Transcript of Conference Call on CMS’s Proposed Changes to the Medicare Advantage Risk Adjustment System Transcript with Dr. Rick Gilfillan

Mar 28, 2023

On March 21, The Capitol Forum held a conference call with Dr. Rick Gilfillan to discuss CMS’s proposed changes to the risk adjustment system and what medical diagnosis are likely to be affected. The full transcript, which has been modified slightly for accuracy, can be found below. 

LISA EPSTEIN: Hi, good morning. Thanks for joining today’s conference call. I’m Lisa Epstein and with me today is Dr. Rick Gilfillan. Today we’ll discuss CMS’s proposed changes to the Medicare Advantage Risk Adjustment System.  

Before we get started, I would like to go over a few housekeeping items. You’ve joined the presentation using your computer speaker system by default. If you prefer joining via telephone, select telephone in the audio panel. The dial-in information will appear. To submit text questions to today’s presenters, type them into the questions pane of the control panel. You may send in your questions at any time during the discussion for us to answer towards the end of today’s conversation. 

Dr. Gilfillan began his medical career as a family medicine physician in rural Massachusetts. He has worked in the healthcare system in for-profit companies, non-profit organizations and government agencies.  

In 2010, he was appointed by the Obama Administration to serve as the first Director of the Centers for Medicare and Medicaid Innovation at CMS where he developed a new team that worked with payers and providers to develop deep innovative models for improving patient care and reducing costs.  

Prior to and after his appointment at CMMI, Dr. Gilfillan served in a variety of senior roles across the industry. In 2021, he coauthored a two part series of posts in health affairs that criticized CMS for overpaying Medicare Advantage Plans with no demonstrable clinical benefits to patients. In doing so, he and his coauthor sparked a heated debate on the methodologies CMS uses to determine how much to pay Medicare Advantage Plans and to provide care for Medicare beneficiaries.  

This year alone it’s estimated that the Medicare Trust Fund will be drained of $27 billion in excessive and unwarranted payments to Medicare Advantage Plans who aggressively find, gather and submit diagnoses codes that don’t add to the cost of care. These payments, as Dr. Gilfillan will discuss, transferred billions of dollars of taxpayer money to Medicare Advantage Plans and Medicare Part B beneficiaries many of whom are low income seniors bearing some of this cost too. 

Finally, CMS proposed in the 2024 Advanced Notice of Methodological Changes to the Medicare Advantage Rates, Capitation Rates and Part C and Part D Payment Policies to rein in these long-standing strategies some innate plans have engaged in to get more money from CMS, money that is not used to provide better care for Medicare beneficiaries.  

Further, the aggressive diagnosis coding strategies have a very anticompetitive effect that we’ll be getting into later in the call. 

Also later in the call we’ll be discussing Dr. Gilfillan’s analysis of the study by UnitedHealth Group researchers published by the JAMA Health Policy in December of ’22. The study compared a cohort of MA patients with a matched cohort of patients with traditional Medicare. The MA population were reported to be much sicker than the traditional Medicare population while MA patients actually have lower incidents of illness. We’ll post a link to the study in the chat several times during the call. 

Rick, first of all, thank you so much for your willingness to speak with us today. You have a wealth of knowledge and you have sparked some interesting debate about these issues. Before we start, do you mind giving us a brief overview of how CMS pays MA plans? Just start with how CMS figures out how much to pay these plans and how that rate can be boosted through various means. 

RICK GILFILLAN: Certainly, well thank you very much, Lisa and thanks to The Capitol Forum for having me today. I appreciate this opportunity.  

Simply put, the whole idea of Medicare Advantage or privatized Medicare was to see whether or not insurance companies could actually provide coverage for Medicare beneficiaries that at a lower cost saving the government money, improving care and improving the services that are available. 

They established a methodology using what’s called benchmarks which is the amount of money Medicare pays every month to cover an average FFS beneficiary. To just keep it simple, let’s just say it’s $1,000 per person per month or $12,000 a year.  

The idea is that Ais supposed to cost less than that. CMS basically asks the MA plan submit a bid for how much it will cost them to provide this coverage for, compared to the $1,000 it costs on average in the FFS program.  

Now not every patient is the same. Some patients are sicker than other patients, so Medicare included a methodology that says, “When I pay you, I will adjust my payment based on how sick your patients look. If they have an average illness status, then I will send you a check and multiply the payment amount that I agreed to pay you in your bid times one. If you bid $800 versus my benchmark of $1,000, I’ll send you a check every month for each patient for $800 if the risk score is one. Well, if the risk score is higher than one, I’ll multiply the $800 that I said I would pay you times your risk score. If my risk score goes up from one to 1.2, that is my patients look sicker, I’ll send you a check for not $800, but $800 times 1.2 or about $960.”  

