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MedPac was Extremely and Clearly Wrong on the 2023 UpCoding Information for Medicare Advantage


August 14, 2023


MedPac just did their annual report on Medicare Advantage. They claimed in that report that Medicare Advantage was upcoding information about patients that fed the coding and risk determination system, and they concluded and stated in their official report for 2023 that Medicare Advantage was clearly overpaid by Medicare as the result of that coding approach.

That statement and that conclusion were very definitively and provably wrong.

In reaching that conclusion, MedPac completely ignored, avoided, ducked, overlooked and didn’t reference, note, describe, or mention in any way the actual and official May 31, CMS 2024 Medicare Advantage and Part D Rate Announcement for 2024 that proved their accusations and their numbers to be wrong.

That official announcement by CMS on May 31 definitely set the Medicare Advantage actual risk level adjustment for the year at 4.44 percent.

CMS also said that the expected revenue increases for the Medicare Advantage plans would be 3.32 percent for that year and not the 12 percent payment overage that the MedPac report projected in their report.

Twelve percent in the MedPac report is a much higher number than the actual 4.44 percent in risk levels and the 3.32 percent increase in revenue for the plans that CMS decided to pay.

Those numbers in that CMS payment determination show and prove that the accusations in the MedPac report about plan upcoding creating major overpayments are both wrong and completely irrelevant. They’re completely irrelevant, because even if the plans were running any upcoding processes that MedPac accused them of doing, the numbers that would’ve been created by their upcoding efforts wouldn’t have been relevant to the actual process that’s being used to set the payment levels for the plans.

The actual numbers that affect the payments for Medicare Advantage have been locked into place and upcoding was not part of the process and of the current cash flow for the plans despite the clear and repeated MedPac warnings, accusations, and suppositions.

We know what the actual numbers will be for 2024.

The MedPac report owed the country a clear and accurate description of those payment numbers for Medicare Advantage plans because they had them in hand before they wrote their report accusing the plans of being over paid.

The MedPac accusations are wrong. They’re very different than those actual numbers. Their accusations and their functional statements in their reports and at their public meetings about excessive costs are also clearly and completely irrelevant given the way we’re now actually paying the Medicare Advantage plans — and given the fact that we now know the payment levels will be for 2024 and it is a wonderful number for Medicare.

The country and the Congress both deserve to know why MedPac wasted our time and why they felt the need to increase our concern levels about Medicare payments with multiple alarming pages in their report that are clearly and absolutely incorrect and irrelevant.

The CMS decision about the 2024 numbers that Medicare Advantage will be paid was a very public document.

There’s no possible way that MedPac didn’t know that their clear and direct warnings about 6 percent risk-level increases for the plans and functional 12 percent overpayments from CMS weren’t possible at any level.

Those MedPac numbers, that they released to the world and then publicized, were completely wrong, inaccurate, incorrect, misleading, untrue and even functionally impossible for the plans — based on the fact that CMS had decided on the real numbers in each of those areas and had released them to everyone on May 31.

MedPac just included a coding intensity report in their quarterly meeting and talked about it for over an hour as a key part of their quarterly report. They showed a couple of actuarial reports about coding issues where the plans have much more complete data than fee-for-service Medicare providers, and they concluded for the world that Medicare Advantage plans currently have an 11.1 percent coding intensity level in their reports.

They made that 11.1 percent coding intensity a major issue, and they said that is damaging Medicare.

What is true is that the plans do have much better data than fee-for-service Medicare, because they use it for care enhancement and support, and it’s a major reason why the plans have about 40 percent fewer hospital days for their congestive heart failure patients and 60 percent fewer people with massive diabetic eye difficulties.

That’s true.

What is not true is that that 11.1 coding intensity factor costs money to Medicare.

The plans are paid a capitation, not a fee. The capitation is based on the average cost of care for Medicare in every county. MedPac admitted in their most recent report that Medicare Advantage plans bid about 15 percent lower costs than Medicare to set up their payment levels. They also said that Medicare Advantage buys the basic Medicare benefit set for about 17 percent less than fee-for-service Medicare.

