Two payers allegedly inflated their bids.

Earlier this month, two Independence Blue Cross (IBC) subsidiaries in Pennsylvania agreed to pay $2.25 million to resolve allegations that they defrauded the Medicare Advantage (MA) program and violated the False Claims Act by improperly inflating their bids.

Medicare Advantage, also known as Medicare Part C, is a popular alternative to traditional Medicare where beneficiaries’ healthcare is managed by a private insurer instead of the government. In turn, the government pays that private insurer premiums on behalf of Medicare beneficiaries. Premiums are determined via a method called risk adjustment, where each plan member receives a risk score, a sum of coefficients that indicate either demography (i.e. sex and age) or health status, and certain medical conditions have assigned coefficient values.

For example, the demographic factor for an 82-year-old woman living in the community (i.e. not in assisted living) is .528, if that member also has been diagnosed with diabetes and morbid obesity, coefficients of .105 and .25 would be added to her risk score, resulting in a total risk score of .883. Risk scores are normalized so that an average beneficiary has a score of 1.0.

That risk score is then multiplied by a plan’s bid to the Medicare program to determine annual premium paid by Medicare. In the previous example, if a plan bid that insuring an average beneficiary would cost it $10,000 per year, insuring that aforementioned beneficiary would yield an annual premium of $8,830 (.883×10,000).

As an essential component of billions of dollars of government spending, Medicare Advantage bids are highly regulated. Violating those regulations is what IBC is accused of. An essential component of Medicare bids are estimated future costs, and how to estimate costs is dictated, in detail, by CMS, the agency overseeing Medicare. According to a whistleblower, IBC improperly inflated estimated costs, leading to improperly inflated bids, which then caused The Centers for Medicare & Medicaid Services (CMS) to pay premiums that were too high.

The whistleblower brought this lawsuit under the False Claims Act, a law that allows private persons to sue in the name of the government, alleging that the government has been defrauded, and share in up to 30 percent of any recovery. Here, the whistleblower will receive roughly $500,000.

This case is the latest in a recent pattern of government enforcement surrounding the Medicare Advantage program, an area that the Department of Justice has indicated is a priority. But most fraud allegations have focused on insurers exaggerating the diseases state of their members, making their populations appear sicker, and hence boosting premiums. Industry giants Anthem and UnitedHealth are currently fighting such allegations. This settlement is different, and relatively unique, because it focuses on bids, an area that has not yet been explored in fraud cases.

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