A recent study by OIG found that a high number of claims denied by Medicare Advantage Organizations (MAOs) were overturned upon appeal and that CMS audits persistently found inappropriate claim denials.  OIG is concerned that MAOs are improperly denying services to beneficiaries and payments to providers.  OIG recommended that CMS enhance its oversight of MAO contracts and take additional action to address these critical issues.

Purpose of OIG’s study:  OIG’s study, released on September 16, 2018, had two objectives: (1) to determine the overturn rates of service and payment denials at each level of the appeals process from 2014-2016; and (2) to access CMS’s 2015 audit findings and enforcement actions related to denials and appeals.  OIG noted that a central concern with the capitated payment model used in Medicare Advantage is “the potential inventive for insurers to inappropriately deny access to services and payment in an attempt to increase their profits.”

Methodology:  To evaluate the volumes and rates of appeals and denials overturned on appeal at the MAO level, OIG analyzed annual performance data that MAOs reported to CMS for each of their contracts from 2014-2016.  To evaluate the volumes and rates of appeals and overturned denials by independent reviewers at higher levels of the appeals process, OIG analyzed Quality Improvement Organization and Independent Review Entity data from CMS, administrative law judge data from the Office of Medicare Hearings and Appeals, and Medicare Appeals Council data from the Departmental Appeals Board.  To determine the number of contracts that CMS cited for violations, OIG analyzed the final audit reports that CMS issued to the 19 MAOs that were audited during 2015, which collectively administered 140 contracts.

OIG’s Findings:  OIG’s study found that when beneficiaries and providers appealed preauthorization and payment denials, they were usually successful in getting the denials overturned.  From 2014-2016, OIG found that MAOs overturned 75 percent of their denials upon appeal, amounting to approximately 216,000 denials overturned per year.  Most of the overturned denials (82 percent) were for payment to providers for services the beneficiary had received.  The remaining overturned denials (18 percent) were for preauthorization of services that the beneficiary had not yet received.  OIG’s study found that independent reviewers at the higher levels of the appeals process overturned additional denials in favor of beneficiaries and providers.  The study found that these independent reviewers overturned between 10 and 27 percent of the appealed denials that they reviewed.

OIG found the high rates of overturned denials on appeal to be “especially concerning” because beneficiaries and providers appealed relatively few (1 percent) of the total denials issued per year.  OIG’s study also found that the rate of overturned denials varied widely by MAO contract.  For example, while the median overturn rate in 2016 was 77 percent, OIG found that 76 MAO contracts overturned more than 90 percent of their denials upon appeal, including 7 MAO contracts that overturned more than 98 percent of their denials on appeal.

OIG also found that, despite CMS’s efforts to educate MAOs about persistent problems each year during audits of different MAOs, CMS was still finding many of the same violations as in previous years.  Among these violations, OIG noted that CMS’s audits revealed “persistent problems related to denials of care and payment.”  For example, OIG’s study noted that in 2015, CMS cited 79 of the 140 audited MAO contracts for violations related to inappropriately denying requests for preauthorization of services and/or payment.  CMS also cited 63 of the 140 audited MAO contracts in 2015 for sending incorrect or incomplete denial letters, which could inhibit beneficiaries’ and providers’ ability to appeal according to OIG.

OIG’s Recommendations to CMS:  Based on OIG’s study and the concerns raised about inappropriate claim denials by MAOs, OIG provided CMS with three recommendations:

• CMS should conduct additional oversight of MAO contracts, including those with extremely high overturn rates or extremely low appeal rates;
• CMS should address persistent problems related to inappropriate denials and insufficient denial letters in Medicare Advantage.  OIG suggested that actions could include a combination of technical assistance, training, education, and increased monitoring or enforcement actions for MAOs that exhibit these persistent problems; and
• Given that CMS’s audit results no longer impact MAO Star Ratings, CMS should develop another method for informing beneficiaries of serious violations identified by audits.  OIG also suggested that CMS revisit policy options for adjusting Star Ratings in response to audits and enforcement actions to ensure that Star Ratings serve as a “one-stop shop” for beneficiaries to evaluate differences in performance among MAOs. 

OIG’s study stated that CMS concurred with all three recommendations.  A copy of OIG’s study is available here.