Medicare Advantage plans for seniors dodged a major financial bullet Monday as government officials gave them a reprieve for returning hundreds of millions of dollars or more in government overpayments — some dating back a decade or more.

The health insurance industry had long feared the Centers for Medicare & Medicaid Services would demand repayment of billions of dollars in overcharges the popular health plans received as far back as 2011.

But in a surprise action, CMS announced it would require next to nothing from insurers for any excess payments they received from 2011 through 2017. CMS will not impose major penalties until audits for payment years 2018 and beyond are conducted, which have yet to be started.

While the decision could cost Medicare plans billions of dollars in the future, it will take years before any penalty comes due. And health plans will be allowed to pocket hundreds of millions of dollars in overcharges and possibly much more for audits before 2018. Exactly how much is not clear because audits as far back as 2011 have yet to be completed.

In late 2018, CMS officials said the agency would collect an estimated $650 million in overpayments from 90 Medicare Advantage audits conducted for 2011 through 2013, the most recent ones available. Some analysts calculated overpayments to plans of at least twice that much for the three-year period. CMS is now conducting audits for 2014 and 2015.

The estimate for the 2011-13 audits was based on an extrapolation of overpayments found in a sampling of patients at each health plan. In these reviews, auditors examine medical records to confirm whether patients had the diseases for which the government reimbursed health plans to treat.

Through the years, those audits — and others conducted by government watchdogs — have found that health plans often cannot document that they deserved extra payments for patients they said were sicker than average.

The decision to take earlier audit findings off the table means that CMS has spent tens of millions of dollars conducting audits as far back as 2011 — much more than the government will be able to recoup.

In 2018, CMS said it pays $54 million annually to conduct 30 of the audits. Without extrapolation for years 2011-17, CMS won’t come near to recouping that much.

CMS Deputy Administrator Dara Corrigan called the final rule a “commonsense approach to oversight.” Corrigan said she did not know how much money would go uncollected from years prior to 2018.

Health and Human Services Secretary Xavier Becerra said the rule takes “long overdue steps to move in the direction of accountability.”

“Going forward, this is good news. We should all be happy that they are doing that [extrapolation],” said former CMS official Ted Doolittle. But he added: “I do wish they were pushing back further [and extrapolating earlier years]. That would seem to be fair game,” he said.

David Lipschutz, an attorney with the Center for Medicare Advocacy, said he was still evaluating the rule, but noted: “It is our hope that CMS would use everything within their discretion to recoup overpayments made to Medicare Advantage plans.” He said that “it is unclear if they are using all of their authority.”

Mark Miller, who is the executive vice president of health care policy for Arnold Ventures and formerly worked at the Medicare Payment Advisory Commission, a congressional advisory board, said extrapolating errors found in medical coding have always been a part of government auditing. “It strikes me as ridiculous to run a sample and find an error rate and then only collect the sample error rate as opposed to what it presents to the entire population or pool of claims,” he said. (KHN receives funding support from Arnold Ventures.)

Last week, KHN released details of the 90 audits from 2011-2013, which were obtained through a Freedom of Information Act lawsuit. The audits found about $12 million in net overpayments for the care of 18,090 patients sampled for the three-year period.

In all, 71 of the 90 audits uncovered net overpayments, which topped $1,000 per patient on average in 23 audits. CMS paid the remaining plans too little on average, anywhere from $8 to $773 per patient, the records showed.

Since 2010, the federal Centers for Medicare & Medicaid services has threatened to crack down on billing abuses in the popular health plans, which now cover more than 30 million Americans. Medicare Advantage, a fast-growing alternative to original Medicare, is run primarily by major insurance companies including Humana, UnitedHealthcare, Centene, and CVS/Aetna.

But the industry has succeeded in opposing extrapolation of overpayments, even though the audit tool is widely used to recover overcharges in other parts of the Medicare program.

That has happened despite dozens of audits, investigations, and whistleblower lawsuits alleging that Medicare Advantage overcharges cost taxpayers billions of dollars a year.

Corrigan said Monday that CMS expected to collect $479 million from overpayments in 2018, the first year of extrapolation. Over the next decade, it could recoup $4.7 billion, she said.

Medicare Advantage plans also face potentially hundreds of millions of dollars in clawbacks from a set of unrelated audits conducted by the Health and Human Services inspector general.

The audits include an April 2021 review alleging that a Humana Medicare Advantage plan in Florida had overcharged the government by nearly $200 million in 2015.

Carolyn Kapustij, the Office of the Inspector General’s senior adviser for managed care, said the agency has conducted 17 such audits that found widespread payment errors — on average 69% for some medical diagnoses. In these cases, the health plans “did not have the necessary support [for these conditions] in the medical records, which has caused overpayments.”

“Although the MA organizations usually disagreed with us, they almost always had little disagreement with our finding that their diagnoses were not supported,” she said.

While CMS has taken years to conduct the Medicare Advantage audits, it also has faced criticism for permitting lengthy appeals that can drag on for years. These delays have drawn sharp criticism from the Government Accountability Office, the watchdog arm of Congress.

Leslie Gordon, an acting director of the GAO health team, said that until CMS speeds up the process, it “will fail to recover improper payments of hundreds of millions of dollars annually.”

KHN senior correspondent Phil Galewitz contributed to this report.

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.

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By Fred Schulte, Kaiser Health News
Kaiser Health News is a nonprofit news service covering health issues. It is an editorially independent program of the Kaiser Family Foundation, which is not affiliated with Kaiser Permanente.