Medicare Part C Under Scrutiny: Upcoding, Enforcement, and Future Changes

A new inspector general report finds that Medicare Part C reimbursement to private insurers increased by $4.2 billion in 2023 for diagnoses from home visits despite leading to no additional treatment. On this basis, the Office of the Inspector General (OIG) has recommended that the Centers for Medicare & Medicaid Services (CMS) increase enforcement or cut off payments for diagnoses related to these visits. CMS disagreed with this recommendation, citing limitations in the OIG study. With the coming change in administration in 2025, particularly toward an administration that favors the use and expansion of Medicare Part C and private insurance generally, questions remain as to whether and how OIG’s reported concerns will be addressed.

“Upcoding” and Medicare Part C

Medicare Advantage (MA) plans, administered by private insurers under Medicare Part C, receive payment from CMS based on risk scores of their enrollees. These risk scores are calculated using diagnostic codes submitted by health providers. Higher risk scores indicate more severe health conditions, and reporting such higher risk scores results in higher payments to the plan. This system is intended to create a pathway for adequate compensation to plans that cover high-risk individuals, but it also opens the door for abuse by plans that arbitrarily report higher risk scores, a practice known as “upcoding.”

OIG’s Findings and Recommendation

The OIG report focused primarily on home health risk assessments in which providers take medical histories, review medications, and run simple diagnostic tests. The report found that each home visit was worth an average of $1,869 to insurers and that between 2019 and 2021, insurers pocketed an average of $1,818 for each such visit, resulting in billions made from such visits without providing any additional care for conditions they identify. This means that either certain of these diagnoses are false or that the insurers are not connecting patients to providers based on these diagnoses, both of which are concerning to OIG.

The OIG has been vocal about its interest in increasing enforcement against upcoding. In various reports, the OIG has highlighted the financial impact of upcoding on the Medicare program and has recommended audits and increased penalties to combat noncompliance. The OIG takes the position that without strict enforcement, the MA program is particularly vulnerable to abuse.

Insurers and CMS’s Response

The largest insurers that administer MA plans have responded that home health risk assessments help to improve patient outcomes and that findings are always referred back to the patient’s own physicians for care. CMS takes the position that the OIG report is incomplete in its analysis because OIG does not have access to each patient’s medical records to determine whether upcoding or false diagnoses are present. CMS’s hesitation to increase enforcement is likely due to potential administrative burden and costs associated with increased enforcement. CMS also believes that current measures, including periodic audits and coding intensity adjustments, are sufficient to address the risks of upcoding. Stricter enforcement could also discourage provider participation in the MA program, which would in turn limit access to care for beneficiaries.

Current Enforcement and the Future

The Justice Department has pursued several cases related to inflated Medicare payments based on diagnosis. In 2023, Cigna Group paid $172 million to settle allegations related to adding diagnoses that were not supported by patents’ medical records. With the change in administration coming in 2025 to the Republican Party, which traditionally favors the use of MA plans and private insurance generally, scrutiny over these kinds of allegations is likely to increase. However, it is unclear at this time whether the new administration will favor more strictly enforcing Medicare Part C to improve its efficacy or relaxing enforcement to allow for expansion.

Conclusion

As a new administration enters office, changes are likely to be implemented at all levels of healthcare governance and enforcement. Goodwin’s healthcare regulatory attorneys will continue to monitor any changes and proposals related to Medicare Part C oversight.

 

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.