(Bloomberg Business) — Two years ago, Anita Silingo accused health insurance companies of brazenly ripping off the government. Silingo, who worked at a company called MedXM that consulted for health insurance companies, filed a sealed whistleblower lawsuit claiming that MedXM exaggerated or outright fabricated illnesses to get its clients higher fees from Medicare. The Justice Department hasn’t taken up the suit and the companies have sought to dismiss it in court. But new research suggests that the kind of inflated diagnoses Silingo described costs the government billions a year.
Silingo is one of a handful of whistleblowers who have come forward with claims that health plans have profited by illegally claiming patients are sicker than they are. According to her complaint, MedXM altered medical records to make diagnoses appear more severe and often created records without doing the face-to-face patient visits required by law. Health insurers, including Anthem (NYSE:ANTM), Health Net (NYSE:HNT), and Molina (NYSE:MOH), “all turned a blind eye to the truth in exchange for receiving” bigger Medicare payments, Silingo alleged. Representatives for the companies named declined to comment.
Until about 15 years ago, the U.S. government didn’t care how sick people were for the purposes of paying for health care. Medicare generally paid physicians directly for each procedure performed. In the mid-2000s, the government tried to reduce costs by promoting privately managed Medicare Advantage plans, which pay insurance companies a fixed sum to manage health care for a group of patients. To keep insurers from cherry picking the healthiest people, the contracts pay more if sicker people sign up. The extra payment is based on a risk score calculated from diagnostic codes that physicians submit. This approach, called risk adjustment, has now permeated the U.S. health care system—and it gives health plans incentives to do exactly what Silingo alleges they did.
“If you look back over 15 years ago, almost no American consumers were enrolled in a risk-adjusted health insurance market,” says Michael Geruso, an economist at the University of Texas at Austin who recently co-authored a working paper on the practice. He estimates that 50 million people are enrolled in health plans that get paid more depending on diagnoses. That includes about 16 million in Medicare Advantage plans, as well as many patients in Medicaid managed care and health plans in the Patient Protection and Affordable Care Act (PPACA) public exchange system.