In March 2024, the Medicare Payment Advisory Commission (MedPAC) released its report to Congress (Report) that addressed, among other topics, the increasing cost of Medicare Managed Care (MA). 

The Report acknowledges that aggregate Medicare payments to MA plans have always been higher than Medicare estimates of the amount Medicare would have paid for the same beneficiaries under Fee-For-Service (FFS) Medicare. In 2024, MedPAC estimates that Medicare will spend an additional $83 billion in payments to MA plans compared to that which Medicare would have paid for those same beneficiaries if they had FFS Medicare coverage. 

Coding

In the Report, MedPAC theorizes that this increased cost may be attributed, in large part, to coding differences that result in risk scores about 18 percent higher than scores for similar FFS beneficiaries due to the higher coding intensity seen in MA plans. This may be because MA plans are paid capitated payments for each beneficiary that are adjusted based on the beneficiary’s risk score (the sicker the beneficiary, the greater the capitated payment). 

MA plan coding for beneficiary diagnosis has been under scrutiny from Medicare for the last decade, and uncorrected coding intensity alone is estimated to generate nearly $95 billion in payments to MA plans in 2023 and 2024.

Given the continued concerns with the coding system, MedPAC recommended that Congress implement a three-part approach:

  • Develop a risk adjustment model that uses two years of FFS and MA diagnostic data;
  • Exclude diagnoses that are documented only on health risk assessments; and
  • Apply a coding adjustment that fully accounts for the remaining differences in coding between FFS Medicare and MA plans.

Favorable Selection

Further, MedPAC explains that research suggests that in addition to risk scores, the spending differences between MA and FFS populations can be attributed to the fact that beneficiaries with lower actual spending relative to their risk score more often enroll in MA plans. 

While MA plans are able to provide extra benefits to MA enrollees based on this lower spending, MedPAC is concerned that taxpayers and beneficiaries are subsidizing these extra benefits, and these extra benefits are creating increased financial strain on the Medicare program.

Darci M. Smith
410-576-4153 • dsmith@gfrlaw.com