and chart review from the risk scores have not been issued by CBO, but third-party studies suggest the savings could be anywhere between $30b to $80b over 10 years.  We believe that range is likely too low, however, as (1) the third-party studies have generally relied on MA claims data that is 5-10 years outdated and (2) CBO has scored a narrower proposal that would eliminate just HRAs from the risk scores at saving $124b over 10 years.  Given the inconsistencies with these numbers, it is reasonable to assume that constraints on the use of HRAs and chart reviews in MA risk scores would generate at least $100b in federal savings over 10 years.

Watch for these developments… On the legislative front, Republicans have passed a budget resolution which will govern the reconciliation process and will now be tasked with developing the granular policies that will be included in the bill – some of which will be aimed at generating federal savings.  As that process unfolds over the coming two to three months, we are watching for indications that upcoding in the MA program is becoming a more prominent topic.  To date, it has been isolated Republican Senators (i.e., Grassley, Senate HELP Chair Cassidy (R-LA)) raising this issue, but if concerns proliferate amongst other Senators or within the House (which has been fairly silent on the matter), it will increase the risk that lawmakers more seriously consider including provisions in the reconciliation bill that aim to constrain the use of HRAs and chart reviews in setting MA risk scores.