The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight

KEY TAKEAWAYS

Although most 2019 Medicare Advantage (MA) encounter records contained a payment adjustment, identifying whether these adjustments are payment denials is challenging and imprecise. Requiring MA organizations (MAOs) to definitively identify payment denials on encounter records submitted for MA would enhance program oversight and help combat fraud.

WHY WE DID THIS STUDY

This issue brief summarizes results from our evaluation of MA encounter data and examines whether the lack of an indicator to identify payment denials in the data hinders efforts to combat fraud, waste, and abuse. (In this issue brief, we use the term "denied claim" to refer to a record that contains a service for which the payer denied payment to the provider.) Detailed data about the services provided to enrollees are essential for combating fraud and abuse in Medicare and Medicaid. The oversight entities tasked with safeguarding these programs rely on service-level data to detect potentially inappropriate billing patterns and investigate suspected fraud and abuse. In the MA program, the Centers for Medicare & Medicaid Services (CMS) does not require MAOs to include an indicator that identifies denied claims in their MA encounter data. Instead, MAOs must submit claim adjustment reason codes (hereafter adjustment codes) when MAOs do not pay the actual amount billed by the provider (e.g., the MAO pays a lesser amount). Adjustment codes explain reasons for any payment adjustments to the claim, including denials, reductions, or increases in payment. In contrast, for Medicare fee-for-service and Medicaid (including Medicaid managed care), CMS's records of services do include denied-claim indicators.

HOW WE DID THIS STUDY

We analyzed 2019 MA encounter records to determine the extent to which these records contained adjustment codes. We reviewed adjustment code descriptions and MAO payment amounts to identify records that may contain payment denials. We interviewed and/or administered questionnaires to CMS staff regarding the methods used to identify payment denials in the Medicare and Medicaid data. To identify how the lack of a denied-claim indicator affects their work, we interviewed and/or administered questionnaires to staff from oversight entities tasked with safeguarding MA program integrity. These oversight entities include staff from CMS's Center for Program Integrity and the Medicare Drug Integrity Contractors (MEDICs) (hereafter CMS program integrity staff); OIG investigators and data analysts; and health care fraud staff at the Department of Justice (DOJ). Finally, we also interviewed staff from CMS's Medicare Plan Payment Group (hereafter CMS's MA payment group) to determine the reasons why CMS does not require MAOs to submit a denied-claim indicator on MA encounter records.

WHAT WE FOUND

We found that adjustment codes are not a definitive method for identifying denied claims in the MA encounter data. The descriptions for some adjustment codes are too vague to clearly identify whether the MAO denied payment for a service. For example, adjustment code 261 ("The procedure or service is inconsistent with the patient's history") does not specify whether payment was denied. The descriptions for other adjustment codes seem to indicate that the MAO denied payment for the service, yet we found instances in which MAOs reported payments for these services. We also found that most 2019 MA encounter records contained at least 1 adjustment code and 55 million of these records contained codes that may indicate the denial of payments by MAOs. However, without a definitive method for identifying denied claims in the MA encounter data, the full scope of payment denials in the data is unclear.

In addition, oversight entities—including CMS program integrity staff; OIG investigators and analysts; and DOJ health care fraud staff—reported that a denied-claim indicator in the MA encounter data would improve the efficiency, scope, and accuracy of their efforts to combat fraud, waste, and abuse. Once identified, denied claims may be (1) analyzed to detect potential fraud schemes or (2) removed from analyses of inappropriate billing patterns among paid claims. Without an indicator, oversight entities must make separate requests to MAOs asking them to identify denied claims in a subset of their data, which adds time and burden to investigations. The lack of an indicator limits the scope of efforts to determine the full impact of potential fraud activities in MA. For example, without an indicator, it is challenging or impossible for oversight entities to:

• exclude denied claims and review only paid claims in the MA encounter data;
• calculate financial exposure due to fraud;
• investigate complaints that certain MAOs inappropriately deny payments to their providers; and
• examine suspected providers' billing activities across many plans.

However, for Medicare fee for-service and Medicaid, oversight entities can use the available denied claim indicators to analyze data and perform enhanced program oversight.

Despite oversight entities reporting the potential benefits of a denied-claim indicator to MA program integrity, CMS's MA payment group reported that MAOs are not required to submit a denied-claim indicator in MA because the MA payment group does not need this indicator to determine MA payments or to understand which services were provided to enrollees. CMS's MA payment group raised concerns about the potential burden on MAOs of requiring a denied-claim indicator on their encounter records. However, the private companies that cover most MA enrollees also have contracts for Medicaid managed care—where CMS requires a denied-claim indicator on encounter records-and thus have demonstrated their ability to make accommodations in their systems and report these indicators. Once any initial challenges of modifying MAOs' systems are addressed, the inclusion of a denied-claim indicator in the MA encounter data may reduce the burden on MAOs of providing denied-claim information to oversight entities for fraud analyses. Finally, CMS may eventually need a denied-claim indicator to determine MA payments if it transitions to using the MA encounter data to estimate costs and set MA payments, as it has previously stated that it will do in the future.

WHAT WE RECOMMEND

To strengthen MA program oversight and combat fraud, we recommend that CMS require MAOs to definitively indicate on MA encounter data records when they have denied payment for a service on a claim. CMS did not concur or nonconcur with our recommendation.