Medicare fraud: Healthcare corporations profit by claiming elderly sicker than they really are

In 2022, 48% of Medicare beneficiaries were enrolled in Medicare Advantage plans instead of original Medicare, and experts predict the number will be higher for 2023. Medicare Advantage plans are offered by private insurers and bundle Medicare benefits in a way many people find appealing, but they also limit care to network providers, often require preapproval to see specialists and can saddle beneficiaries with high out-of-pocket costs for serious conditions. They've also been widely used by healthcare providers to defraud Medicare by reporting that some patients are sicker than they really are in order to bill for more services. | Pablo Martinez Monsivais / AP

PORTLAND, Maine—To avoid prosecution for Medicare fraud, Martin’s Point Health Center in Portland, Maine, has cut a deal with the U.S. Justice Department. According to a settlement announced on July 31, the healthcare provider will return $22.5 million to federal authorities while not admitting to any wrongdoing.

Revelations from whistleblower Alicia Wilbur, once a Martin’s Point manager, prompted an investigation. She will receive $3.8 million for her pains, as per the False Claims Act.

Martin’s Point received extra Medicare funding by means of exaggerating the seriousness of illnesses of older patients in its care. Other health centers and big insurance companies across the nation have done likewise, and many have been investigated and punished.

At the heart of the fraud are the Medicare Advantage (MA) plans launched by the Medicare Modernization Act (MMA) of 2003. Multi-specialty medical centers, hospital networks, and insurers made use of MA plans as they delivered care or provided health insurance. In doing so, they took advantage of a section of the MMA that authorized the release of extra Medicare funds for the care of sicker patients.

To receive funds, the insurers and healthcare centers, Martin’s Point among them, inflated their numbers of sick patients by assigning additional diagnoses to them. Old and even inconsequential diagnoses became active problems. Complicated clinical situations seemed to emerge. So-called “upcoding,” the adding-on of new diagnostic codes, tapped into extra Medicare funding. The money became general-purpose largesse.

The New York Times cites an insurance company that “mine[d] old medical records for more illnesses.” Insurers sent “doctors or nurses to patients’ homes” to find diagnoses. Medical records often lacked documentation of new diagnostic codes.

Martin’s Point, originally a public health hospital for sailors, became a group medical practice caring mostly for military families. It expanded its patient population and, after 2007, enrolled older people into its MA plan. Soon the organization was operating six multi-specialty centers in Maine and New Hampshire and caring for 60,000 MA beneficiaries.

This ostensibly non-profit organization took in revenue of over $472 million in 2020. It registered $40 million as net income and paid former CEO David Howe a salary of $937,418 in 2020.

Reporter Joe Lawlor, who did much to expose Martin’s Point scandal, cites lawyer David Lipschutz of the Connecticut-based Center for Medicare Advocacy: “These Medicare Advantage plans are getting grossly overpaid” and “incentives are in place for Medicare Advantage plans to maximize profits.”

According to one study, MA plans offered by insurance companies yield an excess of money coming in over payments going out that is “about double” the spread shown by other kinds of health insurance.

It’s no surprise. The legislation that created Medicare in 1965 tied the funding of older people’s healthcare to Social Security and payroll deductions. It created the Centers for Medicare & Medicaid Services to deliver federal funds directly to hospitals and care providers. The MMA of 2003 upset these arrangements.

Medicare funds began flowing to healthcare centers and big insurance companies. These became intermediaries as they provided care or paid for it while attending to their business interests. The door opened up to profiteering and chicanery.

The purveyors of healthcare plans or health insurance use MA plans as bait for institutional consumers looking for a bargain. They target companies, governmental agencies, and public service employers. Many of these entities, through union contracts, have to provide healthcare benefits for current and retired employees. They want to hold back on spending.

Healthcare activist and analyst Kay Tillow explains how MA plans accomplished that. They shifted Medicare benefits to the privatized Medicare Part D prescription drug plan. They also implemented the Employer Group Waiver Plans authorized by the enabling legislation. The so-called “egg-whip” (EGWP), allows MA plans to skirt traditional Medicare guidelines. They “impose conditions on the promised benefits.”

These include limiting, delaying, and/or denying care, plus subjecting decisions of physicians and other caregivers to “prior authorization.”  Approved providers are rationed through geographical limitations. And “co-payments will escalate with the gravity of the illness.” MA plans offer ways to cut back on care and, on that account, costs go down.

By moving retired former employees into the privatized MA plans, employers can register savings of 50% or more, one analyst reports. The plans appeal to working-age people nearing retirement and to the already-retired through coverage they offer for prescription drugs and often for dental, eye, and hearing care. Insurance companies and healthcare networks vigorously market their MA plans.

The packaging of MA plans for retirees with health plans for workers works to reduce employer costs. Active workers are usually healthier than their elders, so their care is less costly.  Funds pocketed from MA plans may be shifted to paying for workers’ care.

“The more the [MA] plans are overpaid by Medicare, the more generous to customers they can afford to be,” according to the New York Times. Generosity comes easily: Overpayments of Medicare funds to Medicare Advantage plans presently exceed $75 billion annually.

Conclusions are in order. Medicare’s entry into the profit-making realm undermined its goal of better access to care for older citizens. Now, it forecloses on the possibility of equitable healthcare for all. Proposals for Medicare-for-All legislation would get rid of profiteering in healthcare. Here is information about Sen. Bernie Sanders’s proposal and about one put forth by the group Physicians for a National Health Program.

To imagine that profit-making might be removed from healthcare, and from no other sector, is magical thinking. The reality is that cutbacks on capitalism are required.

The U.S. connection between paying for healthcare and employment status stymies efforts at universalizing healthcare. Plans fashioned to satisfy employee demands alone are divisive. The healthcare aspirations of other working people are unfulfilled.

Meanwhile, enrollment in the privatized MA plans has grown, now to the point of at least equaling the population of retirees depending on traditional Medicare. More federal spending on MA plans is “accelerating the rate at which the Medicare trust fund is being exhausted.” Maintaining the quality and quantity of care provided under traditional Medicare will be no easy task.

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CONTRIBUTOR

W. T. Whitney Jr.

W.T. Whitney Jr. is a political journalist whose focus is on Latin America, health care, and anti-racism. A Cuba solidarity activist, he formerly worked as a pediatrician, and lives in rural Maine.