CMS Proposes Important Step to Combat Medicare Advantage Overpayment

Each year, the Centers for Medicare & Medicaid Services (CMS) gives notice of how some Medicare Advantage (MA) payments will be calculated for the following year. CMS released the 2027 Advance Notice last week and, while it maintains some disappointing patterns, it contains an important proposal that would whittle away at some MA overpayment.

MA Payment Rules Are Complex

MA payments are a complex combination of many factors, and most of the factors lead to overpayment. Plans are paid per enrollee in advance and risk adjustment is used to determine how much they are paid per person. These payments account for the plans’ expected costs: People in better health are expected to use fewer services, and people who are in worse health are expected to use more. So, plans get more money to cover enrollees who are in worse health. This is true even if those enrollees do not do the expected thing and use more services.

To access higher payments, some plans may document every possible diagnosis for their enrollees.

To access higher payments, some plans may document every possible diagnosis for their enrollees. In some cases, some plans document diagnoses that are not supported by the medical record. For example, the plan may report that an enrollee has a diagnosis even if the person has not sought treatment or used any services. In some cases, the enrollee does not have the condition at all. This practice is called “upcoding.”

Plans use two major tools to drive up the number of diagnoses: health risk assessments (HRAs) and chart reviews. For HRAs, plans or their contracted providers collect information about health from an enrollee, often through a home visit. For chart reviews, plans comb through medical records to spot diagnoses the provider did not already document, some of which never led to services or treatment.

Together, these practices drive distorted risk adjustment and higher payment for plans and have been singled out as troubling. For example, in its 2025 report to Congress about MA, the Medicare Payment Advisory Commission (MedPAC), a nonpartisan independent legislative branch agency, stated that “eliminating chart reviews as a source of diagnoses for risk adjustment would be consistent with the Commission’s approach.”

Advance Notice Takes Aim at Unlinked Chart Reviews

CMS proposes to keep plans from using diagnoses from chart reviews if those diagnoses are not linked to documentation of items or services. Getting rid of these paper-only diagnoses could help curb inappropriate coding from undocumented conditions or conditions that have not increased plan spending.

Getting rid of these paper-only diagnoses could help curb inappropriate coding from undocumented conditions.

The Advance Notice proposes to continue positive Biden-era risk adjustment changes but it also maintains a lackluster statutory minimum coding adjustment, rather than a higher and more effective rate. Unchanged since 2018, this minimum amount has not kept pace with plan patterns of coding.

MA Overpayment Is a Significant Problem

Importantly, MA plans appeal to many healthy enrollees who cost little to cover while people with more health issues often remain in or return to Original Medicare. This tendency for MA plans to accrue less costly enrollees is called favorable selection and it is a major driver of MA overpayment.

Such overpayment is a significant problem. New research estimates that favorable selection and coding intensity will lead to overpayments topping $1.2 trillion through 2035.

Overpayments Drive Up Costs and Other Burdens

MA overpayments make Medicare more expensive for enrollees and other taxpayers. They also fund supplemental benefits and drive major, and sometimes abusive, marketing efforts as plans seek to draw in more enrollees.

The resulting distorted market and overabundance of plans make it hard for people with Medicare to compare their options and find the right fit.

Combating these overpayments has become a bipartisan issue within Congress, a trend we support.

In our comments on the Advance Notice, we will applaud the step CMS proposes to curb some inappropriate plan behavior but will continue to urge the administration to do more to limit MA overpayment, abuses, and market distortions.