What is Risk Adjustment Fraud?

In 1997, Congress decided that traditional Medicare was way too expensive.  At the time, Medicare operated under a traditional fee-for-service model.  Under this model, if a doctor delivered services to Mrs. Jones, the government paid the doctor a fee for his or her services, i.e, fee-for-services. Congress thought it found a better way.  Rather than have the government pay a fee for each and every service delivered to Mrs. Jones, the government would enlist a private insurance company to insure Mrs. Jones for the entire year under a managed care model.   The goal was to let the wonders of the private marketplace work its “efficiencies” to deliver better and less expensive care to Mrs. Jones.

This system eventually evolved into the Medicare Advantage program.   All Medicare beneficiaries can now choose to receive Medicare through the fee-for-service model or the Medicare Advantage model.

Under Medicare Advantage, the government does not pay, at least directly, the doctor who takes care of Mrs. Jones.  Instead, the government pays an annual capitated rate, say $10,000, to a private insurance company to take care of Mrs. Jones for the whole year.  It’s up to the insurance company to pay all of Mrs. Jones’ bills for the year and also make a profit.

Government planners thought this program would be less expensive than fee-for-service because private insurance companies would have a financial incentive to keep Mrs. Jones healthy.   If the insurance company convinced Mrs. Jones to get regular checkups, exercise, and eat healthy, she would stay healthy and avoid chronic (expensive) medical conditions, like diabetes.  The insurance company would thereby make more money since it would get to keep more of the annual $10,000 payment as its own profit.  Everybody would win.

Has it worked?   Of course not.

The problem is greed.  In practice, the Medicare Advantage program does not create an incentive for insurance companies to keep people healthy.  To the contrary, it creates an incentive to keep people sick — or at least to keep people sick “on paper.”

This is because of risk adjustment scores.  The government does not pay the same annual capitated rate for every Medicare beneficiary.  It would not be fair to pay the same annual rate for Mrs. Jones, who plays tennis every day and eats a healthy diet, and Mrs. Smith, who is morbidly obese and suffers from diabetes and cardiovascular disease.  The two present vastly different risks to the insurance company who agrees to pay their medical bills for the year.

So Medicare has devised “risk adjustment scores.”  Every patient gets a score based on their overall medical condition and diagnoses of various diseases.  The sicker the patient, the more it will cost to take care of the patient, and therefore, the more Medicare will pay for its annual capitated rate.

In short, insurance companies get more money by taking care of sicker patients.  Better yet, they get to keep more money if they agree to take care of sicker patients who, for some reason, only incur the medical bills of healthier patients.  So, get paid to take care of Mrs. Smith, but incur the costs to take care of Mrs. Jones.  Now we’re talking.

So guess what happens?  Many insurance companies defraud the government by inflating the risk adjustment scores of patients to make them look sicker than they really are.   Much of this fraud happens through bogus diagnoses codes often referred to IDC codes or HCC codes.

In extreme cases, many healthy Medicare Advantage beneficiaries are shocked to learn they have been diagnosed with a number of severe, chronic medical conditions, even though their doctor or insurance company has never told them!

This is because the insurance company has a financial incentive to make the patients look sick “on paper.”   This is fraud.

If you are work for an insurance company or doctor’s office that has been involved in making fraudulent diagnoses in order to inflate a patient’s risk adjustment score, contact our firm for a free and confidential evaluation of your case and your options. You may be entitled to bring a qui tam whistleblower case under the False Claims Act and receive a reward for your efforts in stopping this fraud against taxpayers.