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Risk Adjustment Fraud in Healthcare

Risk adjustment fraud occurs when insurers who contract with the government to provide coverage for beneficiaries, and others working with those insurers, seek to game the system by inflating the risk profile of patients, because inflated risk profiles mean more money for the insurers and others.


Understanding Medicare Managed Care

The federal government reimburses private health insurance companies for care provided to Medicare beneficiaries.

Medicare eligible individuals can opt into plans administered by private insurers operating under a managed care model.

These plans, offered under Medicare Part C and called Medicare Advantage (MA) plans, are a comprehensive alternative to original Medicare Part A (hospital services) and Part B (physician services).

Through one plan, Part C enrollees receive an array of benefits including primary and specialist care, hospital services, and sometimes additional benefits like dental care or prescription drugs. The underlying goal of managed care is cost reduction through coordinated care.

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The Principles of Risk Adjustment

With Part C, the government replaced its traditional fee-for-service reimbursement with capitated payment, a classic cost-saving strategy utilized by managed care plans. Under its capitation model, the Centers for Medicare and Medicaid Services (CMS) pays MA plans a per-member-per-month (PMPM) figure to provide care for Part C enrollees.

However, CMS recognizes that beneficiaries with particular conditions are more expensive to treat than healthy beneficiaries. Accordingly, CMS makes additional “risk adjustment” payments for beneficiaries treated for certain costly diseases, reducing incentives for plans to avoid enrolling sicker beneficiaries.

These risk adjustment payments are calculated based on members’ diagnoses. Plans request increased payment by submitting to CMS risk adjustment claims, which must assert all of the following: (1) that the member has the given diagnosis, appropriately documented in the medical record; (2) the diagnosis was treated by a qualified provider; (3) treatment occurred during the relevant treatment year; and (4) treatment was provided in a face-to-face visit.

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Identifying Risk Adjustment Fraud

Medicare is vulnerable to a variety of fraudulent practices aimed at improperly inflating members’ diagnostic data, and thus inappropriately increasing risk adjustment payments. Many of these practices are actionable under the False Claims Act (FCA), which creates an independent violation for each of the following:

  1. each unsupported risk adjustment claim to the federal government for payment;
  2. any false document created to support the submission of an unsupported claim; and
  3. each false claim previously submitted that the MA plan fails to correct (delete) if the plan learns, or in the exercise of reasonable diligence should have learned, was unsupported. 31 U.S.C. § 3729(a)(1)(A), (B), (G).

Both MA plans and providers face FCA liability for fraudulent risk adjustment practices. MA plans are responsible for the content of all risk adjustment data they submit to CMS, whether those codes were identified by providers or by the MA plan itself during a retrospective review of patient medical charts. Providers may be held liable for causing false risk adjustment submissions, particularly where the provider shares in the fraudulently obtained payments.

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Recurring Examples of Fraudulent Risk Adjustment Practices

Upcoding as Risk Adjustment Fraud

  • Making it up, i.e., submitting claims for payment when the patient does not have, or was not treated for the condition
  • Exaggerating the severity of the patient’s condition to submit codes that risk adjust at a higher rate: for example, substituting major depression for a depressive episode, or malnutrition for weight loss.
  • Claiming current treatment of condition rather than past history of treatment—such schemes often involve stroke or cancer diagnoses.
  • Submitting claims based on improper provider or service type (e.g., laboratory or radiology) in violation of CMS’s requirement that diagnoses codes must be supported by a record that reflects a face-to-face encounter with an eligible provider type
  • Inferring diagnoses from unacceptable medical record documentation without evidence the condition required or affected the patient’s care, treatment, or management on the visit in question, including coding from problem lists, patient history, or prescription drugs
  • Improperly linking complications or conditions without sufficient evidence the complications or additional conditions stem from the underlying diagnosis where doing so results in a higher reimbursement: for example, coding diabetes with complication where the medical record does not support linked conditions

Business Practices and Other Systemic Causes of Falsity

  • Chart Reviews/Audits: Combing through patient charts—either internally or using third party coding vendors—and performing only a “one way look” for additional risk adjusting diagnoses, rather than “looking both ways” by also reviewing for previously submitted codes that are unsupported in the chart and deleting those invalid claims
  • Home Visits: Sending medical professionals to conduct “in home assessments” or “health and well-being assessments” on targeted patients suspected to yield increased risk adjustment scores, where the visits are not designed to improve patient care or provide treatment, but rather to exclusively capture additional diagnoses
  • Attestations/Addenda/Queries: Asking providers to complete forms to create a supplementary record to support a diagnosis code that would otherwise not meet CMS requirements. This becomes problematic if the MA plan suggests new diagnoses the provider did not actually consider at the time of treatment, or if a provider signs an attestation without recalling the patient visit
  • Gain-sharing/Risk-sharing/Contingency Agreements: Incentivizing employees, vendors, or network providers with performance targets or financial rewards tied to increased risk scores
  • Filtering Logic: Failing to properly filter data used to generate risk adjustment claims, leading to submission of ineligible claims
  • Error Rates: Ignoring or failing to adequately address unacceptable error rates, such as particular codes that performed poorly in audits or providers known to code conditions at an implausible prevalence
  • Inadequate Compliance Program: Failing to implement an effective compliance program to ensure adherence to CMS requirements, detect provider upcoding, and identify and delete previously submitted false claims

The potential for risk adjustment fraud goes beyond Medicare. A majority of states contract with managed care organizations to deliver care to Medicaid beneficiaries. Some of those states’ Medicaid programs also utilize risk adjustment principles, exposing Medicaid to similar fraudulent practices.

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Additional Resources on Risk Adjustment Fraud

For more on risk adjustment fraud, see:

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