Medicare Disadvantage: The Down and Dirty of Capitation

OIG report cites widespread MAO problems related to denials of care and payment.

Medicare and Medicaid are moving steadily into a capitated model system – or should I say, “have moved.” A central concern about the capitated payment model used in Medicare Advantage is the financial incentive for Medicare Advantage Organizations (MAOs) to inappropriately deny access to services and reimbursements for services rendered to increase their profits.

A MAO that inappropriately denies authorization of services for beneficiaries or payments to healthcare providers may contribute to physical or financial harm, and doing so also misuses Medicare program dollars that the Centers for Medicare & Medicaid Services (CMS) paid for beneficiary healthcare. Medicare Advantage covers more than 20 million people in 2018, so even low rates of inappropriately denied services or payments can create significant problems for many Medicare beneficiaries and their providers.

The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) released a new report on the MAOs on Sept. 16. The report indicated that when beneficiaries and providers appealed preauthorization and payment denials, MAOs overturned 75 percent of their own denials during 2014–16, or approximately 216,000 denials each year. That doesn’t even take into consideration the number of overturns by independent reviewers in favor of beneficiaries and providers at higher levels of appeals. This begs the questions: a) Why are the MAOs denying so many requests for services? and b) Why aren’t more providers appealing the adverse decisions?

This new OIG report demonstrates widespread and persistent MAO performance problems related to denials of care and payment. For example, in 2015, CMS cited 56 percent of audited contracts for making inappropriate denials. CMS also cited 45 percent of contracts for sending denial letters with incomplete or incorrect appeal information.

Medicare Advantage plans, also known as Medicare Part C, are one way for beneficiaries to receive their Medicare benefits. These plans are required to offer everything that’s covered under original Medicare, Part A and Part B, with the exception of hospice care, and may include other benefits as well, such as prescription drug coverage, dental, and vision.

The appeals that were reviewed in the OIG report were overwhelmingly provider appeals (94 percent). High rates of overturned denials upon appeal are especially concerning because beneficiaries and providers appealed relatively few of the total number of denials issued each year.

However, there are concerns that the Medicare appeals process can be confusing and overwhelming, particularly for critically ill beneficiaries. This may be one reason why beneficiaries and providers appealed only 1 percent of denials to the first level of appeal — reconsideration by their MAO or the Quality Improvement Organization (QIO) — during 2014−16.

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