Fraudulent “Upcoding” Costs Medicare Advantage $2 Billion a Year

Wednesday, June 10, 2015
(graphic: Steve Straehley, AllGov)

A new study has found that some Medicare Advantage plans make their patients seem sicker than they are in order to overbill the federal government to the tune of $2 billion a year.


Medicare Advantage plans are run by private insurance companies. Some of those eligible for Medicare choose them because they offer more features than the traditional fee-for-service plan administered by the federal government. The plans are paid for by the government partly on the basis of risk scores which reflect a patient’s health, according to Modern Healthcare.


The study (pdf), by University of Texas Professor Michael Geruso and Harvard Medical School research fellow Timothy Layton, says enrollees in Medicare Advantage plans have 6% to 16% higher diagnosis-based risk scores, called “upcoding,” than the same enrollees would have had if they were in traditional Medicare.


As a result, not only are the plans more profitable for the insurance companies, the extra money allows them to offer more benefits to enrollees which make them more attractive than regular Medicare.


Geruso cautioned, however, that not all upcoding is fraudulent. “There’s a notion that differences in coding come up because insurers are gaming the payment system,” Geruso told Modern Healthcare. “While I think there’s some of that going on, there are also probably some differences in models of managed care that result in different diagnosis codes being assigned.”


Geruso pointed out that there is similar risk-coding in the health exchanges set up as part of the Affordable Care Act. Insurers in those programs who more aggressively upcode their enrollees can make more money and offer more incentives to patients to enroll in their plans.

-Steve Straehley


To Learn More:

Upcoding In Medicare Advantage May Cost Government $2 Billion A Year (by Lisa Schencker, Modern Healthcare)

Upcoding: Evidence From Medicare On Squishy Risk Adjustment (by Michael Geruso and

Timothy Layton, National Bureau of Economic Research)

Overbilling by Doctors and Hospitals Costs Medicare a Billion Dollars a Year (by David Wallechinsky and Noel Brinkerhoff, AllGov) 


ANONAMOUSE 9 years ago
A little context would be nice. Without knowing the total spent on Medicare, it's impossible to evaluate just how significant the fraud is..... You forced me to look it up: the purported fraud, if in fact it was fraud and not a statistical artifact, represents a whopping 0.04% of the annual Medicare budget. Next scandal!
Dennis Byron 9 years ago
Huh? There does not seem to be any relationship between your post -- particularly your headline -- and the University of Texas study to which you provide a link. The study specifically says no fraud is involved. But the study says the number caused by a faulty risk formula (or by some other issue) is $10 billion, not $2 billion? (Just, FYI in case you ever delve into Medicare again, an area you do not seem to understand, all Medicare plans are run by private insurance companies, not just public Part C Medicare Advantage plans. Administering Medicare Advantage plans is no more or less profitable on average for insurance companies than the profit they make administering all other Parts of Medicare. Often the same companies administer multiple Parts of Medicare in a region -- A, B C and D as well as selling private insurance.)

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