That extra money, that risk adjusted payment, is really what we’re talking about here as a major driver of overpayments because if I can make my patients look sicker, get that risk score up from one to 1.2 as an example, then all that extra money will come my way and if my patients aren’t sicker, it can become pure profit. 

LISA EPSTEIN: Okay, then are there other payments from CMS that are based on that baseline bid amount times the risk score, like rebates, administrative payments or quality rating payments? 

RICK GILFILLAN: Yes, well what happens is Congress has legislated some additional payments above that $1,000 benchmark. Congress has said we’ll pay you extra money if your quality scores look good and we’ll pay you extra money in certain counties where our Medicare expenditures are lower. Together those two bonuses take the benchmark roughly instead of being $1,000 it’s about 9% higher according to the MedPAC, the advisors to Congress on the Medicare Program. That means the benchmark actually goes up from $1,000 to roughly $1,090 for an average risk population. Those dollars again become available to the MA plan. 

Now, there is another piece of the way Medicare pays MA plans. Basically, Medicare says if you can demonstrate savings to me, versus the benchmark I will let you keep 2/3 of it to use to improvebenefits and I will keep 1/3.“Let’s say you bid $800 but my benchmark is $1,000. That $200 difference? Medicare will keep one-third of that and I’ll give two-thirds of that back to you as a ‘rebate.’ You can use that to improve benefits, to offer extra coverage or to decrease premium that Medicare beneficiaries pay for drug coverage or for their Part B coverage.”  

That rebate is also directly impacted by the risk score. If I have an average risk population and I submit a bid for $800 and Medicare sees the benchmark as being $1,000, then my rebate would be $200 times roughly two-thirds, or about $130. If I can get that risk score up, it increases my benchmark. Instead of my benchmark being $1,000, my benchmark is now $1,200. That extra $200 looks like more savings in the bid so I got 2/3 of it. Instead of $130, that allows me to offer better benefits or lower premium costs or supplemental benefits and extra profits. That extra risk adjustment payment is what becomes the driver of Medicare Advantage’s rapid growth over the last ten years.  

LISA EPSTEIN: Okay, that’s really interesting because that’s a part that gets lost in how inflated risk score has downstream effects to how much CMS is paying.  

Now another thing that we’re going to be discussing is the Medical Loss Ratio Rule or MLR rule. Can you just briefly explain to us so we have a little bit of background knowledge on what that is? 

RICK GILFILLAN: Sure, so in insurance, a medical loss ratio is simply a ratio formula where the numerator is the dollars I spend for medical care services and the denominator is the premium I receive for that patient. In a typical world, a simple medical healthcare coverage world, about $0.85 of every dollar that an insurance company collects in premiums is expected to be spent on medical services. About 5% is profit. About 10% is administrative costs. The medical loss ratio is 85/100, or roughly 85%, a commonly assumed medical loss ratio in a lot of insurance coverage. CMS has a rule that for Medicare Advantage you need to meet that 85% loss ratio. 

LISA EPSTEIN: Okay, so CMS tells Medicare Advantage plans they have to spend $0.85 of every dollar on medical care? 


LISA EPSTEIN: Okay, now one last thing to go over the basics before we get into some of the details of what CMS is proposing to change related to Medical Advantage plans financial relationship with physicians’ practices. From what I understand Medicare Advantage plans can either contract with physician practices or actually own them. Can you just briefly explain the difference in that financial relationship and how risk score coding comes into play? 

RICK GILFILLAN: Sure, so for a moment think about how can I get my risk score up. How do I find more diagnoses codes? If I’m an ordinary fee for service doctor just submitting claims to Medicare for my Medicare patients, I don’t put a lot of diagnoses on every claim I submit. I just look for one diagnosis that says this person has an illness, they’re seeing me for that illness and that allows CMS or Medicare to pay me my claim. The reality is that in the typical Medicare fee for service world, there are not as many diagnoses submitted. 

Now let’s go to the world of MA, and there the MA Planis in effect paid by how many diagnoses it can submit on a patient. Where is the best place to get more diagnoses codes? Well, from the physicians that are seeing patients and submitting claims.  The MA world has developed a whole series of mechanisms to encourage physicians and providers to submit more diagnoses.  

The best example of this is people trying to document blockages in people’s arteries in their legs. This is a very simple example. If you are 25 years old, chances are the arteries in your legs are wide open, clear and you have good circulation. If you have severe peripheral vascular disease, blockage in the arteries in your legs, then you may very well have You might have symptoms and if I’m a doctor seeing you, I would submit a claim that says you have peripheral vascular disease or peripheral arterial disease (PAD).  

