If you are not aware of the Medicare Advantage Re-Run of the Risk Assessment model, I’ll give you a link where you can read up.  At risk would be the two largest Medicare Advantage Insurers, Humana and United Healthcare.  This issue has been spurred by the number of lawsuits that have been filed and ones that keep coming from Whistle Blowers.  In short the Whistle Blowers are stating that insurers inflated the risk factors with patients so payments would be larger.  In reading what’s been on the web here, it was an automated process “an algorithm” that was used to model and diagnose patients with more chronic diseases so again the payout would be higher.  CMS auditors found this on their own and there has not been a ton of coverage on it but it’s out there. 

So far we have never seen Medicare run such a process in an effort to recoup money that is “said fraud” from insurers butimage it’s a hefty number of around $70 billion and this occurred over a five year period.  That’s a lot of money so when you read about a small doctor somewhere doing a million in fraud, it’s small peanuts by comparison.  With Humana up for sale, one has to wonder what would be written into an acquisition to cover this if CMS lowers the boom and does re-run the risk factors.   Again last I read the agency intends to re-run the assessments but you never know what could change. 

CMS to Rerun the Medicare Advantage Risk Scores–Dating Back to 2008 To Catch the Automated Risk Fiddlers of Said Insurer Fraud Amounting to Around $70 Billion–Be Ready For It…

Here’s another back article as well that goes into more detail on how CMS found the “risk fiddler” insurers, of course the lawsuits also pushed this along.  Insurers over the years have hired a lot more Quants to model their businesses and policies and there’s some former bank and hedge fund and high frequency quants probably mixed in the bunch who know how to whittle profits down to the penny mark. 

CMS Discovers That Insurers Offering Medicare Advantage “Really Know How To Sharp Shoot A Model With Adjusting Risk For Profit”, A Common Everyday Occurrence in Financial Markets…

In the financial world you don’t change the portfolio to squirrel around with risk to attain profit, you just change the math.  In the insurance world you don’t squirrel around with the policy, you just change the math, same thing and put people through absolute misery to do this.

Medicare pays the Advantage health plans higher rates for sicker patients and less for healthy people using a complex formula called a “risk score.” But the HHS study spells out several ways health plans have inflated those scores, from reporting surprisingly high levels of medical conditions such as alcohol or drug dependence to billing for an inordinately high number of patients with complications of diabetes.”

“CMS will sweep diagnoses submitted for a prior payment year as of the deadline. MA Organizations should look to the monthly payment letter to determine when adjustments will be applied to payments.”

Not too long ago Humana lost a big contract to United Healthcare in Wisconsin.  It’s almost gets scary at times inviting United to the table to bid but not a lot of choice.  I did several posts in the past to where United would sue if they didn’t get a contract and this went all the way to suing the DOD to get the west coast Tri-Care contract.  We never heard anything else other than the fact that Untied sued and then a couple months later DOD announces United received the contract for the west coast region.  The Tri-Care bids when they were sent out and announced brought about some interesting changes with insurers as the awards were not done on a solid basis.  You can read the back links below from a few years ago and see how the bigger guys even then had a lot of pressure on the smaller insurers.  In addition to the Medicare Advantage customers, there’s also the Tri-Care Contract in the south which I think has a couple more years to run. 

HealthNet Will Keep the Tri-Care North Contract – GOA Investigated the Original Award to Aetna
Health Net and Humana File Protests over Military Healthcare Awards to UnitedHealthcare and Aetna
Humana Keeps Tricare In The South And Back in May of 2010 HealthNet Was Able to Keep the Northeast-Both Companies Filed Appeals

In the northeast, Aetna originally took the contract away from Health Net, a much smaller company and then later Health Net got the contract back as Aetna cheated.  In the interim though with having to move forward, United came in and swept up all the licenses for Connecticut, New York and New Jersey policies and after that occurred, those folks who had Health Net, actually are under written by United and not Health Net.  I think today I still see Health Net policies in the northeast and again those are really just Health Net managing polices owned by United Healthcare.

HealthNet in Connecticut to Lay Off 750 Employees as United Healthcare Takes Over Membership In the Northeast
UnitedHealth Group Sued-Class Action Lawsuit Relative to Purchase of HealthNet in Northeast-Post Auditing With Demands For Providers to Repay Reimbursements

Here’s some more lawsuit actions with United and the Tri-Care contracts, see what I mean about suing?

Update: UnitedHealthcare Sues Department of Defense Over Tri-Care Contracts–They Said They Would Do This – Is This A Case Of My Algorithms Are Better Than Yours?
UnitedHealth Loses Tri-Care Protest Again With Contract Awarded to Humana in the South-Now Protesting Contracts Awarded In Both the South and the Western States

So moving forward what would an acquisition require?  Who’s going to accept the liability of the Humana portion of the CMS Money Grab if they do in fact re-run the risk assessments?  That’s a good question and again is CMS still have it on their agenda.  Let’s look at another angle too and that is how much of a hit could Humana take?  Of course United is going to take a hit and at one time talked about putting money aside for the CMS Medicare Advantage re-run.  So let’s explore Goldman, who is putting the Humana sale together for a moment.  What if they take this CMS re-run financial obligations of the acquisitions out of the deal so another insurer could buy Humana?  Well where are all those Humana Medicare Advantage Insured going to go?  Something to think about as if the CMS exposure to the Money Grab rerun is removed, who’s going to pay?  The insured, like it or not are attached to those business models. 

In speaking out loud, you could have a CMS re-run of United coming in and buying up all those licenses if left out of the acquisition deal, like they did with Health Net at a cheap cost back in 2009 and taking over a ton of insured policies.  When United bought the Health Net licenses, over 750 jobs were gone as they were not part of that deal.   I would not put it past them if the opportunity arrived and then look at the market share they would have on Medicare Advantage?  So with Andy Slavitt, a former United Healthcare Executive at CMS calling the shots, what’s he going to do.  Would this in fact create a wind fall for United if the CMS re-run is not in the deal for another insurer to acquire Humana and they decide to jump in and buy licenses?  It would be a windfall for his former employer. 

Again I am speaking out loud here and looking at insurer business trends as they have evolved and as deals today are put together.  Keep your eyes open on this deal as it won’t be a simple one I don’t think.  Meanwhile Humana has just sold off a company, Concentra, they bought just a few years ago and this raises some cash.  My original post on the acquisition is below.

Humana Acquires Concentra Inc.- A Privately Held Healthcare Company in Texas

There’s been a couple of other Humana issues which I think they have weathered over the last couple of years too. 

Law Firm States They Will No Longer Work With Political Intelligence Firms After Senator Grassley Questions and After Humana Fired Them - Wellpoint Evaluating Their Relationship
Humana Fires It’s Lobbying Firm Over Possible Insider Trading Violation

So this should prove to be very interesting to see how this all comes about as like everything else, it’s complicated.  One more item to think about as well, and that is financing stock buy backs…health insurers have some pretty healthy ones out there and part of your premium payments finance this as well.  BD

Insurance Carrier stock Buy Backs Continue to Rise While Consumers Are Finding It Harder to Afford Some Policies and Care With Dealing With High Deductibles And Narrow Networks…

“It was pretty well-known that Humana has been up for sale for the last couple of quarters,” said Vishnu Lekraj, Chicago-based senior research analyst at Morningstar Inc.

Valued at $32.01 billion as of Wednesday, a sale of the Louisville, Kentucky-based health insurer would have only a modest impact on the group health care market, given that 7.5 million of its 14.2 million enrollees were in Medicare and Medicare Advantage products, as of March 31, Mr. Lekraj said.



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