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Upcoding Medicare Advantage: The History, the Legend, and the Reality for Medicare Advantage Today

the scales of justice

April 5, 2023


We need to clean up the upcoding controversy and confusion on Medicare Advantage as a financing program for Medicare today, because we can’t benefit fully from that program as long as so many people believe that it’s based on a fraudulent set of revenue streams and is actually damaging Medicare at some direct financial levels today.

Medicare Advantage has now enrolled more than half of the total people eligible for Medicare in this country. That is an historical and important event, and we should be celebrating it broadly.

The Medicare Advantage program has significantly better benefits than traditional fee-for-service Medicare. Traditional standard fee-for-service Medicare is a program that has flawed benefits and those flawed benefits create very real out of pocket costs and direct expenses for fee-for-service Medicare standard members that now exceed $5000 per year per person for the average fee-for-service Medicare enrollee.

No one denies the flaws in the traditional Medicare benefit package, although many of the health policy people writing about Medicare almost never mention the flaws and many of the policy and even political pieces use traditional Medicare as the data goal and the health status level that should be attained by Medicare Advantage in its data reporting.

Medicare Advantage has much lower costs for the members who enroll in the plans and it also basically consistently costs less for Medicare to provide their coverage.

Medicare Advantage has much better benefits, significantly lower costs per person, and has very high levels of satisfaction with the people enrolled in the program.

That set of facts and those accomplishments by the plans should be enough for people to look at the two programs and decide that we are in a very good place today with Medicare Advantage and that we should ride that horse into our future funding of the Medicare program and celebrate the successes it is creating.

That support for Medicare Advantage from people in the community, from the news media, and from people in academic or health policy settings isn’t happening because of upcoding.

“Upcoding” beliefs cripple the momentum of the program and keep us from using the Medicare Advantage program enthusiastically as a country and from enrolling more of the people who are eligible for Medicare.

Too many people believe that the funding for Medicare Advantage is seriously flawed and wrong because they believe the plans upcode their data flow, and they believe the plans are being paid inappropriate amounts of money because the upcoding is happening.

We need to understand and recognize that a very real and significant problem that we have for achieving widespread support of Medicare Advantage today is that some people contend and argue strongly, explicitly, consistently, directly and very publicly that Medicare Advantage achieves its relative positive position in each of the key areas of performance by upcoding the filings they do with the government that create and determine their cash flow for their capitation payments for each member per month.

Two primary critics of the program say in their current very negative Health Affairs article about the program that is running this month is that what appear to be major Medicare Advantage successes are phony and illegitimate because the plans up code their data.

That current article in Health Affairs explains and outlines some of the program successes and it describes the growing rebates being paid by plans to members as successes but the piece ends by saying: “One-hundred percent of rebates result from inflated benchmarks and risk score gaming. The resultant payments, which are in excess of Traditional Medicare (TM) costs, generate the additional funding for ‘free to the member’ improved benefits.”

They accuse the plans of distorting the data in very harmful ways.

The authors of that Health Affairs piece clearly and explicitly say: “While the higher risk scores might suggest that the population is sicker, that is an illusion created by the risk score game. The Medical costs do not change. The reality is that the plan has just collected more codes that make the population look sicker.”

The critics argue that the cash flow for the plans is based on bad data and they say that the savings that seem to be there for the members and for the government need to be significantly discounted because the plans have collected more codes that distort the numbers and the risk pool and that use of false and flawed codes directly and significantly increase the revenue stream for the plans to what should be unacceptable levels.

The problem is that credible people wrote those very clear and explicit statements and people who look at the topic and who very directly have their input on those issues largely from those sources have been significantly influenced by their very strong and direct opposition to Medicare Advantage plans and a significant number of relevant people are not comfortable with broad ongoing support of the plans by the community and by Medicare at this point in time.

The critics say that the inflation of the codes by the plans is so significant that there are no improvements in care that are happening and being reflected in the lower costs for the plans. They say very directly in Health Affairs that Medicare Advantage plans “are delivering no improvement in medical costs versus FFS, but are still receiving rebates and offering zero premium products.”

A significant problem we have for Medicare Advantage next steps today as a country is that those critics have people who believe them, and that belief by those people is sufficient to keep us all from going down the path to using Medicare Advantage as the primary tool for both saving the Medicare trust fund and moving American health care on a path to continuously improving systems supported and more affordable care.

Even more importantly and immediately, that lack of support and that sense of false data being created by plans keeps relevant people in our communities from understanding how extremely important it is for our lowest income and our highest health needs people to enroll as soon as they can in the special-needs plans where many will get the best care of their lives and where many lives will be saved in the very immediate future if they join plans.

People are actually going blind, having major heart crises, and losing limbs because they are not enrolled in the Medicare Advantage special-needs plans that can and will give them much better care. This isn’t a purely academic issue, because the lives of real people are being damaged because they are not getting that level of care.

Medicare Advantage clearly costs less for members. The information is fairly clear to everyone about how much less it costs to have someone enrolled in a plan, because we see the surpluses every month that are created by spending less than fee-for-service Medicare in every county.

Even the current MedPac report about Medicare Advantage says that the plans do spend 17 percent less per member to buy the basic Medicare benefits package. It’s clear from layers of information in those reports that the plans manage to use that lower cash flow to significantly improve the basic Medicare benefit package by making better and more competent use of the Medicare dollar and by generating surpluses on the expense level in every county where the plans operate.

The plans bid about 15 percent discounts from the current average cost of Medicare in every county, and they use the lower cash flow both to provide care and to enhance benefits for the members.

The critics who write those reports don’t see that lower bid from every plan as an immediate lower cost and savings for the Medicare trust fund that it actually is for those members every month. The critics say very directly that those savings aren’t real because of the distortions in the coding processes by the plans that make the savings irrelevant.


We need comfort on what is true about that data and the payments to plans.

The critics writing the Health Affairs piece say in extremely public venues  that those successes are an illusion based on the plans “collecting more information that make the population look sicker,” and they say that is a very bad use of Medicare money and a wrong path for us to be on as a country to use those surpluses created by the plans to enhance the benefit packages for those members.