Well, an example of how you get more diagnoses is there is a whole industry that was created to send people into homes to detect even very minimal changes in the arteries of people who are over 65 and Medicare beneficiaries even if they have no symptoms. Normally most studies say probably 20% of people have some clinically significant peripheral arterial disease. Well, now what we’re seeing in MA plans are rates of 40% and even 50% of people diagnosed with that because they’ve done these screening tests, which are not recommended, in people’s homes by sending nurses into people’s homes to document this.  

Now the question is how can I get even more diagnoses? The plans have come up with contracts with physicians’ practices that basically say, “I will pay you a percentage of the premium I get for your patient from CMS and I will measure the medical expense against that and you can have the savings that you demonstrate as a result of presumably increasing revenue or decreasing medical costs.” 

Of course, it’s much easier to increase premium by increasing diagnoses. These percentage of premium contracts now allow the doctor to participate directly in the upcoding of patients and the resulting increased premium. They get 85% of all the increased premiums and it becomes a profit for the doctor or the people who own the practices. That percentage of contract approach has become very widespread and has led to a lot of the increased coding and overpayments we’re seeing.  

Now the size of those profits can be quite large, even dwarfing the profits of the insurance company. What has happened is insurance companies have said why don’t I own the practice? Now I get the profits from the insurance product I sell and I get the profits from the doctors’ practice where I have created these percentage of premium contracts. 

The net result of that is medical loss ratios are hidden, if you will. The reality is that the dollars spent on actual delivery of healthcare services to these folks becomes much less than 85%. We believe they’re in the range of 70% or even less. 

LISA EPSTEIN: Okay, that’s a lot to digest. Why don’t we move into CMS’ proposed changes in the 2024 Advance Notice that specifically target this practice of scrounging up diagnoses codes to increase payments from CMS. What diagnoses were specifically targeted and why? 

RICK GILFILLAN: Well, Lisa, CMS was very clear in what it was trying to do in the advance notice. They said basically, we are going to address this issue of discretionary coding, if you will. So, not surprisingly, they went after the very codes that were most frequently used to drive higher payments, specifically they went after the codes associated with the peripheral vascular disease example I suggested. And by the way, each person who is coded up to have that diagnosis would deliver an extra $3,000 per patient per year to the MA plan. It’s not small dollars. It’s like a 30% increase, big dollars. CMS went after that particular code. 

CMS also went after codes associated with diabetes where people would code patients as being more complicated rather than less complicated. CMS went after that code.  

CMS went after a somewhat more obscure code for protein malnutrition which actually ended up paying about an additional $6,000 per patient per year. That code is really very discretionary. People can look for ways to make that diagnosis or not. CMS was seeing a dramatic increase in that code as well. 

CMS also went after some more discretionary codes associated with coronary artery disease. That is arterial blockages around the heart, where again there is questionable coding practices.  

Then CMS looked at a lot of discretionary diagnoses codes having to do with behavior health or substance abuse where people were documented with three or four times the level of those diagnoses in the Medicare Advantage population as they were in the fee for service population. 

LISA EPSTEIN: How do you think the plans justify over-diagnosing substance abuse? 

RICK GILFILLAN: Well, I think they just encourage providers to be very liberal in their categorization of folks. Is the occasional use of marijuana for example indicative of substance abuse or not? Things like that. Are two drinks a day a problem? Those kinds of discretionary approaches are probably in play here, but we have seen in the UnitedHealth Group study you mentioned dramatically higher incidences of those diagnoses compared to the matched fee for service population they compared their MA population to. 

LISA EPSTEIN: Okay, so in your March 6th letter with your many colleagues that wrote to CMS in support of their changes, you listed eight reasons that your group supported these. I’d like to read the reasons one by one and then have you go into a little bit of detail. 

Your reason number one is that the Risk Adjustment System has allowed plans to in effect set their premiums by incessantly creating, hunting for and submitting more diagnoses codes to CMS resulting in overpayments that are projected to total more than $600 billion over the next eight years.  

RICK GILFILLAN: Well, the publication of our articles around this was what we called “the emperor has no clothes” moment. It was clear. Everyone knew what was going on. Everybody knew what the magnitude of the dollars were, but no one was talking about it quite the way we presented it. The figure of $600 billion is pretty well documented. It’s probably out of date now. It’s probably low because the rate of coding increase has accelerated in the last couple of years. It’s pretty clear that this was well-known.  

I think frankly the UnitedHealth Group study now is a moment where the authors from United Health and Optum have basically shown us exactly the magnitude of what’s going on. They basically demonstrated there that they actually submitted or created twice as many HCC codes, which stands for Hierarchical Condition Category. Those are the codes that CMS pays them for.  

