---
type: source
title: "Improving Medicare Advantage by Accounting for Large Differences in Upcoding Across Plans"
author: "USC Schaeffer Center / Health Affairs Forefront"
url: https://schaeffer.usc.edu/research/improving-medicare-advantage-by-accounting-for-large-differences-in-upcoding-across-plans/
date: 2025-02-03
domain: health
secondary_domains: []
format: paper
status: unprocessed
priority: high
tags: [medicare-advantage, upcoding, risk-adjustment, coding-intensity, market-dynamics, plan-variation]
---

## Content

### Key Findings

- CMS overpaid MA by **$50 billion (13%)** in 2024 due to upcoding
- **15-percentage-point variation** in coding intensity among 8 largest MAOs
- **10 MAOs** have coding intensity more than 20% higher than traditional Medicare levels

### The Competitive Dynamics of Upcoding

- Aggressive upcoding permits MA plans to offer **better benefits** than either TM or less-aggressive MA plans
- Enhanced benefits attract additional enrollees → **both higher profits per enrollee AND increased market share**
- This creates a perverse competitive advantage: the more you upcode, the more you grow
- Plans that code accurately are at a competitive DISADVANTAGE

### The Virtuous/Vicious Cycle

1. Plan upcodes aggressively → receives higher payments
2. Higher payments fund better supplemental benefits (dental, vision, $0 premiums)
3. Better benefits attract more enrollees
4. More enrollees → more revenue → more resources for upcoding
5. Competitors must either match upcoding or lose market share

### Policy Recommendations

- Implement MedPAC recommendations for risk score calculation reform
- Exclude diagnoses from health risk assessments (in-home visits)
- Use two years' claims data for risk score calculation
- Plan-level coding intensity adjustment (not just system-wide 5.9%)

### Related USC Schaeffer Research

- MA enrolls lower-spending people → large overpayments (favorable selection, June 2023)
- Favorable selection ups the ante on MA payment reform (June 2023)
- MedPAC critics get it wrong on overpayment estimates (July 2024)

## Agent Notes
**Why this matters:** This research reveals the most structurally damaging aspect of MA upcoding: it's not just waste, it's a competitive advantage mechanism. Plans that upcode more grow faster because they can offer better benefits. This creates a race to the bottom where accurate coding is penalized by the market. The 15-percentage-point variation among top 8 MAOs shows this isn't uniform — some plans are far more aggressive than others.
**What surprised me:** The competitive dynamics framing. I'd thought of upcoding as fraud/gaming. But USC Schaeffer frames it as a market mechanism: upcoding creates a competitive advantage that compounds. Honest plans can't compete. This is a textbook case of adverse selection — but among plans, not patients.
**KB connections:** [[proxy inertia is the most reliable predictor of incumbent failure because current profitability rationally discourages pursuit of viable futures]], [[Devoted is the fastest-growing MA plan at 121 percent growth because purpose-built technology outperforms acquisition-based vertical integration during CMS tightening]]
**Extraction hints:** Claim about upcoding as competitive advantage mechanism — plans that code accurately are at a structural disadvantage, creating a race to the bottom in coding integrity.

## Curator Notes
PRIMARY CONNECTION: [[CMS 2027 chart review exclusion targets vertical integration profit arbitrage by removing upcoded diagnoses from MA risk scoring]]
WHY ARCHIVED: The competitive dynamics framing adds a dimension the KB doesn't have — it's not just about how much upcoding costs, but how upcoding shapes market structure.
EXTRACTION HINT: The "honest plans can't compete" insight is the most extractable claim. It connects upcoding to market concentration (UHG/Humana duopoly).