It's easy to see why we don’t get stronger public support for the work being done by the plans at this point in time, because those critics of the coding processes say in highly visible settings that the plans exaggerate and even sometimes falsify information about the health status of their members. They say that false data about their members creates a major cash flow for the plans that some critics, including the authors of the Health Affairs piece, say those distorted streams of revenue actually are the major business model function and are the primary positive factor and the top-level functional reason for the success of the plans.

Every one of those points is wrong.

The plans currently have the most accurate data about the actual health of the members that the system has ever had. The current data approach is giving CMS real-time and direct information about the actual encounters of the patients, and about the current diagnosis information from the actual Medical records of the patients that feeds those encounter reports.

None of the things that are being written about in those attack pieces about inflating any of those data elements for patients have any relevance today — because that accurate information for each patient wasn’t upcoded. It was coded by the care sites and it was done directly to support the delivery of care.

No one in those health policy or media settings knows that to be true. The biggest challenge we have for our current decision making as a country about the future of Medicare is that a number of people believe those accusations and a significant number of people don’t support the growth or expanded support of Medicare Advantage plans because they believe the program is anchored on a false foundation and that it would be bad for the country if they continued to grow.

We need everyone to understand what is true.

We need everyone to understand what is actually happening relative to those patients.

Those problems that the critics describe of creating higher revenue for plans by upcoding data actually don’t exist for the payment processes we use today. The logistical issues are extremely important and no one understands what they are. Those problems don’t exist today, because there is no point in the payment process today where falsifying that information increases the actual money being paid to the plans.

When you look at both the data flow and the way the data is actually used for determining payments, there is actually no point in the process where higher codes increase the data flow or increase the cashflow to plans.

It’s important to know what actually happens in those processes as they function today.

The goal is to spend less than fee-for-service Medicare in every county.

When you look at how the plans are actually paid — the cash flow for the payment of plans is tied directly to the average cost of fee-for-service Medicare in every county as the foundation of the payment program, and Medicare itself creates that number about the average cost of fee-for-service care in each setting.

There’s nothing that plans can do to change that particular number.

Once the county cost of care number is created by Medicare, the plans have their actual payment level as plans created by the health status of each member, and that number is also now set by CMS from the encounter files for the patients., There is nothing that the plans can do to change that number from that filing process.

The cash flow for each plan is tied to the profiles that CMS currently has on each member from the encounter reports that are currently used to determine how much of that capitation money goes to each plan for each patient.

The truth is that there is also nothing that the plans can do today to falsify that data about each patient, because it comes from the encounter reports, and they’re outside the impact or the leverage of the plans to change any of that patient data information from those reports that creates the patient-specific payment level.

So, the plans can’t functionally achieve or accomplish the point being raised directly and explicitly by the critics in the accusation statement about “collecting information to make their members look sicker.”

That sounds like a relevant plan conspiracy behavior for some settings for some years, but it can’t be done in the world we live in now.

The critics don’t accept that answer. They continue to say and write in several settings that “100 percent of the rebates for the plans result from inflated benchmarks and from risk score gaming.” When you look at the actual payment model and the actual functional approach and process, the plans can’t inflate any benchmarks and there’s no place in the process where “risk score gaming” affects any part of the cash flow to plans.

The critics of Medicare Advantage do have some historical anecdotes and old reports about some of the plans who worked hard under the old coding system to increase risk scores and who actually created some different numbers for some plans in the early years of the program. But those often repeated and cited pieces of history are not relevant today and have no possible impact even if those plans wanted to repeat any of those processes because there’s nothing the plans can do to change any number that will increase their cash flow or risk scores today and now. The actual system that was used to collect that risk-related information from the plans for more than a decade was completely eliminated by CMS in 2020 and they did that to keep those opportunities from happening now for any of the plans.

The payment program today that is based on that 2020 re-grounding change still relies on the actual average cost of fee-for-service Medicare in every county for the underlying cost foundation and for the number that they actually use to see if Medicare Advantage is costing more or less than Medicare in any county.

Plans are making profits and surpluses in almost every county with the current approach. The plan surplus calculation is based on that number — so Medicare wants it to be a very legitimate, credible, and useful number for both payments and for determining whether or not surpluses exist for the plans.

CMS calculates that number from the actual payment data base for fee-for-service and traditional Medicare costs, and the number they release in every county is extremely credible and accurate, and also completely immune from plan impact or influence.

The truth that we need people to understand is that the Medicare Advantage plans actually can’t do anything to do what the critics say in that document that they are doing to falsify the risk scores for members and to increase their payment levels as plans.

It’s important to understand that the county data is actual Medicare costs and those numbers are immune from coding and plan influence at any level.

It’s important to know and understand that the risk levels that are used now for each of the members are based on the actual encounter reports filed by each care site for each actual care encounter, and the functional reality is that influencing or changing that data in those files is also outside of the reach of the plans.


The functional truth is that the plans could do everything that they are accused of doing in the article and in several other attack pieces written for other settings, and that would not affect anything in the way the plans are paid because those numbers and those data elements don’t affect any payments or any cash flow for the plans in any setting.

Fake News seems to happen in some other areas of American politics with sad and increasing regularity, and the truth now is that saying that 100 percent of the rebates result from inflated benchmarks and risk score gaming is fake news today on this issue, and we should insist that it not be the version of this issue that people believe to be true.

We need to move past the fake news beliefs and attacks and we need to make the right decisions about the Medicare Advantage program today based on the realities of the program and what we know about the costs today for the plans.

As part of their fake news agenda that is clearly irrelevant when we look at the total costs of Medicare and that $402 billion total expense that exists for Medicare Advantage last year, the critics actually very explicitly say that: “The plan has collected more codes that make the population look sicker.” And the critics attribute the higher payments to the plan from that plan behavior.

They also say that 100 percent of rebates result from inflated benchmarks and from risk score gaming.

Both of those fake news accusations are wrong and completely impossible because there’s no place in the process where that activity by the plans could trigger significant costs.

We need to understand what is actually happening with the members in the program and the finances of the plans so we can weigh whether the plan payments are being done in the most effective ways, and we can look at how well we’re administering the approach we have chosen for payment.

We know from the 2023 Medicare trustee annual report that the plans cost Medicare $402.3 billion last year. That amount of money was the total expense of Medicare from the plans.

That amount of money is the total liability of Medicare Advantage to the Medicare program.


It’s important to understand that the plans are all paid a capitation for each member — and that’s the total cost for Medicare for those members.

Capitation is a very powerful purchasing tool.

The plans don’t get paid fees for each piece of care like traditional Medicare. They get paid a fixed amount of money every month for every member — and that capitation cash flow is their business model for care.

In exchange for the capitation payment, the plans agree to provide all of the benefits that members are entitled to by the standard fee-for-service Medicare fee package that every Medicare member has as a package of care.

The plans can also use that capitation to do other things to have an impact on care, but they must provide that base set of Medicare benefits as the core delivery package for care for each member in order to be a Medicare Advantage plan.

Medicare actual fee-for-service expenses that have been paid by Medicare to pay for care create the foundation number for the capitation level and that expense anchors the payment amount to the plans in each county.

The government adds up the cost of fee-for-service Medicare in every county and they use that cost of care by county as the base level for the capitation program for the plans.

The capitation is based and anchored directly on the average cost of care for fee-for-service Medicare patients in every county.

There’s no coding process or upcoding process involved in setting up those basic numbers. They simply add up the cost of fee-for-service Medicare in every county as a cash expense and they use that actual cost of buying care as the basis for payment for the plans.


It’s important to understand that the cash flow for the plans is actually derived from the average cost of fee-for-service Medicare in every county

The government adds up the cost of fee-for-service Medicare payments in every county every year and then uses that total actual cost of Medicare in every county, measured in actual dollars, to determine the baseline payment levels for the plans.

They make that average cost of care number known and available to the plans as a macro number for every county every year and the plans then get to bid against that number to set the amount they will be paid every month in capitation for everyone who enrolls in the plan from that county.

The goal of that payment development approach and that calculation process is to link those factors together in a process that will have Medicare Advantage costing less than fee-for-service Medicare costs in all of those settings and to have that difference in cost and expense to be visible to everyone in each setting and to be usable by the plans as a resource for enhancing benefits and care.

The goal of the payment model is to have that average cost of care for fee-for-service Medicare be the core expense level for Medicare for those members and to use that number to determine whether or not the plans have made a surplus, a loss or a profit in every county at the end of each year based on the actual expenses of the plans in each county.

The Medicare fee-for-service underlying cost numbers from every county are clear, visible, immediate, consistent, credible, and dependable — and they are calculated and reported for every county in actual dollars — not in codes or formulas or approximations or summaries of any other volume information or combined with any kinds of actuarial or economic estimates, projections or measures for the members or for their care levels.

The plan expenses in each county are also measured in dollars — and that measurement gives us a chance to see if the Medicare Advantage plan is saving money or expending additional money in each setting.

They are actual dollars for that process and not formulas or codes of any kind and there are two key numbers in that process.

The first number is what Medicare fee-for-service costs in actual dollars in each county. The second number is how much Medicare Advantage spends to care for their members in eligible services in each setting.

The difference between the two numbers is important to understand. If the plan bids are less than the average cost of fee-for-service Medicare, then that is a real savings to the Medicare program and it also reduces the pressure on the Medicare trust fund.

If the plans use their cash flow to add to their benefits, extend their services, and attract members — that cash flow does not affect the Medicare trust fund because that link to the trust fund was completed when the bid was put in place and when the capitation was paid to the plan.

Some people don’t understand that the additional benefits created by the plans never increase the cost or burden for the Medicare trust fund because that linkage and burden ended with the capitation being paid. The surpluses are basically free money to Medicare and they are a much better use of the Medicare dollar, but they cost Medicare nothing because the sole use of Medicare money was to capitate the plan and not to provide or pay for additional benefits.

The capitation dollars should be an accurate reflection of what each county spends in dollars on Medicare members, and any plan costs that are lower than that create a cost bonus for Medicare, but no trust fund impact.

It’s a fairly basic process that is often misunderstood — because people look at the additional benefits offered by the plans and assume those are additional costs for the Medicare trust fund. That’s a wrong assumption and a misunderstanding.

It’s important to get the baseline data right for each county. The Medicare program can count, calculate, tabulate, discern, disclose, describe, determine and report functionally with great accuracy from year to year what the costs of care have been in each county, and they use that as the baseline number for the payment process because we want that expense to frame the situation in each county.

The Medicare team at CMS can actually look at those numbers both for the people who do not join plans and for the people who have enrolled in plans, because those numbers tend to be very stable, visible and consistent from year to year in each setting for both sets of people and those counts have been done for each setting for a long time.

The people who run that Medicare program have been running those numbers for many years and the numbers tend to be steady in their year to year cost levels for each county.

The people who run the plans all know those numbers and the people who run the relevant programs for CMS know those numbers and they all have a strong familiarity with the patterns from year to year because they tend to be fairly consistent over time in each county and they can be used to see if the plans generate a surplus relative to their payment levels as plans in each county.

They tend to be real measures of how much Medicare actually spent in each of those areas for their members and for their patients to purchase their care, and they give us information we can use to see if the plans are creating a surplus for their finances in each setting.

The goal and intent of the overall bidding process is for the Medicare trust fund to spend less money in those counties than they would have spent in the county without the plans being offered. Medicare Advantage was created both to give the caregivers a chance to do innovative things in the delivery of care that a fee schedule doesn’t allow or support and to have the total cost of care for the Medicare trust fund be less than it would have been without the program in place.

The long-time accurate, useful, and insightful adage about the current and traditional Medicare payment program and model is that “the program has 10,000 billing codes for procedures and not one billing code for a cure.”

The goal of this capitation payment model is to channel some money toward cures.

To create context for the coding and upcoding issues that are undermining the plan credibility levels, the plans get those average costs of fee-for-service Medicare in each area and the plans then bid how much they would like to be paid from each county for each member.

The plans can say that they want to receive that full average cost of care from fee-for-service Medicare as their bid for their enrollees. If they make that decision for full payment, that money will be paid to the plans every month for every member they enroll.