They had an average of three codes per person as opposed to the fee for service population they said was comparable. They established a comparable group which was 1.56 per person and that resulted, we projected, in about a 34% increase. It could have been translated to a 34% increase in payments. We don’t know for sure how much the increase would be because they didn’t present the frequency of every HCC, but we could project that at a minimum it would provide 34% more revenue.  That wasa the first time that we know of where we saw revealed by the MA plans employees the degree of coding going on. 

LISA EPSTEIN: That’s pretty dramatic and we’re going to get into that study a little bit further as we move along in your reasons. This one I find extremely interesting that Medicare beneficiaries themselves will pay out of pocket for about 15% of these overpayments or more than $90 billion. This represents a direct transfer of wealth from seniors to the insurance companies and investors. If you could explain that; how are Medicare beneficiaries paying? 

RICK GILFILLAN: Medicare beneficiaries, every person over 65 that qualifies for Medicare gets Medicare Part A that is coverage for hospital services, skilled nursing and hospice care. They get that automatically. They don’t have to pay for that. But to get Part B coverage, which covers physicians and other outpatient services, you have to pay a premium. Every year you pay about $160 a month, about $2,000 a year  to get that coverage.  The member premium for Part B is established by the Medicare actuaries to equal 25% of all the expenditures for Part B services that Medicare has in a given year.  

Those Medicare expenditures for Part B are made up of two pieces. One piece is the cost of Part B services that Medicare pays for beneficiaries in traditional Medicare.  

The other part is the allocation of the Medicare Advantage premium that is considered to be for Part B services. If CMS pays an insurer $1,000 a month for each of its patients, about $600 of that, or 60%, is considered to be a Part B service. That number gets added into the total amount of Part B services and at the end of the year, the actuaries at Medicare say okay, what did Part B services cost for those two populations? Now I’m going to take 25% of that entire cost and I’m going to allocate that into the Part B premiums that Medicare charges every beneficiary.  

It doesn’t matter if you’re in fee for service or in Medicare Advantage, you have to buy Part B by paying the premium every year. Those dollars, if you think about it that way, 60% of all Medicare Advantage expenditures of Part B multiplied by 25% that gets allocated to Part B premium. That’s roughly 15% of every dollar of overpayment gets allocated into Part B premiums that every beneficiary has to pay. 

LISA EPSTEIN: Is that every beneficiary whether in Medicare Advantage Plan or in traditional Medicare? 

RICK GILFILLAN: That’s correct. I have to pay Part B premium in order to be eligible to select a Medicare Advantage plan. 

LISA EPSTEIN: And that is deducted directly from the Social Security check every month from Social Security beneficiaries, is that correct? 

RICK GILFILLAN: That’s right. 

LISA EPSTEIN: Okay, so that is the direct explanation for the transfer of wealth from seniors, many of which are low income, to these MA plans. 


LISA EPSTEIN: I didn’t really understand that. I wonder how many traditional Medicare beneficiaries understand. 

RICK GILFILLAN: I don’t think anybody understands that other than a few of us who are doing this work, and by the way are Medicare beneficiaries! You get a notice from Medicare saying they’re going to take X number of dollars out of your Social Security check to cover Part B premium. That’s all anybody knows.  

I’m not sure that the Medicare Advantage people – sometimes I talk to them, I’m not sure they even know about Part B premium to be very honest. It doesn’t rise to the level of attention or concern certainly on the part of most Medicare Advantage executives. 

LISA EPSTEIN: So with Medicare Advantage, I’ve seen all kinds of ads saying “zero premiums, zero cost.” Where is that Part B premium for those beneficiaries? 

RICK GILFILLAN: Well, here’s what happens. Every Medicare Advantage person ends up paying their Part B premium. They have to pay that. Now some Medicare Advantage plans will take the rebate they get from Medicare and there are several things they can do with it. They can offer better benefits. They can offer lower premiums. That’s where zero premium Medicare Advantage plans come from. They come from the rebate, which comes from mostly from the subsidies that are in the benchmark and from quality and county bonuses and from the risk scores. That’s where zero premium comes from because much of the rebate is used to decrease the MA premium so they don’t have to charge the Medicare Advantage person a premium. The plan could also use the rebate to cover some of the Part B premium but that is not done as commonly.  Most MA patients typically are still paying all or most of their part B premium. The so-called zero premium product  may also include Part D drug coverage for no premium either because if they get a large enough rebate from the risk scores.  

A zero premium product still has copays, coinsurance for services, etc. that Medicare Advantage people have to pay. They may pay less out of pocket than a Medicare traditional beneficiary may have to pay, but they still are paying about 10% out of pocket.  

