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If you qualify for Medicare, you might actually be covered by a private insurer. Here's how that works. Medicare Advantage is the US government's way of offering Americans who are sixty five and older more options when it comes to health insurance. People who opt into the program are covered by private insurers like United Health Group. Those insurers get a monthly payment from the government to provide coverage for
the people enrolled in their plans. Today, more than half of the people enrolled in Medicare use a private Medicare Advantage plan. But last week, a source familiar with the matter told Bloomberg News that the US Justice Department has a civil investigation into Medicare billing practices at United Health Group,
one of those participating private insurers. The question at the center of that investigation, which was first reported by The Wall Street Journal, is are insurers working the system to get higher payments from the government.
Companies invest a tremendous amount of time, effort, money resources into documenting the illnesses that their members have because it means money coming in the door, right.
That's Bloomberg Healthcare reporter John Tazzi.
But the issue that has emerged is there's some ambiguity in the rules and in litigation. In cases whistleblowers have brought to light in audits by federal watchdogs, We've seen instances of plans pushing or breaking the rules to maximize the amount they can get paid through the system.
United Health pushed back in a statement saying the company wasn't aware of the launch of any new activity and called suggestions of fraud quote outrageous and falls but the investigation highlights in ongoing behind the scenes fight between private insurers and the US government. John spoke with a woman named Teresa Ross, who worked for another insurer offering Medicare advantage coverage, a company called Group Health Cooperative in Seattle.
I joined Group Health Cooperative in May of ninety eight and loved that organization. I still love a lot of what it stands for. But I saw my organization that I loved so much do some things that I wasn't comfortable with.
Teresa ultimately reported her concerns to the Department of Justice, and the practices she blew the whistle on could point to a major flaw in the Medicare advantage system. One that might be costing American taxpayers billions of dollars. This is the big take from Bloomberg News. I'm David Gura
today on the show. Every year more and more Americans enroll in Medicare advantage plans, but the private company companies who offer those plans are now under scrutiny, raising questions about how hundreds of billions of taxpayer dollars are spent. Every month, part of your paycheck goes directly to a fund that pays for Medicare, the government health insurance option for Americans sixty five and older and for some younger
Americans with disabilities. When you enroll in Medicare, you have two options, a traditional public option where the government pays doctors directly for tests and services, and something called Medicare advantage. Here's Bloomberg healthcare reporter John Tazzi.
Medicare advantage is a privately managed version of Medicare, and it means you basically get your Medicare benefits through a private insurance company.
How long has it been around?
So it's been around in some form, gosh, probably going back to the nineteen eighties. Not called Medicare advantage, but some form of private contract in its current format really started in the two thousands and has taken off significantly in the last ten or twelve years. Who've just seen like rapid growth into this program.
The number of participants enrolled has actually doubled in the past decade. Out of the sixty eight million people with Medicare coverage, over thirty four million people or on a Medicare advantage plan. John says there are reasons why someone might choose a private option for Medicare coverage. Advantage plans sometimes wind up costing participants less by capping out of pocket costs and offering lower premiums.
The other thing is that they are able to offer additional benefits that aren't covered by traditional Medicare. These include things like dental care, vision, even transportation to medical appointments. Some plans can help people you know with groceries or over the counter health products.
And to incentivize private insurers to cover Americans with various health conditions, the government created a system call called risk adjustment.
And this is basically designed to pay plans more for signing up sicker members. Right, somebody with cancer signs up for your Medicare advantage plan, they're going to have higher medical costs than somebody without cancer. The government wants to make sure that there is money flowing into the plan to cover that person. This has led to an extremely complicated set of regulations and processes to determine how much the government should pay these plans for members with different diagnoses.
Traditional medicare pays doctors and hospitals directly for a treatment or a visit, but through Medicare Advantage, the government pays the private insurer a fixed fee for each patient covered. Because it's higher risk to ensure someone with a pre existing condition, the government will pay insurers more to cover a patient with more severe illnesses. The private insurers report their patient's conditions to the government through a complicated billing
system using diagnostic codes that represent different illnesses. This is where Teresa Ross comes in. She was working on risk adjustment at the private insurer. She worked for Group Health Cooperative, which means she was managing the diagnostic codes and systems her company used to track patient's health.
Their risk adjustment program developed all of the systems and processes related to making sure that coding was accurate and complete.
In twenty eleven, Group Health started working with an outside vendor that looked through patient's charts to identify misdiagnoses. The stated goal, Teresa said was to improve care to identify patients who had problems that hadn't been addressed. But medical coders on Teresa's team were coming to her with concerns.
There were people all over the place saying, look, this isn't right. I was taking a closer look too.
When Teresa looked at the quote und quote misdiagnoses, what she says she found shocked her.
Anybody who has oxygen, they were coding with hypoxia, which is one of the highest payment amounts that you can get.
That meant anyone getting even a small amount of supplemental oxygen as part of a treatment was being coded as having a life threatening condition where the body doesn't absorb enough oxygen, even though oxygen can be prescribed for less serious conditions like sleep apnea. And that was just one example. John Tazzi spoke with Teresa recently about her observations.
I mean, when you're getting paid by the diagnoses, each time that they call somebody a diabetic, for example, that was an extra five hundred bucks in their pocket.
So you found all these inaccuracies in the codes. How did you kind of come to the conclusion that this was intentional? Was there like a time that you kind of really figured out what was going on here?
It wasn't, you know, an epiphany one day, More like over a couple of months of meetings and auditing this stuff. There were enough of us within the organization that at least should have known that this was wrong. And all this is of course, I'm the director of risk adjustment right at this point, all this is being done under me.