That’s why Medicare Advantage makes money every month now for Medicare.

Even if there is an 11 percent coding intensity number, that higher possible payment level is completely wiped out by the plans bidding 17 percent lower.

Seventeen percent is more money than 11 percent.

The MedPac people always forget to mention in their reports that the plans are paid actual dollars for each patient, and the plans actually don’t make their money from coding intensity because the discounts far exceed their coding intensity estimates.

The Medicare economic situation is based on dollars — not codes.

Medicare Advantage plans bid 17 percent less and still manage to create a surplus each month, because the care in the plans is so much better and costs less.

If you look beyond the major errors about the payment levels in the MedPac report and look at their description of the program, the current Medicare Advantage report from MedPac does have some accurate pieces that should be known and understood. The significantly lower costs for the plans that result from the bidding process are included in the report, and they describe that those bids create surpluses for the plans.


The report points out clearly that the Medicare Advantage plans all create bids that are based on the average cost of fee-for-service Medicare in every county, and they acknowledge in the MedPac report that the Medicare Advantage bids currently average 17 percent lower costs than the fee-for-service Medicare average costs in every county.

Those lower bids by the plans are very visible and very real, and MedPac mentioned them in their report.

The lower bids by the plans are a much better use of the Medicare dollar.

The plans bid that lower amount in every county and then add up the total cost of care delivered to their members to see if there’s a surplus (or a loss) compared to traditional Medicare costs.

If the cost of care for the plans is lower than the capitation level they bid, then that creates a surplus for the plans.

The plans are required to use that surplus to increase benefits or reduce costs — or deliver additional care to the members.

Surpluses happen for the plans in that cash flow. Medicare saves money each month on the initial discounted bids and then there’s a second line of benefit for members and for the country that happens when the plans turn the surpluses that still result from that lower cash flow into additional benefits that are significantly better than the traditional Medicare benefit set.

That cost level for the plans that runs below fee-for-service Medicare costs happens for every plan and MedPac admits that in their report.

The current MedPac report also does describe the surpluses that result from those lower costs. In fact, the report says that the plan surpluses are now at an all-time high level. They currently run at more than $200 every month for every member.

The plans offer vision, hearing, and dental benefits along with a wide range of other services that traditional Medicare does not offer. Traditional Medicare has a fairly weak benefit level, and the average fee-for-service enrollee now has out-of-pocket costs each year that exceed $5000.

The plans take that capitation based on the average cost of fee-for-service Medicare in every county, and the plans provide better care that costs less.

Some of the plans take their monthly surplus and they use it to buy Medicare Part D drug coverage for their members, instead of the members having to pay that Medicare Part D premium themselves.

The plans are all active participants in the Part D program, and they all have care plans that include prescription drugs. It’s a good financial fit when those coverages are linked for the members.

That purchase of Part D coverage for those members by the plans doesn’t increase the total cost of the Medicare program because the plans do it from their surpluses. The bids that create their cash flow are actually less than Medicare would’ve spent on those enrollees if they hadn’t enrolled in the plans.


That much better use of the Medicare dollar by the plans makes those additional benefits that help raise the inferior fee-for-service benefit package up to more adequate levels is clearly a major asset for the country and for those members.

The plans bid below fee-for-service Medicare costs and offer discounted bids because they deliver much better care.

The low-income Medicare patients in many of our communities have some of the highest blindness levels in the world. The Medicare Advantage plan quality program knows that diabetic blindness can be reduced by over 60 percent just by managing the blood sugar of the patients.

The very first quality goal that was created for the plans is to manage blood sugar for diabetic patients. That was done both to improve care and reduce costs for diabetic patients. The plans all build their care delivery with those quality goals in mind — and we have now reached the point where almost 90 percent of the plans are doing very well on their basic five-star quality goals and are earning four or five stars for their efforts.