LISA EPSTEIN: Okay, on to number three. In a recent study by authors from the United Healthcare Group Optum which you discussed previously, and we’ve dropped the link to the study in the chat and we will include it in our post-call email as well, that study demonstrates that Medicare Advantage plans can generate approximately twice as many HCCs, or diagnoses categories, per person as there are in the equivalent fee for service traditional Medicare population despite the healthcare burden being somewhat greater in the fee for service population. 

You touched on this a little bit before, but in the context of your support for CMS changes, how do you foresee these changes, if they are finalized, equalizing or bringing down the excessive coding of diagnoses in Medicare Advantage? 

RICK GILFILLAN: Well, I think clearly in that study, they documented more than 50% of their folks with peripheral artery disease diagnosis, a diagnosis that I mentioned that CMS was eliminating. If they finalize that, it will certainly have a significant impact on that particular payment level. 

Now, the truth is that the CMS changes, as I say, they went after eliminating some significant discretionary coding opportunities. But also, by doing that, they redistribute the dollars that are in the overall calculations across some of the other less discretionary diagnoses. Some of that money will actually end up leveling the playing field.  

There are some MA plans, particularly nonprofits who provide great care who aren’t as aggressive about coding. For firms like that, this actually may be an improvement and make them more competitive versus the larger companies, typically for-profit organizations that have been very aggressive on the coding front.  

It’s a little hard to predict exactly what the impact will be on one versus the other, but I would think that if they finalize the proposed approach, there will be a leveling of the playing field if you will for some of those firms, which have been much more focused on really improving care as opposed to improving coding. 

LISA EPSTEIN: So it will not only lower some of the overpayments to Medicare Advantage, but it could also boost payments to plans that aren’t gaming the system as much. 

RICK GILFILLAN: I think that’s right and quite honestly, it’s a very sophisticated approach that CMS took. It’s not an easy thing to do politically. It’s a highly charged area and I think they did a remarkable job of trying to address a significant problem in a way that was nuanced and had positive implications for some of the organizations that have been trying to do a good job and do the right thing for their patients. I think you see in some of the pushback the reality that that’s the case. The MA world is not monolithic although there are some large companies that control a large market share. There are a lot of folks out there trying to do good things for patients. I think CMS did a nice job of trying to reward those folks and level the playing field. 

LISA EPSTEIN: Interesting. Okay, so this bullet point of yours really was eye-opening to me. You wrote, “Because of the financial value for each diagnosis category is calculated from the traditional Medicare data which has fewer codes with submission of more codes from MA plans result in marked overpayments.” In the case of that United Healthcare study, your estimate is that the data shows that it creates an opportunity for at least 34% increase in payment from CMS. That’s a lot. That’s one-third. I guess a lot of that is from the $3,000 a year from the peripheral artery disease but there are probably other factors involved in bumping up that rate, correct? 

RICK GILFILLAN: Oh yes. They provided a remarkable level of detail on the difference between the two populations. They first matched the population, the demographics, the state they were from, the reasons they qualified for Medicare, so they set it up as being comparable populations and then they demonstrate quite clearly how much more coding there was. It wasn’t just in peripheral vascular, there were areas as I mentioned in behavioral health and substance abuse that were three and four times as high.  

The rate of amputations as an example was three times as high, not because they actually did more amputations, but because they were able to go back in people’s records and find any history of it anywhere. That notice of looking for every possible diagnosis is a very real operational day to day reality that these folks face.  

The reason it works though is because the way CMS calculate how much each diagnosis is worth is based on the frequency of the diagnosis in the fee for service population. That $3,000 a year, that’s called the coefficient of how much money I get for a particular diagnosis, for peripheral artery disease as an example. That $3,000 comes from CMS figuring out how many people in traditional Medicare have the diagnosis. Because there are very many fewer, the average being 14% that are actually documented, if I figure out how much it costs, the numerator is how much it costs, the denominator in total for all patients is the number of people with that diagnosis. If that number is small, the coefficient itself goes up. If the total number of patients documented with that diagnosis was much higher, the coefficient would go down. When I take that high coefficient that’s determined in the fee for service population, that $3,000 number, maybe it should be less. Maybe it should only be half that, but it’s high in traditional Medicare because the cost to treat it is spread out over a low number of people diagnosed. When I take that over into MA and multiply it times three times as many people, obviously the overpayment becomes enormous. 

LISA EPSTEIN: Yes, it’s amplified. 

RICK GILFILLAN: The two things are synergistic and work together to create an incredible leveraging effect and that’s why 34% more payment opportunity was actually conservative because the United study did not provide the ultimate detail of every diagnosis. They grouped some. It was impossible for us to actually determine what would have been paid because, with more detailed data, we would have found other kinds of interactions of HCCs for which CMS pays even more money. Our guess is that probably that could have even approached 50% more revenue if we had more detail. 