The plans usually bid less than the average cost of fee-for-service Medicare in every county, because the rules of the Medicare Advantage program require the plans to calculate whether or not they had a surplus in their financial situation after adding up the total cost of care for their members, and that surplus created by a plan needs to be returned to Medicare or used to increase the benefits for the plans.

It’s a very good way to make better use of the Medicare dollar.

Fee-for-service Medicare has some very expensive and flawed care. They have the highest blindness rates in the world for their low-income diabetic patients and they do many more amputations on their low-income patients than happen when the patients get better care.

The average cost of care in every county that is used as the baseline data has those high expense levels — and that’s actually more money than the plans can use when they deliver better care.


That’s another reason why the upcoding accusations in the Health Affairs piece and in another array of similar upcoding and risk inflation attacks from a number of community and even academic sources make very little sense as a way for the plans to increase revenue. The functional and financial reality is that the plans already have more money available from the average cost of care for fee-for-service Medicare than they can use from the current bidding process because of the differences in the quality and the costs of care that create the surpluses for the plans now.

All of the academic critics and policy pundits that accuse the plans of upcoding miss about five key points when they make those accusations. The plans don’t need to upcode to increase revenue.  Look at the long history of every plan already bidding discounts that are significantly lower than the current available fee-for-service cost level in every county. The critics and policy people should understand that when the bids for a plan are already significantly discounted from already current available money, then having the plans having people doing heroic or extensive things to upcode further makes no sense at any practical and functional level.

The plans don’t need the additional codes as a project or activity because they aren’t using all of the bidding opportunities that they have now.

The risk levels are very accurate today. The likelihood of any auditor detecting fraud based on plans coding at a level that does not match the medical record is pretty close to zero. They suspected and even projected three years ago that an audit of those issues would find about 6 percent of the codes for patients in the risk profile not supported by the medical record. That number should be zero now because the encounters use those medical records for their data source.

The actual capitation number that results for each patient for each plan from the bidding process is based on a risk adjusted payment formula that includes the age, gender, and health status of each member and it is a very important and relevant number.

The specific dollars paid to the plans have a direct relevance and current link to the health status of the members and the actual payment to the plans varies based on the age, sex, and health status of the member. The actuaries for CMS have been continuously and skillfully refining that payment approach, and the actuaries will continue to refine it with the goal of paying the right amount for the members who enroll using the best available data to do that work.

The capitation that is calculated and then paid to the plans is the only payment that will happen from Medicare to the plans. The plans can’t ever change, enhance or increase their access to the Medicare cash flow once that bid is created and put in place for the year.

The plans each look each year at the new performance specifications and expectations that came from CMS for the year and at the new quality goals set for the year by CMS and team and they look at their own financial situation with their current enrollees, and they make a bid for the capitation level for next year that will be their revenue for each county for each member.

CMS has become a very competent and effective purchaser of care for the Medicare Advantage program. They work hard every year to determine what the specifications and cash flow issues for the plans should be, and they have become skilled at creating the flow of both information and decisions that set up and steer the bidding and payment process year to year.

The goal in setting up the program was for CMS to grow from being just a weak, and sometimes inept, pure “payer” for care — as they are for fee-for-service Medicare — to becoming a functional, skilled, strategic, and increasingly effective purchaser of care as they now are with Medicare Advantage.

Their 2023 expectations, rates, statistics, and expectations document show both competence and leadership in directing the program and making sure it stays on track for the year.

That set of processes run by CMS to manage the plans and buy that care is visible to everyone who wants to see them and that approach has been refined every year as a powerful tool for steering the process and for making sure that the concerns that some people have about risk pool distortion and wrong data flows just don’t happen and can’t happen with the Medicare Advantage program we have today.

The purchasers of care at CMS have increased their sophistication and skillset every year and they continue to get better at doing that extremely important job for us all.

The goal that they have as a purchaser and buyer of care wants us to be paying the right amount for each group of patients based on the health needs of the patients and on the ability of the plans to do the right things to provide best care and best outcomes for the care.


As part of that steerage and management process, there are some internal codes and formulas for CMS that kick in as part of the payment process for the CMS people and guide us down paths that utilize data to make sure we are doing the things we need to do in the most effective ways.

Actuaries are important to the process. As an anchor for that payments, Medicare uses an carefully developed and continuously refined actuarial formula that is based on the health status of each member and that formula creates the number that is paid to the plans based on the factors that exist for the sets of patients they currently enroll.

The actuarial formula uses age, gender, and the current diagnosis information that is on file with CMS to calculate the actual payment amount for each member.

The actuaries at CMS have been doing this work for many years now and they have a continuously improving set of calculations and formulas they do to set the current payments in place for each member.

The goal is to pay a fair, equitable, appropriate and functional amount for each member, so the plans can use that money to provide care, improve care, and enhance the benefits and services for the members who are receiving their care.

They both strategically and tactically want some continuity in the cash flow numbers from year to year so the care sites can make long term commitments and do both operational and strategic planning on facilities, resources, and care levels in ways that can’t be done as well with only annual budgets and revenue expectations for the caregivers.

The point of using a capitation payment approach — rather than buying care by the piece — is to give the plans flexibility in the use of the money to encourage and reward better care by the plans.

Medicare has had both some major opportunities and some significant challenges in some areas of care delivery. Fee-for-service Medicare for low-income people has some of the highest blindness levels and the highest amputation rates in the world, and the average cost of care for each county includes those costs.

The plans are financially encouraged by the capitation payment approach to save money by improving care in those kinds of areas because the plans can have better financial outcomes when they avoid those expenses for their members.

Early in the capitation process development history for Medicare purchasing programs, some of the plans made more money by skimming risk. Some plans made higher profits by getting an average capitation payment for everyone and then doing some things to avoid enrolling some of the high risk and high cost enrollees. That was an unacceptable practice, so the purchasing and payment model for Medicare Advantage was refined and changed to make that impossible to do.

The payment process changed to make the actual risk status of each member an important part of the payment model and also fair to everyone. When that happens and the numbers are credible, the plans now often seek out the most challenging and high cost patients because the reality is that making care better for those patients can be very good financially for the plans and it is extremely good for the patients.

