The Case for Program Integrity in Medicaid Managed Care

Part Five: Encounter Data and Problematic Data

The Impact of Incorrect or Incomplete Data: As we discussed in our previous post, the medical loss ratio (MLR) structure may incentivize MCOs against pursuing program integrity (PI) to fight fraud, waste, and abuse (FWA). Here, we detail how faulty encounter data can factor into the calculus of capitation rate setting and what can be done to address those issues.

No Incentive to Pursue FWA

Incorrect or incomplete encounter data can impact the calculation of capitation rates – rates that are required to be actuarially sound. Errors that might initially have a small impact can snowball and create larger consequences in future years as inaccurate data continues to factor into the rate-setting calculations. Also, faulty data skews the MLR, typically showing a medical cost that is higher than actual medical spending, resulting in a false sense of security that at least 85 percent of taxpayer dollars are truly covering medical costs.

Identifying FWA resulting from problematic data requires expertise and tools that can identify irregularities, highlight concerning patterns, and pinpoint the schemes that affect taxpayers and the members in need of critical health care services. Read on to gain more insight into the nature of the problem and discover our recommendations to address the associated issues.

Encounter Data: Low Accountability and Weak Oversight

MCOs are required to submit encounter data that details services rendered. If states do not have a mechanism for ensuring accuracy, these data errors may obscure the fact improper payments are occurring.

A study from the Health and Human Services – Office of Inspector General (HHS-OIG) reported on problems with Medicaid encounter data to providers, confirming it is often incomplete and inaccurate. This study said about half of the states it reviewed failed to provide correct or complete data about MCO payments to providers, and three quarters provided incomplete or incorrect data about the maximum amounts the MCO plans allow for services-the amount billed. The report emphasized proper programmatic oversight and stewardship of taxpayer monies and cited the importance of encounter data in identifying emergent trends and informing the public. Read more here.

For those charged with PI oversight of managed care programs, faulty encounter data can be problematic in several ways:

No Incentive. If false data is driving capitation rates and thus payments to the MCOs are higher, the MCO is incentivized to continue to reimburse as they were before, driving the MCO’s bottom line higher. Some states have historically been reluctant to recoup overpayments of encounter claims, but pursuing FWA and seek accountability from MCOs is in the best interest of states, members, and taxpayers. MCOs may be resistant to state involvement, though, because reporting overpayments and seeking recoupment are efforts that will negatively impact future capitation rates and MLRs.
Investigations and Recoveries. CMS is very interested in the disposition of overpayment recoveries and subsequent reporting. In other words, when MCOs conduct investigations that yield overpayment recoveries from providers, are the MCOs reporting those recoveries, and are they also adjusting their encounter claims to reflect recoveries? This is not the only way to report overpayments for incorporation into rate setting, but in some states, this is a requirement and a best practice.

Problematic Audits. Due to network adequacy requirements, MCOs may view audits with concern because of perceived provider abrasion that could damage MCO relationships with the provider, potentially impacting the provider network. Regional providers with significant negotiation power may also be incentivized to seek higher rates if overpayment recoveries affect their reimbursement goals, potentially limiting savings from FWA efforts. In some instances, especially when network adequacy is a significant risk, having another party, such as a state or outside auditor, perform oversight activities may reduce provider abrasion risk for MCOs.

No Connection to Damages. Another concern some states have expressed is they cannot directly tie damages from overpayments to capitation payments. So, although the agency may be able to identify an overpayment, the damages come from increased capitation payments that are calculated years later. Thus, when a state sends funds to an MCO, and that MCO pays a provider, states now have weaker ties to those original funds, which reduces transparency of the payment.

In our next post, a continuation of this one, we will offer recommendations for managing the effects of incorrect or incomplete encounter data.

Our Benefit/PI program area covers a range of services, disciplines, and areas of focus, including data analytics, root-cause analysis, and encounter data validation. We are here to answer any questions and help with any health and human services needs your agency may be experiencing. Contact a member of our team today.