LISA EPSTEIN: Okay, so in this analysis of the United Healthcare’s Optum study, you found that plans have used a percentage of premium contracts, which you talked about earlier, to entice providers into helping them drive more coding, higher premiums and more profits for all by simply arbitraging the difference between traditional fee for service Medicare and Medicare Advantage coding rates to make their populations appear sicker.  

Knowing this and how you discussed it before, how much human ingenuity, energy, effort is actually put in by these types of contracts hunting for diagnoses as opposed to improving care, getting better outcomes and innovating our healthcare system? 

RICK GILFILLAN: Well, first I want to start by saying that doctors and nurses and providers of all sorts caring for people with Medicare are primarily focused on doing the right thing for the patient and doing what the patient need clinically. That’s a given. It’s true for the vast majority of people in this industry, I think. They’re trying to do the right things for patients. 

What has happened is we’ve created an overlay on top of their very efforts. If I’m a doctor looking to take care of a patient and I have my electronic medical record and I’m documenting, I’m trying to do the right thing for the patient but I’m also getting a reminder in my face on my screen saying, “Make sure you document any history of amputations. Make sure you document any issues of peripheral vascular disease.” There is literally a set of reminders that are popping up on the screens of physicians around the country, probably in almost every practice at this point, suggesting diagnoses to document even as they’re trying to care for patients. That’s the pervasiveness of what we are talking about.  

We’re talking about sending nurses into millions of homecare visits that are primarily done to document things like peripheral vascular disease. It has really created this super structure of activity on top of well-intentioned people just trying to do the right thing for patients. To avoid getting calls and reminders, doctors and nurses will do all they can to document whatever needs to be documented to “close HCC coding gaps.” Then MA plans will send them reminders, “Did you close all these gaps?” And by the way, if you close 80% or 90% of the gaps, I’ll pay you extra money as a bonus. That’s what’s going on and attention to these gap closure rates. HCC risk scores are being captured not just at low levels or frontline levels, it’s being captured at the most senior levels of healthcare organizations around the country because there is so much money in play.  

Think about it; we’re talking about $600 billion in payments over the next eight years. That’s a lot of extra money that is flowing out to the health system and it’s virtually all without cost. The  cost associated with trying to get the diagnoses is minor compared to the dollars everybody is collecting as a result of submitting the diagnoses. 

LISA EPSTEIN: And that’s money that’s not necessarily going to treat the diagnoses that are being submitted. 

RICK GILFILLAN: The MA industry was originally,—and I helped manage a number of MA plans and this was certainly under our tenet—we thought were going to revolutionize, change the way the patient was going to be cared for. We didn’t know how but that was the goal. There has been progress made. There is more care coordination out there, but the money spent on that compared to the revenue being generated is much less. 

LISA EPSTEIN: Okay, so here is where you got into the medical loss ratio issue. Insurer owned primary care practices, like UnitedHealth owning primary care practices, Humana owns some, Aetna wants to buy Oak Street Health to own primary care practices, so insurer owned primary care practices using these contracts gives plans the opportunity to collect even more profit, masking the reality that the actual medical loss ratio for beneficiaries in these practices may run less than 70%, well below the 85% minimum required for plans by CMS. 

RICK GILFILLAN: This is pretty simple in a way. Someone described this to me the other day as being very simple. If Oak Street Health has a 72% loss ratio or 75% loss ratio and are reporting that, that’s obviously well below the 85% loss ratio that CMS is expecting them to have. That loss ratio on this patient population is not reported at the level of the practices.  

Around 2013 or ’14, investors became much more aware of this opportunity. Entire companies were built to take advantage of this, to actually go out and do a better job with risk coding. If I am one of those companies, if I’m running a 70% loss ratio, some doctors in Florida we have heard of making $255 per member per month on these kinds of contracts by increasing their risk scores and getting these percentage agreement contracts.  

If I’m an insurer and I’m only making a 5% profit margin on my population and if I’m getting $1,000 per month, that’s $50. If I can capture the physician practice piece of this, that might be three or four times what I’m making as an insurer.  

What has happened over the last ten years is insurers have said, “I’ve got to get in that business. Why should I pay it all out to practices? Why don’t I make it my own?” That’s why insurers like United have gotten into the business of contracting with or buying these practices, in effect, internalizing the entire profit margin from both pieces. United got into this very early. I think it was in 2014 that they bought Healthcare Partners which was a large organization that DaVita had previously purchased for $4.5 billion I think. They’ve been gradually building up the number of practices by the way frequently acquiring nonprofit physician practices for low amounts of money because they’re nonprofit. They’ve been doing this over the last ten years or so, but more recently, firms like Humana, Cigna and others have gotten into the business of either starting practices or acquiring practices to the same end, to capture both the insurance piece and the practice piece of these risk score profits. 