The plans now often prefer to enroll the least healthy patients because the opportunities to make care better is higher when the care needs of the patients are greater.


The lowest income and the highest need patients are the patients who are eligible for both Medicaid and Medicare and the plans have created special-needs plans for those patients. More than 5 million of the current Medicare Advantage patients fit that category and many of those members get team care through their special-needs plans for the first time in their lives after they join those plans.

The Health Affairs article that attacks the plans for egregious upcoding and for intentional risk avoidance and that actually also explicitly says the plans do zero care improvements for their members quality of care very carefully does not mention those 5 million high need people with Medicaid and Medicare joint coverage because they don’t fit the upcoding paradigm, myth or value set of the article and of their attacks on the plans.

Those very high-risk patients do, however, fit the Medicare Advantage better care paradigm and their codes and data are included in the Medicare Advantage data sets that the critics in the Health Affairs article say are badly skewed and actually do nothing for care.

The plans factor all of those points, issues, and opportunities into their bidding process every year. The plans compete with each other for the patients, so they all also include various kinds of thinking about the market impact of their pricing decision on their members.

They all end up bidding discounts in payment from that average country per capita cost.

They all bid discounts each year because fee-for-service Medicare delivers very expensive and ineffective care for far too many people.

Both the Medicare contract and the Affordable Care Act law will not allow the plans to keep the full profits and surpluses that would be created from plans bidding the full those average costs of fee-for-service Medicare in most counties.

The plans typically bid 15 percent less than the actual average cost of fee-for-service Medicare in every county. The average bid this year was 18 percent below the fee-for-service average cost.

They agree to provide all Medicare Benefits and to provide some additional services and benefits in exchange for 18 percent less than those same members would have cost fee-for-service Medicare in every county.

Those are real and immediate savings for the trust fund. Those savings are lower costs and very real.

There was no plan manipulation or up coding at any level of those Medicare average costs for each county. The cost levels for fee-for-service Medicare are very consistent year to year, so that cost number does not change much for the people who stay with traditional coverage in each county when people enroll in Medicare Advantage, and it is a very real number.


The plans also do earn up to 5 percent more by achieving the quality goals that were set up for the plans in the Medicare Advantage five-star quality program.

Fee-for-service Medicare has no quality goals or even quality measurements for their basic enrollees, so the plan quality program is not an extension of that existing fee-for-service Medicare program.

The Medicare Advantage quality program was set up to enhance care for the members and it is intentionally and strategically based on the goals that the designers of the program believed would be good goals for the people who enroll, in the plans.

Those quality goals are highly visible to the members and to the program because they are part of a five-star quality program and process that directly reports the relative performance of the plans for both quality and satisfaction levels to the world.

The quality goals were set up to encourage particular patterns of care. The Medical Science world knows that diabetic blindness is a major problem and affects far too many older Americans, so the first quality goal for Medicare Advantage was for the plans to manage the blood sugar levels of the members.

We can reduce blindness in older diabetics by more than 60 percent by managing the blood sugar levels of patients. Much of the available data that exists today for fee-for-service Medicare for low-income people shows us that we currently have less than 30 percent of those patients with controlled blood sugar and they have high levels of blindness.

So, managing blood sugar is a high priority Medicare Advantage goal and achieving that particular goal has obvious value as a pattern of care for the members and plans at multiple levels.

When the quality program was first put in place, barely 10 percent of the plans achieved four- and five-star goals. Those goals have become part of the operational expectations and even the quality culture components for the plans, and for 2023, more than 90 percent of the members are enrolled in four- or five-star plans.

The people at MedPac hate that program and call improvement by all sites “The Lake Wobegon Effect” — after stories about a town in Minnesota where all the kids were above average. That is a perfect outcome, and the people at MedPac who very ineptly want to replace the site-specific 44 goal program with something that measures the entire performance of a community, and then rewards that community performance, clearly have never worked in a health care process improvement context and have no clue about how important it is for 90 percent of diabetics to have their blood sugar controlled.

The financial incentives and cash flow processes for fee-for-service Medicare caregivers and for Medicare Advantage care teams are structurally different at a direct cash flow level for the patients and that ends up with very different costs for each group of patients.


Fee-for-service Medicare caregivers are paid by the piece for each piece of care — and the financial reality is that those caregivers do often make more money when they treat patients with blindness multiple times rather than prevent the blindness. That cash flow continues for those fee-for-service care sites for as long as those blind patients continue to need that care and the cash flow doesn’t involve doing the right things to prevent more people from going blind because that isn’t on the fee-for-service Medicare fee schedule.

In contrast, the capitated Medicare Advantage plans save $20,000 to $30,000 per patient when the patients don’t go blind. The plans lose money when blindness happens. So, the plans are both financially incented and funded by capitation to do that work and then the plans are financially rewarded as a capitated entity when they get the care right and when they avoid those expenses for those patients.

The plans pay for the vision benefits that fee-for-service Medicare does not have with the money they save from not having people go blind.

As an upcoding issue, the fee-for-service caregivers tend to not have full patient profiles on each diabetic patient and that means that those care sites don’t have the data in their system or files indicating that those patients are at risk of those conditions and situations.

So, when the people who are looking at the risk profiles of the plans see those differences in reporting, the Medicare Advantage critics tend to believe and report that the plans have done up coding on those patients when they actually have more complete information about their diabetic patients and basically have much better care outcomes when that coding happens.

The fee-for-service patients have costs associated with blindness that increase the average cost per county for fee-for-service Medicare.

The capitation development average cost of care calculation process that is done each year for each county for CMS adds those costs of blindness into the average cost of fee-for-service Medicare in every county because that’s how that process works and that’s where and how those dollars are spent and recorded.

The high cost of blindness goes into the average cost of fee-for-service Medicare and that higher expense is the anchor for the payment process that creates the capitation cash flow.

That isn’t upcoding by the plans as the Health Affairs article states. It’s expensive and often flawed and poorly documented care by fee-for-service Medicine and rather than wonder of the plans are upcoding, it’s an area of data accuracy that we should focus on as a country because we have too many people going blind.