The vast majority of academic healthcare economists who write about Medicare Advantage completely miss the economic asset created by better care.

The money saved by not having to treat blindness in those diabetic patients creates the surplus and the profit that the plans use to pay for eye glass benefits for their members.

It’s a much better use of the Medicare dollar.

The plans all know that you can reduce the number of congestive heart failure hospitalizations and crisis events by having care plans and care teams for the congestive heart failure patients. Lives are both better and longer for patients who don’t need to go through those terrible, painful, and sometimes-terrifying congestive heart failure crises, and the plans save $40,000 on not having those admissions.

The plans have lower bids because of better care.

The MedPac report, however, completely avoids pointing out any of that information. The MedPac report follows their usual pattern and doesn’t mention better care at any point. That’s a major flaw in their thought process and analysis.

The report for 2023 actually says that the plans have lower bids because they upcode their data about patient care health status, and that higher risk level reported for patients increases the payments made to plans and allows the plans to build their surpluses by using that higher level of money as their source of revenue.

There are a number of other Medicare Advantage critics, who write for Health Affairs, who make similar accusations in that setting with no additional data to show any actual use of that data for those reasons using any of the actual payment approaches used by CMS to pay the plans.

MedPac does a massive disservice to the Congress in their reporting by continuing to say that the Medicare Advantage surpluses result from coding deficiencies and not from care delivery, and by not mentioning in any of those pieces that the total costs of Medicare decrease when the plans improve care.

MedPac contends and says more than once that the extent of the upcoding by the plans is so extreme that it takes what appears to be the 17 percent lower cost for the plans in every county every month and inflates it to the point where MedPac says that the plan overpayments, in total, now exceed 6 percent.

It’s very hard to explain with real numbers how it’s possible to take a 17 percent lower cost per member and turn it into a 12 percent overpayment by changing some codes for the members.

They never explain how that can happen with any flow of cash described in their report. They say they strongly believe that overpayment to be true and they conclude in their advice to the country that the obvious savings that exist every month for the plans in every county should not count as savings, because there are “upcoding elements” in the process that distort the numbers badly and that distortion causes the plans to be overpaid.

People in the business of providing care know what the real costs and actual numbers for the members are, and they’re surprised each year when MedPac assigns their 9 percent overpayment number and uses that to offset the real numbers that exist for the members and the plans.

That wouldn’t be a problem, except for the fact that the annual overpayment conclusion keeps MedPac from recommending that we should add enrollment for the plans. We should save the Medicare Trust Fund by continuing to increase the Medicare Advantage enrollment and generate the positive margins for that cash flow that we need for the future of Medicare.

Plans are growing and clearly have taken the majority of membership in the Medicare program, but MedPac believes that it’s a costly mistake and doesn’t endorse the better benefits approach to making best use of the Medicare dollar.

They’ve also said in some earlier reports that they think at a basic level that it isn’t fair to fee-for-service Medicare when the plans have better benefits and when that makes them more attractive to members.

The chair of MedPac writes pieces suggesting that the better benefits are a wrong and expensive path for Medicare to follow. He publishes them as a researcher and not as chair.

The current report acknowledges and describes the fact that the plans have lower bids, and they still say very clearly in their report that their estimate is that Medicare Advantage is actually somehow are being overpaid by 6 percent.

The authors of that MedPac report say that we can’t trust or support the numbers that we’re now using to pay the plans in every county because of that overstatement on those coding issues. They don’t say anywhere in their report that the special needs plans are delivering far better care to the people who are dually eligible for both Medicaid and Medicare and that we are significantly saving both money and lives with those extremely low-income and high-need members.

They are very careful not to share the available data about those special needs plan patients in their reports and fail to disclose and share the data they have about the relative costs for those members.

The Medicare Trustee overview report for the trust fund notes in the first section that Medicare saved significant amounts of money when some of the dual eligible people moved from Medicare Parts A and B to Medicare Advantage. MedPac ignored that information.

MedPac doesn’t like Medicare Advantage.

