Are Fewer Diagnoses Better? Assessing A Proposal To Improve The Medicare Advantage Payment System

Medicare Advantage (MA) plans report diagnoses more completely than they are reported in traditional Medicare. As a result, payment to MA plans is greater than it would be if coding patterns were identical in the two sectors. The Medicare Payment Advisory Commission estimates that the overpayment to MA attributable to differential coding was $50 billion in 2024. We analyzed potential changes aimed at reducing MA plan overpayments that occur as a result of differential diagnostic coding between MA and traditional Medicare-specifically, changes that would reduce payments to MA contracts that code most intensely. The contract-level equity and efficiency problems created by differential MA coding could be solved almost completely if the Centers for Medicare and Medicaid Services excluded ten diagnosis groups from the payment model. With these groups excluded, the average MA risk score would be similar to that of traditional Medicare, and there would be very little relationship between contract-level coding intensity and risk scores. However, this change would increase incentives for risk selection and reduce incentives to provide high-quality care to beneficiaries with diagnoses in the excluded groups. Policy makers will need to balance the ability to improve equity and efficiency in the MA payment system against concerns about increasing incentives for risk selection.