Amputations are another area where low-income Medicare Patients are currently 10 times more likely to have amputations than higher income patients.

Those amputations currently cost Medicare over $100,000 each. They add billions to the care costs for Medicare and the billions are in those average county cost levels.

The Medicare Advantage plans do basic care process design to help those patients. The Medicare Advantage care teams know that almost 90 percent of amputations are caused by foot ulcers. The plans all know that you can reduce foot ulcers by more than 40 percent with dry feet and with clean socks for those patients.

More than 90 percent of the Medicare Advantage plan patients in the special-needs Plans have clean feet and dry socks and those care sites and plans have extremely few amputations. That’s why their mortality rates for the special-needs Plans are so low.

That set of realities is relevant to the upcoding issue for this discussion because the people with amputations have their costs included in the average cost by county for Medicare Advantage fee-for-service patients and bad care is expensive care in creating the fee-for-service Medicare cost profile and data set that also tends to have weaker sets of diagnosis data and codes for each member because the business model for those caregivers is crisis based and not prevention based.

MedPac completely misses — or doesn’t want to acknowledge — one key point about  why the patient profiles are so weak and incomplete in fee-for-service Medicare. They do often point out the difference in the two sets of data in the MedPac reports, and they even accuse the plans directly of poor intentions in putting together more comprehensive data for each patient, but they blame the difference in the level of data on those patients on the greed of care sites who want to up code their diagnosis levels and they miss the greed of the care sites who want to cut off less.

The truth is, the weak and incomplete data set in too many care sites actually supports, tees up and enables a number of the expensive care failures that create higher revenue for the fee-for-service caregivers, and no businesses in any industry ever intentionally re engineer against their economic best interests.

The plans who are now doing 15 percent discounts in their bids against those the current average fee-for-service Medicare average cost numbers aren’t doing the lower prices on the bids because they are upcoding something in the process. They are doing it because they are providing much better care and they have far better diagnosis information in their data set.


The diagnosis information that we currently need on every patient should be designed to give us the best diagnosis for delivering better care for those patients — and getting that diagnosis right has nothing to do with any coding strategies for the plans even though the Medicare Advantage critics actually say very explicitly and directly to sell their case that’s what is happening with that flow of information.

Medicare Advantage costs less. The surpluses in every county are very real and they prove it.

That 15 percent discount from those average costs of fee-for-service Medicare every year is very directly where Medicare actually saves money today. The savings from those payment levels to the plans are real because they are being paid to the plans now in real money and those savings and that money is being spent to make lives better for the members.

The total impact is that MedPac agreed in this year’s report that the plans get that needed care for their members for 17 percent less than Medicare fee-for-service would have paid for that package of care.

MedPac hates that insight and that number.

The current MedPac report has dozens of pages of fine-tuned, confusing, and complex risk level analysis and multiple interaction pieces comparing fee-for-service Medicare numbers to the Medicare Advantage numbers and the cold reality and the functional truth is that entire data sorting and exhibition exercise by MedPac is a frustrating, futile, and entirely extraneous and economically irrelevant process because the fee-for-service care improvement processes and patterns that might happen have nothing to do with what is happening in Medicare Advantage in all of those areas and that entire process is excluded from that data.

Any attempt to somehow relate the two streams of data now and fit them into a functional payment flow is an exercise in both futility and unfortunately possibly perverse consequences and that problem won’t get better because fee-for-service data is incomplete, inaccurate, inadequate, and relatively dysfunctional and because fee-for-service Medicare has no plan or process to actually get better.


MedPac has an obsession and a very high priority commitment and approach with trying to take that poor and incomplete set of data for fee-for-service Medicare and tie it tightly to Medicare Advantage to make decisions about some cost related issues for the future for Medicare Advantage payment amounts. They look on multiple pages of ways to accuse the plans of overcharging the program in some particular ways if the numbers seem to indicate some positive outcomes for Medicare Advantage from the process for any set of patients or care processes.

That’s a waste of effort and time.

Those numbers that MedPac clings to are too often confusing and irrelevant and they never actually involve actual cash flows to the plans or any actual expenses. They are theoretical comparisons based on up coding accusations and they never involve actual dollars in any of the expense categories.

They also ignore the fact that when we look at the actual costs of care and when we look at what we are spending now on Medicare Advantage, we only need to look at the actual dollars being spent and celebrate the savings for the Medicare Advantage members’

We do need to build a sense of confidence about the credibility of that data.

We need real data for every patient.

We definitely need accurate diagnosis data for every patient.

When the coding process for the risk levels for the patients involved the plans looking at their data and then reporting to CMS about what those levels were using the RAPS reporting system — there were some people who doubted the credibility and accuracy of that data. The plans had more money coming when the risk levels were higher, so even though the plans had a practice of getting that information right, there were potential temptations to make the numbers higher.

The debate about whether the plans resisted the temptation to go down that path ended when CMS killed RAPS


CMS did a very brilliant thing.

CMS eliminated the plan opportunity to code.

They killed the decades old RAPS system and they now get their diagnosis information on each patient from encounter reports that are filed on each Medicare Advantage member at each point of care.

The data from those encounter reports is accurate, dependable, and very real — and it tells us exactly who has Medicare Advantage coverage today.

They don’t interpret or code anything with the new approach. The encounter reports use the Medical records to get each diagnosis.

When the OIG did audits on fraud for Medicare Advantage for the past several years, the literal definition of fraud in their reviews was to have a code in the RAPS payment system that was not the one in the actual Medical record of the patient. They didn’t have actual data on that issue but they estimated in a couple of reports that the fraud level using that definition of fraud would be as much as 6 percent of the total Medicare Advantage spend.

The fee-for-service Medicare fraud level ranges from 6–7 percent, so the people looking at both numbers said that the plans and the caregivers were in the same ball park on possible and current fraud for those years. They could not recommend either path as a way of making fraud lower for the Medicare program.

That should be changing this year.

Using that definition, the Medicare Advantage fraud level for 2022 information in the payment system will be very close to zero. The very best way of eliminating billions of dollars in Medicare Fraud for the country will be to have people enrolled in Medicare Advantage plans because they won’t have that fraud.