LISA EPSTEIN: So, are you saying that when an MA plan pays the doctor a percent of premium, that payment is excluded from the medical loss ratio calculation? 

RICK GILFILLAN: I cannot say. I don’t know how United treats those. Remember this, at an insurers level where they own subsidiaries, those profits and expenses all get rolled up to the parent ultimately. You can listen to UnitedHealth quarterly analyst calls where they talk very directly about the profitability of Optum related to capitation contracts in Medicare Advantage. It’s very explicit what they talk about. They don’t talk about the loss ratio, but they talk about the profitability associated with these contracts.  

I don’t know how United handles that because the 85% loss ratio rule is applied by CMS at the overall plan level. That is at whatever the plan contract is with CMS. Some of those patients that are covered by that plan contract are in Optum-type practices and many of them are in non-Optum practices. The ultimate medical loss ratio they have to report is – I’m not sure quite honestly how they report that. They report it for the UnitedHealth insurer as opposed to the UnitedHealth Group where the consolidation of the Optum practices occur. I can’t say how they report it, but I think we can say that when risk scores increase 34% as we demonstrated in the comment letter, we estimate that could result in a real expenditure on healthcare services for that population as something more like 67%.  

Now, people will say, “We sent a check to that primary care practice and therefore we are counting that as healthcare services.” The reality is that when it’s consolidated and rolled up to the corporate level, it looks the same as any other profit. 

LISA EPSTEIN: Right, got it. “The risk score arbitrage has created a goldrush of investment driven directly by those MA overpayments, distorting the delivery of primary care.” What do you mean by “distorting the delivery of primary care”? 

RICK GILFILLAN: I mean two things. One, as I just described, there are a lot of doctors out there who will tell you they get discouraged feeling like at times they’re more in a coding focused than a care focused environment. That creates a sense of unease to say the least for folks who have that intruding into their practice. 

But more significantly, it has created a goldrush of investors into buying practices, selling practices, rolling up practices, practices of being owned by UnitedHealth Care, practices of being owned by insurance companies, Humana, Cigna, Aetna, name your favorite that are in this business and when they own these practices, they have a different focus. That’s a different focus from what was ironically some of these that were nonprofit medical groups focused on delivering great care and improving population health outcomes.  

Some of the highest performing physician groups in the country have ended up selling themselves to these firms because they oftentimes couldn’t make it in just the fee for service world particularly through the pandemic.  

It’s distorting primary care in the sense that now there is a whole new world of owners, private equity, publicly traded companies, etc. that are in the business of deciding how primary care will be delivered. It’s from a very different perspective from what most of us originally went into primary care to do. 

LISA EPSTEIN: Now your last point, Rick, is of special interest to The Capitol Forum because we focus a lot on monopoly power and anticompetitive practices across the entire economic spectrum. Your last point is that “The marketplace is highly concentrated into two for-profit MA contracting organizations, UnitedHealthcare Group and Humana which have a 46% market share and the top ten have 79%. These large plans have become the most adept at risk coding. As a result, they’re taking an even greater proportion of premiums to drive greater market share to the disadvantage of smaller frequently nonprofit community-based health plans.” 

Are you saying that community-based health plans, because they are not so aggressive, they’re really losing out because the competition might actually be for who can code the most diagnoses as opposed to who can provide the best care with the best outcomes? 

RICK GILFILLAN: Yes, the industry is very much that today. There is one other element of this that being large is important for and that is the administrative costs associated with operating these plans is not insignificant. The larger I get, the more I can spread those investments out on services across a large population. That makes me more efficient and frankly, it makes me more competitive. 

What has happened is because the risk coding opportunity creates the rebates which creates the opportunity for growth, this massive growth, these guys are very aggressive. I didn’t mention this, but the largest use of artificial intelligence machine learning big data in healthcare today is to drive this risk score opportunity. They have invested so much in doing that that they are able to get those risk scores higher and that creates a very difficult position for nonprofit firms who are less invested in the coding side, have less opportunity, are smaller because they’re regional, they’re local as opposed to being national. They make some of the same investments, but they have a hard time meeting the challenges of the administrative costs that the larger plans have created. That is all driven by their ability to get more risk codes. Yes, that’s a very real phenomenon and that’s why the market is so concentrated. 

LISA EPSTEIN: Interesting. What do you think the likelihood is of the CMS proposal being finalized without being weakened? 

