CMS Takes Aim at Medicare Advantage Fraud
At the end of January, the Centers for Medicare and Medicaid Services (CMS) sent shockwaves through the healthcare industry when it proposed a substantially smaller-than-expected increase in the rate it will pay private insurers to administer Medicare Advantage (MA) in 2027. The news stunned Wall Street and sent big insurance stocks into free fall, with UnitedHealth Group losing almost 20 percent of its value in a single day.
This is in stark contrast to last year, when the Trump administration awarded the MA insurers a rate increase of more than five percent. The proposed increase of just under one percent is largely due to to CMS’ lower-than-expected projection of traditional Medicare spending in 2027, which is a key benchmark for rates. But it was also driven by a completely unexpected move: CMS’ proposal to crack down on widespread fraud by insurers.
Understanding this proposal requires a bit of background on Medicare Advantage and vertical integration in healthcare. In MA, the government gives private insurers an annual, up-front budget for covering enrollees in their MA plans. This budget is “risk-adjusted,” meaning the government pays more to insurers who cover sicker populations. Whatever portion of the budget the insurer doesn’t spend on care, they get to keep as profit.
MA was sold to the American public as a cost-saving initiative. The thinking was that it would harness insurers’ profit motive to reduce spending on unnecessary care, in contrast to the “fee-for-service” payment model of traditional Medicare. Instead, as any causal observer of American corporate behavior could have guessed—and Economic Liberties showed in a 2024 whitepaper—insurers learned to game the system. By buying up physician groups, hospitals, and other provider-side entities, they could influence how their MA enrollees were diagnosed and risk-coded in the eyes of the government. The scale of this “upcoding” fraud today is massive. In 2024, the government overspent on MA by a staggering $88 billion versus traditional Medicare, mainly due to upcoding.
The new CMS proposal would eliminate one major form of upcoding fraud. CMS would no longer factor into the risk-adjustment process diagnoses that are made through “unlinked chart reviews,” where an insurer systematically reviews patient medical records to add diagnoses without the patient having actually seen a doctor. CMS projects that eliminating such diagnoses would save the government $7.12 billion in 2027. A 2024 Wall Street Journal exposé on chart reviews found that, in many cases, patients were diagnosed with conditions that doctors said were “anatomically impossible” for them to get; for instance, the WSJ found 66,000 patients were diagnosed with diabetic cataracts even though they had already undergone cataract surgery.
It’s a promising start—if, that is, the Trump administration actually administers its proposed Medicare Advantage financial medicine. Intense insurer lobbying can be expected up until the April deadline for CMS to finalize its proposal. But much more systemic reform of the American healthcare system is still needed. Economic Liberties has called for not just flattening MA overpayments but ending them altogether by ensuring parity with traditional Medicare spending, given that the two programs have very similar patient populations and coverage criteria. We also support ending private MA insurers’ abusive prior authorization requirements, which far outpace those in traditional Medicare and function to restrict older Americans’ access to medically-necessary care. And, of course, Breaking Up Big Medicine conglomerates outright would address the MA conflict of interest alongside a whole host of issues across healthcare.
But, again, CMS’ proposed financial surgery is yet another financial headwind against vertically-integrated insurers like UnitedHealth Group, which have come under intense government scrutiny for a range of fraudulent and abusive business practices. That scrutiny is set to intensify today, with the House Energy and Commerce Committee holding a hearing on Medicare and Medicaid fraud.
This piece originally appeared on the American Economic Liberties Project’s Substack, The Economic Populist.
The post CMS Takes Aim at Medicare Advantage Fraud appeared first on Washington Monthly.