Some auditors believe that there are some insurance agents who are pretending to sell Medicare Advantage coverage and who need to be reported as frauds for those reports this year. That risk is currently below 1 percent of the total revenue for Medicare Advantage.

So, the upcoding issue that is keeping so many people from supporting Medicare advantage — with its much better use of the Medicare dollar — should disappear this year.


The MedPac report says on page 322 of the current report that we now know that the plans do now make a legitimate gain of 17 percent when they do those calculations about performance and they then note, describe, explain and remind us all that the plans use the surplus created by that 17 percent to create better and expanded benefits — documenting the fact and the process that Medicare Advantage plans and their members use that surplus as a “subsidy to provide additional benefits to Medicare Advantage Enrollees.”

That approach and reality is a much better use of the Medicare dollar and it should be built on for the next generation of Medicare funding and to set up a continuously improving and paid for pattern of care for Medicare benefits and Medicare enrollees.


That gain and achievement is the right baseline data for us to use to project future costs for both Medicare Advantage and Medicare. We can save the Medicare trust fund if we continue to spend 17 percent less money to buy basic services for half our members and have that set of enrollees expanding rather than shrinking.

We know the number we know that the current calculations that create that cash flow is real and viable because those bids create the framework for the plan surpluses that represent the difference between the plan expenses and the plan revenue and they are real money and legitimate ways of spending it to help members.

MedPac says that the average Medicare Advantage enrollee “has access to over $2350 in extra benefits that FFS enrollees cannot access.”

They ask in the MedPac report whether that is fair to the fee-for-service enrollees who made that choice no to enroll. The answer is — that $2350 is a much better and far superior use of the Medicare dollar and should be congratulated, supported, and continued so that we get the best services to all of our enrollees going forward for all settings and sites.

They say: “The average 2023 plan bid to provide Part A and Part B benefits was 17 percent lower than FFS Medicare would be projected to spend for those enrollees under current payment policies.”

Those are real and important savings and we have them now in plain sight.


We are extremely unlikely to get either house of Congress to do any significant level of health care reform at this point in our history. We don’t even know what either house is favoring at this moment in time for next elements of health care reform.

But we do know that 340 members of congress just responded to the very high levels of satisfaction their voters feel with Medicare Advantage and signed an endorsement and support letter for the program — and we should be able to assume that signing that very supportive letter indicates that they might not be unhappy with us using Medicare Advantage with no increase in spending levels to be a functional and proven tool and an anchor for the next piece of health reform and health care improvement for the country.

We are in very good position to go down that road.

MedPac did come up with a fairly convoluted set of ways using very convoluted comparisons to risk levels between the programs to evaluate those payment levels, but they are in error with those complex and hypothetical and functionally irrelevant MedPac calculations because the measure we need to use is the actual dollars paid for those members and the cost of care they received. The actual dollars show that we are spending less than fee-for-service Medicare and we are creating surpluses that can be used to increase benefits for members in very real ways because they are real dollars and they are flowing though the plans to buy real benefits.

Surpluses created by those numbers in each of the counties for each of the plans are real savings for Medicare and they are the source of the higher benefits for the plans that the members value and use — and even MedPac reported that we have reached a record level of surpluses this year for Medicare Advantage that are used for those purposes and that is a far better use of the Medicare dollar.

The record surpluses are actual savings for the plans and for Medicare because they are the difference between the actual costs of fee-for-service Medicare and the bids paid to the plans and the plans expenses relative to those bids and that is a clear benefit for the plans and actual savings for Medicare.

There are enough negative feelings about some insurance companies with a subset of the policy world that those people they actually want the upcoding legend and upcoding urban myth to be true and they want to think it is at least possible and relevant even when there’s no current path to having it happen.


But the upcoding that the critics warn us about in Health Affairs and some MedPac documents is clearly not true. And what is true is that we can build from here to have much better care for America using Medicare Advantage as a lever and a very intentional tool for making that happen.

Care is much better for Medicare Advantage. Medicare Advantage patients have 35 percent fewer uses of emergency rooms. They have 40 percent fewer hospital days for asthma and congestive heart failure. They have half as many people going blind and they have fewer than a third as many people losing limbs to amputations.

We will know that MedPac has decided to tell the full truth about Medicare Advantage on other issues when they either stop doing their annual outrageous and misleading calculation about relative plans costs and report about plan overpayment or, better yet, just do the report again and label that outcome with functional accuracy as being a measure or better care and higher current success levels for plans instead of overpayment to plans.

The new CMS data gathering approach has made a massive improvement in the accuracy and accessibility of that key diagnosis data — so even if the plans had been doing up coding in prior years, that is not possible now.


MedPac continues to be extremely alarmist in their communications about the possibility of future distortions in that data even though the data sources that they found flawed have been eliminated.

They are not willing to give up entirely on the upcoding fake news paradigm even with the completely accurate diagnosis data today in all of the systems and processes and the people who write the annual report continue to pretend that someone can somehow upcode something in that body of data to create those incorrect numbers and give them that concern.

The current report says for 2022 and for 2023: “Uncorrected coding intensity will add another $20 billion and $23 billion respectively and Medicare Advantage will pay MA plans a total of $27 billion more than it would spend if those beneficiaries were enrolled in FFS Medicare: $23 billion of that is due to MA coding intensity.”

That set of alarms is absolutely wrong, inaccurate, impossible, inconceivable, and intentionally misleading and erroneous because there’s no way for it to happen.

We need them to replace that caution this year with actual data and with a plan to make care better using the very best Medicare Advantage approaches and tools rather than just perpetually ignoring everything about Medicare Advantage that enhances care.

That alarmist and clear statement from that MedPac report completely ignores the new reporting process for encounters and it ignores the fact that the plans all clearly bid less than the average cost of fee-for-service Medicare in every county — and it completely ignores the fact that using real dollars for the program in every county, the plans cost less than Medicare and have much better benefits for the members.

MedPac seems to live today in a fantasy world that bears very little linkage to what is actually happening.

We have an opportunity right now to stabilize the Medicare trust fund and to cut the costs of Medicare overall — with 17 percent lower costs — and we have the opportunity right now to use the money we save to significantly improve and enhance care.

