Excess Diagnosis Coding In Medicare Advantage: Evidence From Skilled Nursing Facility Clinical Assessments

Some research suggests that risk adjustment plays a substantial role in explaining the high levels of government spending on Medicare Advantage (MA). We studied whether the reliance on diagnosis codes to risk-adjust payments to MA plans leads to the inflation of submitted diagnoses. Our approach relied on a comparison among diagnoses included in hospital claims, health status measures from similarly timed health assessments completed by skilled nursing facility (SNF) clinicians, and short-term mortality data. SNF assessments are completed for both MA and traditional Medicare enrollees and, in contrast to diagnoses in claims, cannot be directly manipulated by MA plans or inform their payments. We found that among patients with the same assessment-based health status discharged to the same SNF, claims-based disease scores were 4.1 percent higher for MA enrollees, on average, relative to traditional Medicare enrollees. However, short-term mortality risk was, on average, 8.8 percent lower for MA enrollees. About 60 percent of the payer-based difference in disease scores was attributable to MA chart review updates to diagnoses, and additional codes from chart reviews were unrelated to assessment-based health status. Given the growth of MA and current spending on the program, which reached $321 billion in 2021, this evidence of potential coding inflation may have large fiscal implications.