RICK GILFILLAN: That’s crystal ball stuff and I’m not going to go there. I think this was a strong approach by CMS and I certainly admire their efforts. I’m hopeful that it will make a real difference, but I think we’ll have to wait and see. It won’t be long. Before the first week in April we’ll know the answer. 

LISA EPSTEIN: April 3rd, right? 


LISA EPSTEIN: Okay, well we’ll be definitely watching for that. 

We have had a few questions from our audience. Anyone in the audience please feel free to send through the chat any questions that you have. 

The first question that came in was, “Could you please comment broadly on your thoughts on the impact of these changes to Signify Health, Oak Street Health and Agilon Health business models?” 

RICK GILFILLAN: I don’t want to make any comments about specific entities. They’re all different. They all have their different approaches to the issues we’ve talked about. I will say that clearly entire industries have grown up because of this opportunity. I would say, as we said in our papers, that without this opportunity, these entities would not have grown up and probably would not exist frankly. We’ll see where CMS ends on this and what the impact is on these firms that were established originally primarily to take advantage of the risk coding opportunities in MA. 

LISA EPSTEIN: This question is very interesting; “In the Health and Human Services proposed 2024 budget, there is a provision that would enable CMS to perform prepayment reviews prior to making risk adjusted payments.” Have you had a chance to review that provision? Did you know about that provision? 

RICK GILFILLAN: Yes, I have reviewed it. I think it’s very interesting. Obviously, in conjunction with the approach they’re taking with retrospective audits on the RADV audit rule that they came up with. I think it is really very interesting, at least something that I had not seen discussed before and frankly I have not talked with anyone at any length about it, certainly not anybody with CMS or HHS. The OIG, the Office of the Inspector General at HHS, has been on this very directly for years. It’s not surprising that they came up with this approach. I think it could have significant impact for sure. 

LISA EPSTEIN: We have another question here. First, the listener thanks you very much Rick and then says, “Which party involved in the coding process is legally liable for any miscoding or upcoding that would occur during an in-home health evaluation?” 

RICK GILFILLAN: I think that’s an interesting question and I want to be really clear. The big problem here is not fraud. The reality is the system has flaws. MA plans are just taking advantage of those flaws to various degrees. I think that’s important to realize. You can’t not find every code or you can’t not be involved in some ways with getting more codes because if you don’t you’re basically going to become uncompetitive as I’ve described.  

The real sad thing about this system is that it compels behavior by folks to try and do this coding. Obviously, there is always somebody who is on the edge who is really far beyond what makes sense and maybe gets to the point of fraud. There was a lot of that earlier on in the system that started in 2006 and a lot of it has probably been rooted out at this point. There are gradations of gray I guess I would say. 

It’s hard to say where that begins and ends. I can’t say who is responsible. I think there is a gradual adoption or adaptation I would say of virtually all the players in the system to think that this is the right thing to do and it’s okay. It becomes a gradual march towards that edge of being over the edge. I think that’s why we saw what we saw in the United paper in terms of putting all that out in the public. 

I’m not going to say who is at fault. I would say the system is at fault. The one thing that I know many of us would like to see is – the fault of MA leaders may not be simply taking advantage, but it is blocking the efforts to improve the system because everybody knows it’s broken. Everybody knows it needs to be fixed and everybody knows that to fix it, it can’t be done by any one firm doing something different. It has to be fixed systematically by CMS and that’s why we call for MA plans to come together with CMS, recognize that this is not to the benefit of the country, not a wise expenditure of resources and that we should engage together in an effort to create a way of adjusting payments to plans that would be honestly reflective of the actual burden of health in the population and not a function of people’s ability to do more coding. 

LISA EPSTEIN: Well Rick, I want to thank you so much. You’ve been very generous with your time and expertise and shared interesting perspectives. I certainly learned a lot of things by reading both of your letters and speaking with you during this call.  

I would like to direct our subscribers to our previous coverage of Oak Street Health, Signify Health and CMS policy where we have discussed several of these issues and practices at those companies.  

Rick, before we go are there any final comments that you would like to share with us? 

RICK GILFILLAN: Two things. One, I just want to reemphasize that the people in our healthcare system are incredibly committed, as everyone says, heroic over these last several years and those same people are the folks caring for Medicare beneficiaries and they’re working hard to deliver great care every day. This should not be seen as a criticism of them but of a system that is in need of real attention and that’s what CMS has proposed here. 

Second, I just want to thank you and Mike Williams and other folks at The Capitol Forum who I know have done serious work on this issue. I appreciate all you’ve done to try to bring it to the attention of the public and to your subscribers. Thank you for your work. 

LISA EPSTEIN: You’re welcome. Thank you. That concludes our call. Thank you for tuning in and have a great day. 

RICK GILFILLAN: Thanks for the opportunity.