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Medicare Money Machine

Updated: Feb 22, 2023

The combined activity of investor purchases of Medicare Advantage [MA] focused firms has soared fueling a speculative bubble.



THE GOLD RUSH


Three reasons drive Medicare-related acquisitions.


  1. The expected doubling of Medicare spending from $800 billion in 2019 to $1.6 trillion in 2028 as Baby Boomers age.

  2. Medicare Advantage [or MA] harbors an arbitrage game where the Centers for Medicare and Medicaid Services [or CMS] consistently overpays MA Plans with no demonstratable clinical benefit to patients. CMS is responsible for reimbursements to insurers and providers.

  3. Overpayments drive exceptional profit opportunities for MA-focused firms.


MEDICARE MARKETPLACE PERVERSION


Investors are paying huge premiums for Medical Advantage [MA] firms.


Prices for business serving Medicare beneficiaries were purchased for a valuation of $4,000 to $10,500 per life. Recent valuations are priced at $50,000 to $196,000 per life. This compares to Medicare Part A and B spent per individual of $12,000 annually. Primary Care Physicians receive only 5 percent of that amount.


COMPANIES GAME THE PAYMENT SYSTEM


Medical providers get paid by CMS based on the codes on the invoice they submit. There are over 10,000 of these payment codes. Insurance companies and providers have discovered ways to increase revenue and profitability by gaming these codes. Some companies are using artificial intelligence to maximize their scores.


In addition, CMS developed a Hierarchical Condition Category (HCC) risk score in 2006 to incentivize value-based care. The higher the HCC score for an insurer, the more money they make. For each 0.1 increase in HCC, profits increase about 25 percent. HCC bonuses have been especially misused by MA firms.


OVERPAYMENTS


As risk scores go up benefits and premiums get better for plan members. Costs go up dramatically for taxpayers. The Medicare Payment Advisory Committee (MedPAC) has documented $140 billion in MA overpayments over the past 12 years. Kronick and Chua have estimated savings at $355 billion over the next eight years if just risk-score related overpayments were eliminated.


In a 2016 federal audit, CMS overpaid $16.2 billion that year based on unsupported diagnoses. That is nearly 10% of the total paid to Medicare Advantage insurers. In 2016 United Healthcare, the largest US healthcare insurer, sued the government to keep its overpayments. United Healthcare lost on appeal in 2020. The decision was confirmed by the US Supreme Court in 2021


THIS GAME IS UNSUSTAINABLE


The CMS HCC risk scoring rules and overpayments are distorting health care delivery, creating excessive costs for taxpayers and Medicare beneficiaries, and draining the Medicare Trust Fund. As the trust reserve depletes, leadership in Washington can fix this leak with a stroke of a pen. So far, there has been silence.


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