They reached that same conclusion about the plans being overpaid last year, and they continue to recommend against the plans, and they continue to say that the plans are paid 9 percent more than they should be because of the extremely wrong and damaging level of upcoding that creates the payment levels, even though they can’t explain from any description of the actual payment system where that upcoding created additional costs for the capitation payments.

They don’t explain what channel the plans would use to create that higher number, because the old risk level reporting system that the plans used for over a decade has disappeared entirely.


They do have another set of numbers that they also say make it appear that Medicare Advantage costs more than fee-for-service Medicare.

That conclusion and that report needs to be discussed because it is used every year when people point out the major discounts. The MedPac staff says those discounts and those lower costs should be ignored because there is a risk selection issue that happens every year that we need to look at to identify what the legitimate costs actually are for Medicare Advantage.

The MedPac data people say each year that if we take the actual care being delivered to Medicare Advantage members and if we price that exact care for those members against the actual Medicare fee schedule, the cost number that results from that process is lower than the capitation level paid to the plans, and they conclude that difference means that the plans are overpaid for those members.

MedPac files that overpayment report every year and MedPac reaches and publicizes the same badly flawed conclusion about overpayment for the plans each time they run it.

When the average cost of care for fee-for-service Medicare in each county contains the much higher rate of hospital admissions for congestive heart failure patients and asthma patients, and contains the much higher emergency room use and costs that happen every year, that cost level for current care for the current members is always significantly below the actual average cost of care for each county compiled before those patients were enrolled in the plans.

MedPac calls the difference in those numbers created by that report and process “overpayment.”

They use that “overpayment” number and calculation often in their critical comments about Medicare Advantage. They say: “We would pay less for those same exact patients if they were enrolled only in Medicare and if we used only the Medicare fee schedule for their care.”

People who run plans know what’s happening with those numbers, but the news media and many of the health policy people don’t know what those full sets of numbers are and why they are what they are. The unknowing listener often accepts that overpayment statement and conclusion at face value.

If there’s ever a fake news hall of fame, that particular overpayment report from MedPac should be the anchor example of using data to lead to the wrong conclusion in what feels like a highly credible process of putting numbers together.

That number does not include those higher levels of hospital care that those members don’t have. And instead of giving credit to the plans for better performance, it says they’re paid too much because those hospital admissions didn’t happen.

They use the costs of better care as proof of overpayment — and that make that claim every single year, and the academic community and the health care media take the bait and share that conclusion as if it were a credible fact, even though it’s extremely misleading and flawed.

The truth is, the entire set of negative numbers about Medicare Advantage in the current MedPac report are wrong, misleading, and potentially harmful.

We’ve shown that that upcoding that they describe so negatively has been made completely irrelevant and completely impossible by CMS in their current set of capitation decisions, and in the current risk levels set for the patients by the current reporting system for care.

It’s entirely a moot point, because the May 31 decisions set the payment levels, and there is no level of upcoding in any setting or any way that can affect those numbers and those decisions.

It can’t be done.

CMS has decided exactly how much they’ll pay Medicare Advantage plans for the future, and the payment levels they set for 2024 are set in stone and can’t be affected by anything that can inflate those numbers.

They told everyone on May 31 of 2023 how much they’ll increase the Medicare Advantage capitation levels for 2024.


We know from the 2023 Medicare Trustee report that the total revenue for the entire Medicare Program for members will increase by about 6 percent for the year. When we look at the entire Medicare benefits plan set of programs, we know the revenue for those members from taxes and other sources will increase, on average, 6 percent each year.

We know from years of Medicare Trustee reports that we can expect the Medicare Parts A and B costs to increase by 7–8 percent each year. And that creates a loss each year in the Medicare Trust fund.

The Medicare trustees had been predicting each year that Medicare Part C — Medicare Advantage — would have cost increases that exactly paralleled and echoed the Parts A and B costs, and the prediction from the trustees has been that Medicare would lose equally from those three parts of the program.

