Why Medicare Advantage provisions could end up in the budget reconciliation bill

This article was updated June 12.

According to early discussions in the Senate, a final version of the budget reconciliation bill could reduce the amount of federal spending in Medicare Advantage (MA).

The Senate is considering whether to modify the reconciliation bill passed by the House, and one topic of conversation is how to achieve greater spending cuts without further affecting Medicaid.

The Medicaid provisions in the House bill are projected to result in 7.8 million more uninsured Americans in 2034, compared with current policy, according to the Congressional Budget Office (CBO). That number represents a large segment of the more than 16 million who would be uninsured as a result of various proposed policies related to Medicaid and the Affordable Care Act.

The CBO also projected that the bill would raise the deficit by $2.4 trillion over 10 years, or $3 trillion when including debt-service costs. Senate Republicans are hoping to trim that figure without enacting additional Medicaid cuts, and some are looking for ways to lessen the Medicaid impact in the House bill.

Thus, while Medicare previously has been considered even more of a lightning rod than Medicaid in discussions about the bill on Capitol Hill, MA appears to be getting a closer look.

June 12 update: Sen. Kevin Cramer (R-N.D.), a key player in the talks about including MA in the bill also known as the One Big Beautiful Bill Act, said this week that MA provisions are unlikely to make the final legislation. “I don’t think there’s a stomach for it. I think that the president doesn’t want to touch Medicare,” Cramer said to reporters.

In pursuit of savings

After the budget reconciliation bill was passed by a one-vote margin May 22 in the House, discussion turned to changes the Senate could seek to make.

“The focus, as you know, has been on addressing waste, fraud and abuse in Medicaid,” John Thune (R-S.D.), the Senate majority leader, told reporters this past week on Capitol Hill. “But right now we’re open to suggestions if people have them about other areas where there is clearly waste, fraud and abuse that can be rooted out in any government program.”

At least some of the basis for the MA provisions under consideration for the reconciliation bill is a bipartisan bill drafted this year by Sens. Bill Cassidy (R-La.) and Jeff Merkley (D-Ore.). The bill seeks to tamp down upcoding in MA.

Known by the acronym of the No UPCODE Act, the bill “will save taxpayers billions by eliminating incentives to overcharge Medicare for care,” according to a news release from Cassidy’s office.

Two weeks before the bill’s release in March, Cassidy brought up the prospective legislation in questions posed to Mehmet Oz, MD, during Oz’s Senate confirmation hearing for the post of CMS administrator.

“There are ways for us to look, for example, at the upcoding that is happening systemically in many programs, to make sure people are being appropriately paid for taking care of sick patients, but not for patients who aren’t ill,” Oz said in response.

Passing legislation that includes the provisions in Cassidy’s bill theoretically would allow Republicans to say they lived up to their pledge to cut spending without paring Medicare benefits, since only payments to health plans would be directly affected. But a reduction in funding could lead to a rollback of available plan features within MA.

What’s in the bill

Cassidy’s bill would require consideration of two years of diagnostic data for the purposes of risk adjustment, up from one year in the current methodology. The change would reduce the impetus for MA plans to nudge providers to submit documentation of chronic conditions each year. As such, plans may have less financial incentive to promote annual care encounters with MA beneficiaries.

The Medicare Payment Advisory Commission (MedPAC) modeled the impact of requiring two years of diagnostic data and, in 2020, reported that such a change “produces payment adjustments that are about as accurate as using one year of diagnosis data, though it produces larger underpayments for those with high levels of Medicare spending than using one year of diagnosis data.”

The Cassidy bill also stipulates that when adjusting payments based on health status, CMS would be prohibited from using diagnoses collected from retrospective chart reviews or from health risk assessments. Per the CBO’s projections, the provisions expanding the time frame for diagnostic data and disregarding diagnoses from health risk assessments would save $124 billion over a decade.

In addition, the bill states that CMS would have to “fully” account for differences in coding patterns between MA and traditional Medicare. The current coding adjustment (i.e., payment reduction) for MA plans is set at 5.9%, but the bill would require a more comprehensive assessment of the gap. If, as a result, the coding adjustment were set at 8%, the CBO projects that the provision would create 10-year federal savings of $159 billion. The savings would increase in tandem with the coding adjustment.

Already taking steps

CMS under the Trump administration has increased regulatory scrutiny on MA plans as part of a government-wide push to root out wasteful and fraudulent spending.

The agency in May announced it would conduct risk adjustment data-validation audits of all eligible MA contracts for each payment year going forward. It also will invest in resources to tackle a backlog of pending audits spanning 2018 through 2024, with those audits scheduled for completion by early 2026.

Resources to be deployed in the effort include advanced technology to efficiently review medical records and an increase in CMS’s team of coders from 40 to 2,000, even amid an ongoing 25% reduction in the overall workforce at HHS. The idea is to expand the number of plans subject to auditing each year from a sample size of 60 to all 550 or so plans in the MA program. Instead of auditing 35 records per plan, CMS will seek to review as many as 200, depending on the size of the plan.

With CMS increasing the pressure on MA health plans in the form of heightened audit activity, plans in turn can be expected to more closely examine the claims coming in from providers.