---
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: null-result
priority: high
tags: [medicare-advantage, upcoding, risk-adjustment, coding-intensity, market-dynamics, plan-variation]
processed_by: vida
processed_date: 2025-02-03
enrichments_applied: ["CMS 2027 chart review exclusion targets vertical integration profit arbitrage by removing upcoded diagnoses from MA risk scoring.md", "Devoted is the fastest-growing MA plan at 121 percent growth because purpose-built technology outperforms acquisition-based vertical integration during CMS tightening.md", "four competing payer-provider models are converging toward value-based care with vertical integration dominant today but aligned partnership potentially more durable.md"]
extraction_model: "anthropic/claude-sonnet-4.5"
extraction_notes: "Extracted one novel claim about upcoding as competitive advantage mechanism—this framing was not present in existing KB claims. The insight that honest coding creates competitive disadvantage is the key contribution. Applied three enrichments to existing claims about CMS policy, Devoted growth, and payer-provider models. The competitive dynamics framing transforms upcoding from a fraud/waste issue into a market structure issue, which connects to broader KB themes about payment misalignment and vertical integration."
---

## 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).


## Key Facts
- 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
- MedPAC recommendations: exclude diagnoses from health risk assessments, use two years' claims data for risk score calculation, implement plan-level coding intensity adjustment
