Medpagetoday.com REPORTS HERE that "the U.S. government overpaid private insurance companies administering Medicare Advantage plans by as much as $3.1 billion in 2010, according to a new report from the Government Accountability Office (GAO)."

"About a quarter of all Medicare beneficiaries are enrolled in Medicare Advantage plans, and the Centers for Medicare and Medicaid Services (CMS) paid about $114 billion to the plans in 2010."

"Democrats have criticized CMS for paying Medicare Advantage plans too much in comparison with traditional fee-for-service Medicare plans, and the Affordable Care Act cut payments to Medicare Advantage by more than $100 billion over 10 years."

"CMS determines how much it pays Medicare Advantage plans and traditional fee-for-service providers by calculating a risk score for each enrolled beneficiary. To calculate the score, CMS determines how much that individual's healthcare costs are expected to be relative to the entire Medicare fee-for-service population. CMS generally pays more money for beneficiaries in poor health than for those in good health."

"Risk scores should be the same for beneficiaries with the same health conditions, age, and other characteristics, GAO said. However, its investigation found that's not the case. CMS gets information on the medical diagnoses of fee-for-service patients by analyzing the claims that fee-for-service providers submit to CMS for payment. By contrast, CMS doesn't see medical claims for Medicare Advantage patients; rather it determines diagnoses of patients in those plans by relying on diagnosis codes submitted to CMS by the insurance plans."

"The claims submitted by the insurance companies often contain more codes than those analyzed by CMS from fee-for-service providers, making it appear that Medicare Advantage patients are sicker than they actually are; that results in Medicare Advantage plans being paid more for their beneficiaries, according to the GAO."

"The report -- which was requested by four Democratic lawmakers -- doesn't accuse private insurers of acting improperly when they add as many diagnostic codes as possible; rather, the report says, it has more to do with incentives built into the Medicare program."

"Doctors who treat patients in fee-for-service Medicare get paid based on the medical services they provide. But Medicare Advantage plans have a financial incentive to select as many diagnostic codes per patient that apply, because having patients with a greater number of ailments makes the Medicare Advantage population appear sicker and ultimately brings the plans more money."

"Lawmakers have passed legislation in recent years to adjust risk scores in order to make payments to Medicare Advantage Plans and fee-for-service providers more comparable. A 2005 law required CMS to make risk score adjustments, and in 2010 CMS slightly reduced Medicare Advantage beneficiaries' risk scores, which saved an estimated $2.7 billion for the Medicare program, according to the report. CMS reduced the score again in 2011 and will do the same in 2012."

"Even after the reduction in Medicare Advantage risk scores in 2010, the risk scores were still too high, which accounted for between $1.2 billion and $3.1 billion in overpayments to Medicare Advantage plans, the GAO investigators concluded. The overpayments in 2011 and 2012 will likely be even greater, and CMS needs to update its risk score methodology again or else excess payments will continue to increase, the report said."