Insurance companies that run Medicare Advantage plans were overpaid by as much as $3.1 billion in 2010, according to a report by the Government Accountability Office.

Medicare Advantage plans receive payments from Medicare for each person enrolled with them.  In Arizona, the payments start at around $800 per month per person. Medicare Advantage plans also receive additional payments for members who have health problems and cost the plan more money.  This is called “risk adjustment”.  Apparently there were some miscalculations (by the government or by the plans?) and so Medicare paid out billions of dollars in overpayments to Advantage plans in 2010.

A Bloomberg news report on the overpayments included the following paragraph:

Medicare Advantage patients often receive superior care to those in traditional Medicare, so “conclusions about whether the MA payment system appropriately pays plans should therefore not be based on GAO’s analysis,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, a Washington trade group, in an e-mail.

A false statement:

“Medicare Advantage patients often receive superior care to those in traditional Medicare, ….”

Where did that line originate? Was it the reporter or the spokesperson for the insurance trade group? There may be a few Advantage plans that provide “superior care”, but not many – and that statement is false and misleading.

Most Medicare Advantage plans are just insurance companies that pay bills.  They don’t offer any “superior care”, they just pay the doctors, hospitals, labs and other providers.  Advantage plans are known as “coordinated care plans”, but this is mainly because they have a defined network of providers and their members must get a referral from their primary care physician.  In fact, Advantage plans routinely refuse tests and services ordered by doctors because a panel of experts employed by the plan have deemed the service to be unnecessary – decisions doctors can and do dispute.

According to the Bloomberg article:

Enrollment in Advantage plans was about 11 million people in 2010, or about 24 percent of total Medicare beneficiaries, according to the Kaiser Family Foundation, a nonprofit research group in Menlo Park, California. The U.S. paid about $114 billion to Advantage plans in 2010, according to the GAO. Medicare cost an estimated $525 billion, according to the Centers for Medicare and Medicaid Services.

In Arizona, enrollment in Medicare Advantage is quite high among people covered by Medicare:  Maricopa County: 44%; Pima County: 45; Pinal county: 49%

Medicare Advantage is the privatization of Medicare. Medicare Advantage will be killed by Obamacare, which reduces payments to these private Medicare plans.  Or will it?

In actuality, insurance companies that are highly involved in Medicare Advantage did very well in 2011, as CNN recently reported.

Among the top-performing Fortune 500 stocks of 2011, three – WellCare Health Plans (WCG, Fortune 500), Humana (HUM, Fortune 500), and Centene (CNC, Fortune 500) — were health insurers with a high proportion of Medicare Advantage enrollees. WellCare’s share price has nearly doubled while Humana and Centene are up about 50%.

UnitedHealth Group (UHC) and Aetna (AET, Fortune 500), each with significant shares of Medicare Advantage patients, also inked gains of more than 35% in 2011.

WellCare’s enrollments jumped 10% in the third quarter, mostly due to an increase in Medicare Advantage members. The increase helped the firm nearly double its third-quarter profits and raise its 2012 outlook.

Humana also reported an 11% jump in third quarter revenue and boosted its 2012 earnings-per-share outlook by roughly 56% after enrollment outpaced the company’s earlier forecasts.

So what do these insurance companies and their investors know that we, the general public, don’t know?  Who would think health insurance companies would be such a good investment with Obamacare already in place in some areas (no co-pays for preventive screenings; children up to age 26 allowed to stay on their parents’ employer health insurance plans; reduced payments to Medicare Advantage) and Obamacare lurking on the horizon in others (the mandate; a limit on companies administrative costs, including profit)?

Medicare may start operating more like an insurance company by requiring prior authorization for expensive operations and procedures. Medicare has announced a test program to see how this might work, and it will focus on states where patterns of fraud and abuse are high. Good news for Arizona:  we’re not on the list!

Medicare Advantage plans, which are run by insurance companies, require doctors to get prior authorization for hospitalization (except in an emergency), operations of any kind, and many expensive procedures and tests like MRIs or CT scans. But Medicare does not operate this way, and the result is billions of dollars in payments for medical services that are not necessary.

Medicare isn’t going to require doctors to get approval before providing services, but doctors have been put on notice that their bills will be audited before they get paid. And if the auditors determine the service was unnecessary, Medicare will not pay the bill.

The full story can be found at Forbes. Here is an excerpt:

In Florida, in fact, 100% of stent, ICD, and pacemaker implantation procedures will undergo review before payment. Similar programs will take place in California, Michigan, Texas, New York, Louisiana, Illinois, Pennsylvania, Ohio, North Carolina, and Missouri, but the precise percentage and mix of cases that will undergo auditing has not yet been stated.

On November 15 the demonstration program was announced by CMS:

The Recovery Audit Prepayment Review demonstration will allow Medicare Recovery Auditors (RACs) to review claims before they are paid to ensure that the provider complied with all Medicare payment rules. The RACs will conduct prepayment reviews on certain types of claims that historically result in high rates of improper payments. These reviews will focus on seven states with high populations of fraud- and error-prone providers (FL, CA, MI, TX, NY, LA, IL) and four states with high claims volumes of short inpatient hospital stays (PA, OH, NC, MO) for a total of 11 states. This demonstration will also help lower the error rate by preventing improper payments rather than the traditional “pay and chase” methods of looking for improper payments after they have been made.