Some people who believe that the plans are still up coding are trying to create opposition to the plans in ways that will undermine that current funding approach and could prevent that agenda of continuous Improvement from happening.

Those critics with that misinformation can also discourage people from going into the special-needs plans for the dual eligible people — and we know that those people with those significant health care needs are often in big trouble in their fee-for-service care sites.

We know that on foot amputations, we know as a country that low-income people are 10 times more likely to lose a limb, we also know that the basic care delivered in the special-needs plans improves the patient status level from the 7 percent of the people being at very high risk to only 2 percent at very high risk for the people in the plans.

That’s a huge improvement — and we don’t want the people who distrust the coding levels of the plans keeping people in care settings where they will lose a leg and have permanent damage — over a 40 percent two-year mortality rate for those patients.

It’s just wrong to steer people away from that better care and to do it with bad and functionally irrelevant information.


As a country, we should be supporting the approach that spends 15 percent less and delivers better care and also that tees up the approaches that can actually lead us to better care as a nation.

When the Affordable Care Act was passed, the insurance reform issues, the Medicaid expansion issues, and significantly improving the Medicare purchasing model reform were all key parts of that process and they were all high priority goals for the program.

The designers of the Affordable Care Act knew that to get the best care design elements and to get the systems to work together as a package would require the use of a capitation payment model to purchase major portions of our care.

This is the right time to have that tool in place.

We have amazing new medical science that is taking blood and other fluids and identifying and predicting dozens of cancers. We have new algorithms that look at remote monitoring and can predict with 80 percent accuracy who will have a heart event in the next year.

We have care linkage tools that can deliver patient-focused team-based care and we currently have tens of thousands of patients who are actually getting full hospital care in their homes and having better outcomes than those same patients had in traditional hospital beds.

We need someone to pay for that care in at least some settings as it is being rolled out or it won’t happen. We already have Medicare Advantage plans from a couple of sources who have set up relationships with the vendors and with the care sites for those next generations of care and the plans are integrating those enhancements both into the current generation of care that they deliver and into their plans for future care.

The plan connectivity levels are the best in the country now and they will get better.

We should decide as a country to go down that path in both intentional and strategic ways and we should use Medicare Advantage as the vehicle for making big pieces of that agenda happen.

That’s our future.

We should be on a golden age path to care. Having key pieces of that trajectory funded by major savings for the Medicare program is a good place to be.

It creates momentum at multiple levels that we will appreciate more as we gain skills and abilities in all of those areas with the Medicare Advantage plan channeling and guiding some of those approaches and patient-care agendas.


Killing even the possibility of upcoding by using encounters to collect diagnosis information was an important part of the strategy and it’s now in place.

No one can explain any way that information that is being created now could be damaged or distorted by anyone and we need that to be clear to the people who still fear that the cash flow is wrong for the plans.

This could be a wonderful year and decade for care if we do this right.

The beauty of the opportunity that we face right now is that we don’t need to pass one single law to make that better future happen for millions of additional people. We have the key pieces already in place to enhance care for the country.

We can use the tool kit we have now and ride that wave into much better care in relatively simple ways just by not interfering with the normal growth patterns we have now for the plans, and by getting many more people into special-needs plans so that they aren’t as damaged by the social determinants of health issues they face now.

We need the lowest income people to be in the plans and we need to have the rest of the members benefiting from the approaches that we are setting up with the plans.

The Affordable Care Act very intentionally and strategically channeled significant resources into setting up a competitive use of capitated care for our Medicare members — and it worked.

We don’t need to enroll everyone in the plans. The higher income people who want to buy supplemental coverage and keep their traditional Medicare coverage should be able to do that because they are willing to pay for that coverage out of pocket, and they will be much happier if they aren’t forced into care settings rather than voluntarily joining plans. Medicare Advantage should take no prisoners. We need voluntary enrollment to be the model. We should strongly encourage the special-needs plans dual eligible people to enroll in the plans, but we want that to be voluntary.

We know that the death rate for many dual eligible patients with some conditions runs at about 40 percent, and we know from a year-long study of all dual eligible people that the death rate for the people who enrolled in the Medicare Advantage SNPs was 3 percent. So, over time, those outcomes will damage the enrollment to the plans.

We also know that the organizations that provide wrap-around insurance for most of the higher income fee-for-service enrollees for Medicare supplemental plans coincidentally but very conveniently seem to all have Medicare Advantage plans that they own or run.

There seems to be about a 90 percent overlap on that issue.

So, there’s some alignment at some important levels on some key aspects of care there with those patients and with those insurance settings as well that will only make that overall care improvement process more likely to succeed for everyone.

We know from the current 2023 Medicare trustee annual report that Medicare Advantage — in total with every current benefit and program and cashflow issue in place — cost Medicare $402.3 billion for 2022. We know that the overall Medicare program had a 6.2 percent increase in total revenue for the year. We know that the enrollees in Medicare Part A and Medicare Part B had an 8 percent increase in costs for the year.

We know that Medicare Advantage had a 4 percent increase in the cost per member for the capitation levels for the year.

We know that means that we lost money on every Medicare Part A and Medicare Part B member — and that we actually gained ground on every Part C member.

That trusteed information and data set means that we can save the Medicare trust fund if we enroll more people in Medicare Advantage.

It also says we should support getting the Part A and Par B members in any ACOs that exist in their community.

We also know that they had an unexpected decrease in hospital expenses in Medicare Part A, because a higher number of dual eligible people left that program and enrolled in Medicare Advantage special-needs plans, and they cost significantly less with Medicare Advantage.

The upcoding issues still need to be addressed and understood so people will be able to appreciate what a good thing it is for Medicare Advantage to be saving the trust fund, and far too many people won’t trust that direction because they have such low opinions of any process that upcodes in damaging ways, and does the things that the Health Affairs article says that the plans are doing.

Health Affairs has not been willing to print a rebuttal. If you know anyone there, ask them to change their mind on that issue.

Let’s enjoy the ride.

We are absolutely in control of that process, and anyone who doesn’t believe that to be true should look at what CMS actually does with those tools and with  the power we have to use them today, and use them now.

Be well.