Medicare Audits Show Problems in Private Plans

October 7, 2007

By ROBERT PEAR

WASHINGTON, Oct. 6 — Tens of thousands of Medicare recipients have been victims of deceptive sales tactics and had claims improperly denied by private insurers that run the system’s huge new drug benefit program and offer other private insurance options encouraged by the Bush administration, a review of scores of federal audits has found.

The problems, described in 91 audit reports reviewed by The New York Times, include the improper termination of coverage for people with H.I.V. and AIDS, huge backlogs of claims and complaints, and a failure to answer telephone calls from consumers, doctors and drugstores.

Medicare officials have required insurance companies of all sizes to fix the violations by adopting “corrective action plans.” Since March, Medicare has imposed fines of more than $770,000 on 11 companies for marketing violations and failure to provide timely notice to beneficiaries about changes in costs and benefits.

The companies include three of the largest participants in the Medicare market, UnitedHealth, Humana and WellPoint.

The audits document widespread violations of patients’ rights and consumer protection standards. Some violations could directly affect the health of patients — for example, by delaying access to urgently needed medications.

In July, Medicare terminated its contract with a private plan in Florida after finding that it posed an “imminent and serious threat” to its 11,000 members.

In other cases, where auditors criticized a company’s “policies and procedures,” the effects on patients were not clear.

The audits show the growing pains that Medicare has experienced as it introduced the popular new drug benefit and shifted more responsibility to private health plans.

For years, Democrats have complained about efforts to “privatize Medicare,” and they are likely to cite the findings as evidence that private insurers cannot be trusted to care for the sickest, most vulnerable Medicare recipients.

But federal officials point with pride to their efforts to police the Medicare market, and they say that competition among private plans has been a boon to beneficiaries, offering more choices at lower cost than anyone expected.

“The Medicare drug benefit is saving seniors an average of $1,200 a year,” said Michael O. Leavitt, the secretary of health and human services.

Medicare officials said the audits also showed that insurers would be held accountable.

“The start-up period is over,” said Kerry N. Weems, the new acting administrator of the Centers for Medicare and Medicaid Services. “I am simply not going to tolerate marketing abuses.”

The same insurance companies that offer stand-alone drug plans also sell Medicare Advantage plans, which provide a full range of benefits including coverage of doctor’s visits and hospital care. Enrollment in Medicare Advantage plans has grown rapidly, to more than 8 million, from 4.7 million in 2003. Federal auditors found the same types of violations in both parts of the program.

Of the audits conducted by the Department of Health and Human Services, 39 focused on drug benefits, 44 focused on managed care plans and 8 examined other types of private plans.

Medicare officials said that compliance problems occurred most often in two areas: marketing, and the handling of appeals and grievances related to the quality of care.

Many of the marketing abuses occurred in sales of the fastest-growing type of Medicare Advantage product, known as private fee-for-service plans. In June, the government announced that seven of the leading companies in this market, including UnitedHealth, Humana and Coventry, had agreed to suspend marketing of these plans. Medicare recently allowed them to resume marketing after they took steps to monitor their sales agents more closely.

Each Medicare plan has a list of preferred drugs, known as a formulary. Under federal law, patients can request coverage of other drugs that may be medically necessary. But many insurers do not have procedures to handle such requests, auditors said.

John H. Wells, the compliance officer at Bravo Health, defended the company’s record, but he said: “The appeals and grievance process is very complex. It is very difficult for any plan to be fully compliant. In many cases, the government’s guidance is unclear, so it’s impossible for a business to know what to do.”

These findings were typical of the deficiencies described in Medicare audit reports:

¶UnitedHealth, which serves more than six million Medicare beneficiaries, did not have an “effective program” to supervise its marketing representatives, agents and brokers. In some cases, United improperly denied claims without giving any explanation to beneficiaries. Peter L. Ashkenaz, a company spokesman, said, “We terminated a few agents and brokers for misrepresenting our products.”

¶WellPoint, one of the nation’s largest insurers, had “a backlog of approximately 354,000 claims” at certain Medicare plans offered through its UniCare subsidiary. The company’s call center took an average of 27 minutes to answer phone calls from its members and 16 minutes to answer calls from health care providers. More than half the callers hung up before speaking to a company representative. Karen Brown, a spokeswoman for WellPoint, had no immediate comment.

¶In March, Sierra Health Services ended drug coverage for more than 2,300 Medicare beneficiaries with H.I.V./AIDS, saying they had not paid their premiums. In many cases, the premiums had been paid, and beneficiaries had canceled checks to prove it. Sierra initially refused to reinstate them, but eventually agreed to do so after repeated requests from federal officials. Peter O’Neill, a vice president of Sierra, said this particular drug plan, which attracted people with very high drug costs, would not be offered in 2008.

¶Humana, which covers more than 4.5 million people on Medicare, promised to investigate every complaint about its marketing practices, but it received so many complaints that it could not keep up. Many beneficiaries said they had received incorrect information from Humana agents. Medicare officials said some agents had not been adequately trained or supervised. Thomas T. Noland Jr., a senior vice president of Humana, said the company had taken “corrective action to improve the situation.”

¶Humana did not always tell beneficiaries about changes in its list of covered drugs. In some cases, Humana did not explain its reasons for denying claims and did not inform beneficiaries of their appeal rights.

¶The Sterling Life Insurance Company, a subsidiary of the Aon Corporation, did not pay claims correctly or handle appeals in a timely way. The company has “a demonstrated pattern of failure” to meet Medicare performance standards. Problems were compounded by a rapid growth in enrollment. Sterling said it had taken steps to improve compliance.

¶Two sponsors of popular Medicare drug plans, MemberHealth and Bravo Health, did not act on requests for coverage of specific drugs within 72 hours, as required by the government. Bravo did not comply with federal rules requiring doctors to review all claims denied for a “lack of medical necessity.”

D. Alan Scantland, senior vice president of MemberHealth, a subsidiary of the Universal American Financial Corporation, said, “We don’t believe that we were compromising any beneficiaries’ health because of what we were doing or not doing.”

Representative Bart Stupak, a Michigan Democrat who is chairman of the investigations subcommittee of the House Energy and Commerce Committee, said he had “verified countless stories of deceptive sales practices by insurance agents who prey upon the elderly and disabled to sell them expensive and inappropriate private Medicare plans.”

Kathleen Healey, a lawyer at the Alabama Department of Senior Services, said: “Despite the prohibition of door-to-door marketing, agents arrive on residents’ doorsteps stating that the president sent them, or that they represent Medicare. Some telemarketers insist they are calling from Medicare, and they tell beneficiaries that they will lose their Medicare if they do not sign up for the telemarketer’s plan.”

Medicare has taken “vigorous action” to halt marketing violations, said Abby L. Block, a Medicare official.

But David A. Lipschutz, a lawyer at California Health Advocates, a nonprofit group, said that Medicare’s generous payments to private plans still encouraged predatory sales practices.

“Every enrollee in a private Medicare plan is a potential source of substantial profits,” Mr. Lipschutz said.

Copyright 2007 The New York Times Company