The projections that the Medicare trust fund had less than 10 years of solvency and life and would need to be saved with some kind of heroic measures from the country at that point, was based on that equal damage to the fund being done by all three parts of Medicare.

We’re now on a very different path, because with more than half of the membership now enrolled in the Medicare Advantage program, and with CMS taking control over the payment levels for Medicare Part C, we now know that the trust fund has been saved by Medicare Advantage — and we know that the capitation decisions, made by CMS on future cost, give us a much stronger Medicare with better benefits, rather than nagging deterioration and functional but significantly delayed insolvency for the main program.

We know that the current payment formula is sufficient to enable all the plans to have significantly better benefits than the old Medicare program. And we’re now on a trajectory for both better care and better benefits that are paid for with better costs.

We now know from the May 31 CMS numbers that the Medicare Advantage member risk levels will increase by 4.44 percent for the year, and we now know that will create a cost level increase for all those members of 3.32 percent for the year.

The difference between a 6 percent increase in overall Medicare revenue and a 3 percent increase in Medicare Advantage costs is an extremely important difference. It gives us a very real and significant growth in the trust fund, rather than the deterioration that people had been projecting.

We’re at a point where the Medicare Advantage plans have been bidding 17 percent discounts relative to the average cost of fee-for-service Medicare, and that had created a much better cost trajectory for those members. When Medicare has a lower average monthly cost for Medicare Advantage members, then the financial and functional reality is that Medicare will make money on every Medicare Advantage enrollee.

It’s a permanent and perpetual process. Those gains for those members should be locked into stone, because the Medicare Advantage payments are capitation, and not fees, and because capitation in this process and setting is a number we can always control, just by controlling it.

Capitation is the most powerful, effective, and useful way of purchasing care for Medicare members. CMS has total control over the cost for the members, because they get to determine the capitation number, and that number is under their control.

They just proved that to the world with their 2024 numbers.

The plans benefit as well, because they get to use the capitation money to improve care, enhance efficiency and engineer processes, and they’re free from the perverse and dysfunctional incentives and rewards of a fee-for-service payment system.

Fee-for-service providers make more money when care fails. Fee-for-service providers are often financially rewarded when bad health care outcomes happen.

Having a heart attack can be an extremely high volume and a high-cost care event. Preventing a heart attack might generate very few expenses. We spend $4 trillion in care in the US because we have so many people whose hearts are attacked.

Amputations create billions of dollars in Medicare Expenses.

The Medicare Advantage plans know that 90 percent of the amputations are caused by foot ulcers and that you can reduce foot ulcers by over 40 percent with clean socks and dry feet. Medicare Advantage plans have staff working on dry feet and clean socks and the fee-for-service providers who make more than $100,000 for each amputation in their fees actually had an increase in cases during covid because it’s so profitable.

The special-needs plans had almost no amputations.

Even in the best care systems included in the massive Epic Research database, the Medicare Advantage plan patients had 11 percent fewer amputations than the fee-for-service patients using those same systems.

We need Medicare Advantage to steer us to better care.

We should be going into in a golden age for health care delivery and costs.

We have waves of Artificial intelligence support tools that increase diagnosis, improve care plans, and give members much better information about their care.

Some major organizations in American health care just held a Medicare Advantage summit a month ago, and there were three days of care systems linked to Medicare Advantage plans explaining how they were improving care.

That’s the future we’ll have if we keep channeling patients to Medicare Advantage.

We need MedPac to look at the May 31 CMS declaration and cost decisions and to explain what happened with those payments and to apologize to everyone in America for saying such obviously untrue, inaccurate, and misleading things about upcoding in their current Medicare Advantage report as a damaging thing for the country.

MedPac owes us all an apology.

They should take the time at their next meeting to show the bidding process for the plans and to acknowledge that 17 percent discounts clearly offset 11 percent coding intensity levels.

True information in the future would be good enough.

Medicare Advantage just saved the Medicare Trust Fund, and that should be appreciated — not attacked with less than honest information.