Kaiser Permanente, which acquired Teresa's former company in twenty seventeen, has since denied Teresa's allegations. Teresa called her company's internal whistleblower hotline. She went to leadership and expressed her concerns.
At every turn, I was overruled, and then they started excluding me from meetings. I knew I had to do something. I just knew I can't let this happen.
So Teresa took another route. She filed a sealed whistleblower lawsuit against the company, which led the Department of Justice to pick up her case.
I actually even wore a wire, so the FBI actually wired me up.
Teresa's internal sting operation, what came of it, and what cases like hers mean for millions of Americans after the break. After Teresa Ross filed her complaint, the Justice Department started investigating. Teresa says when a meeting would come up on the topic of Medicare advantage coding, the FBI would sent her in with a wire to record what was happening.
It was extraordinarily stressful. You're always wondering are you going to be found out when you're wired like that, right, I mean thinking, you know what a dead battery moment happens with the recorder, you know, starts beating or something, and of course that doesn't help your health at all. So you know, over these you know, several years, I have actually had some health issues as a result of it.
It took twelve years after she filed her initial complaint and started building the case for it to reach a conclusion. The vendor that worked with Teresa's former company has since shut down, but its parent company, a New York insurer called Independent Health, settled her lawsuit for up to ninety eight million dollars this past December. Teresa will get some of that money. Independent Health didn't admit liability in the settlement.
It said the agreement would avoid the further disruption, expense, an uncertainty of litigation in a matter that is lingered for over a decade. The former CEO of that vendor also agreed to pay two million dollars to resolve the allegations. Her attorney said she settled to avoid protracted litigation and didn't admit any liability. Teresa's former company also settled its portion of the lawsuit in twenty twenty for six point
three million dollars without admitting liability. A spokesperson for the company told Bloomberg News in twenty twenty two that it submitted its data in good faith and relied on the recommendations of its vendor. Teresa Ross is not the only whistleblower whose raised concerns about private insurers allegedly exploiting loopholes in the Medicare advantage system.
A problem that has been bubbling up for years is that this system risk adjustment system is subject to manipulation.
Right, Bloomberg healthcare reporter John Tazzi, Again.
This is not one anomalous thing that happened at one company. The kind of activity that she described I think it's now understood was pretty widespread in the industry.
In recent years, the Department of Justice has investigated cases against many of the biggest Medicare advantage providers. The Medicare Advantage industry disputes the idea that the plans are overpaid. Industry group Better Medicare Alliance says private plans save the government money and provide more value for beneficiaries. The group also says the Medicare Advantage program requires complete and accurate
diagnoses to determine government payments for senior's care. The group says plans are audited and that it supports comprehensive audits. The Medicare Payment Advisory Commission, a legislative agency that advises Congress, says the government overpaid Medicare Advantage plans by more than
five hundred billion dollars since two thousand and seven. That's compared to what traditional Medicare would have cost to cover the same people, and with the Medicare fund expected to run out by twenty thirty six, those billions in overpayments make a difference. All of this is unfolding as a contentious fight plays out in Washington over spending in recent weeks, congressional Republicans suggested cuts to Medicaid, the program that covers
lower income Americans. The Trump administration hasn't threatened Medicare, but Elon Musk's Doze initiative's goal is to slash federal spending across the board. During the Biden administration, the government made an effort to crack down on Medicare advantage over payments.
The agency that operates Medicare has made some changes. They've made some adjustments to what's called the risk model that sort of determines these payments to make it a little bit less subject to manipulation. They've removed some of the diagnoses that used to be associated with payment, and that's hit the companies.
Some companies have responded. In twenty twenty three, one insurer, Humana, sued the government in an attempt to block a policy aimed at cracking down on billions of dollars in alleged overpayments. Theresa told John she's still adjusting to not living under constant stress, but the settlement felt good. She said, like she'd really made a difference because, at the end of the day, alleged Medicare advantage manipulation impacts any tax paying American and anyone getting coverage from the plans.
People need to understand just how vast this program is and the huge amount of money at stake. The amount of money involved is hundreds of billions of dollars. It's a not insignificant portion of the us GDP that runs through Medicare and Medicare advantage, right, So if there are systemic manipulation or fraud in this program, that's a huge amount of taxpayer dollars that are potentially being wasted. I think the other thing to you know, keep in mind
is it does matter for patients and individuals. If you're a patient and you know there's something in your medical chart that is not accurate, you know that could have consequences for your healthcare.
I'll ask you lastly, just what do we know about the Trump administration's approach to this issue or what it might be if it's still not fully formed.
I don't think we know a whole lot yet. I think in general, there's an expectation that Republican administrations in general, and that the Trump administration will be more favorable to private insurers, and Republicans have typically in defenders of the Medicare advantage program. But that said, I think you know, the attention on this issue in the last couple of years may have came to the calculus for some people, particularly when you're looking at people concerned about government spending.
We have Elon Musk looking for ways to cut purportedly trillions from federal spending. I think anybody who's sort of familiar with where the federal government's money goes has to look at Medicare and Medicare advantage.
John, Thank you very much.
Thank you.
This is The Big Take from Bloomberg News. I'm David Gura. This episode is produced by Julia Press. It was edited by Aaron Edwards and Emma Port. It was mixed and sound designed by Alex Sagura and factchecked by Andreana Tapia. Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole Beamster. Board Sage Bauman is Bloomberg's head of podcasts. If you liked this episode, make sure to subscribe and review The Big Take wherever
you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow,