HHS Watchdog Finds Health Risk Assessments Drove $7.5 Billion in Medicare Advantage Overpayments Without Additional Patient Care

On October 31, 2024, the Department of Health and Human Services Office of Inspector General (OIG) released a report estimating that Medicare Advantage insurers received at least $7.5 billion in improper payments in 2023 from Health Risk Assessments (HRAs) that added diagnoses to inflate risk scores without resulting in any additional medical care or spending for patients. The report exposed a systematic fraud scheme where insurers send representatives to beneficiaries’ homes to conduct “assessments” that generate diagnoses increasing federal payments, but these diagnoses never lead to treatment—revealing they were added solely for billing purposes rather than legitimate medical findings. This represents one of the largest documented Medicare fraud schemes in history, with the Medicare Payment Advisory Commission estimating industry-wide overpayments could reach $43 billion annually.

Health Risk Assessments as Fraud Vehicles

The OIG report identified Health Risk Assessments as a primary vehicle for Medicare Advantage upcoding fraud:

$7.5 Billion in 2023 Alone: OIG estimates that HRAs with no associated increase in medical spending generated approximately $7.5 billion in increased Medicare Advantage payments in 2023. This represents payments for diagnoses that generated no actual healthcare delivery.

Definition of HRAs: Health Risk Assessments involve Medicare Advantage plans sending representatives (often nurses employed by the insurer or contractors) to beneficiaries’ homes to assess health status, supposedly to identify unmet healthcare needs and coordinate care.

Actual Purpose: Rather than improving care coordination, HRAs primarily serve to identify additional diagnosis codes that increase risk adjustment payments from CMS without providing corresponding medical care—converting what should be a care management tool into a billing fraud mechanism.

No Additional Spending: The key finding is that HRAs resulting in added diagnoses generated no corresponding increase in medical spending for the patients. This proves the diagnoses were added for billing purposes only, not because patients needed treatment for the conditions.

How the HRA Fraud Scheme Works

Medicare Advantage insurers have systematized HRA-based upcoding:

Step 1 - Home Visits: Insurers send nurses or other healthcare workers to beneficiaries’ homes, often without the patient’s regular physician’s knowledge or involvement. These visits are marketed as “free wellness checks” or “health assessments.”

Step 2 - Diagnosis Mining: During HRAs, representatives are trained to identify any possible diagnosis codes that might qualify for risk adjustment payments—searching for chronic conditions, past medical history, or current symptoms that can be coded as active diagnoses.

Step 3 - Code Submission: The insurer submits diagnosis codes identified during HRAs to CMS as if they were active, ongoing medical conditions requiring treatment and management, even when no treatment is planned or provided.

Step 4 - Risk Score Inflation: The additional diagnosis codes increase the beneficiary’s risk score, triggering higher monthly capitation payments from Medicare to the insurance company.

Step 5 - No Follow-Up Care: Critically, the diagnoses generate no additional medical spending—no treatments, prescriptions, specialist referrals, or follow-up care. This absence of spending proves the diagnoses were billing artifacts rather than legitimate medical conditions.

Step 6 - Repeat Annually: Insurers conduct HRAs annually to refresh diagnosis codes and maintain inflated risk scores, generating billions in ongoing overpayments.

Vertical Integration Enables Fraud

The OIG report highlighted how vertical integration facilitates HRA fraud:

Insurer-Owned HRA Companies: Many Medicare Advantage plans own or contract with companies that conduct HRAs, creating vertical integration where the entity conducting “independent” health assessments is financially controlled by the insurer that benefits from diagnosis inflation.

Financial Incentives Alignment: When HRA companies are owned by or contracted to insurers, compensation structures incentivize finding more diagnoses regardless of medical appropriateness—HRA staff may be evaluated and paid based on how many diagnosis codes they identify.

Data Control: Vertical integration allows insurers to control all data from HRAs, making it difficult for regulators, physicians, or patients to detect when diagnoses are added without medical justification.

Bypassing Primary Care Physicians: By conducting HRAs separately from patients’ regular medical care, insurers can add diagnoses without their physicians’ knowledge or agreement, preventing the normal clinical oversight that might question questionable diagnoses.

Scale of Industry-Wide Fraud

The OIG report’s $7.5 billion estimate for HRA-related overpayments represents only part of total Medicare Advantage fraud:

$43 Billion Annual Estimate (MedPAC): The Medicare Payment Advisory Commission estimates total Medicare Advantage overpayments from all forms of risk adjustment manipulation could reach $43 billion annually—nearly 10% of total Medicare Advantage spending.

$19.07 Billion FY 2024: The Medicare Part C (Medicare Advantage) estimated improper payment rate was 5.61%, totaling $19.07 billion in fiscal year 2024. This represents confirmed improper payments, likely understating total fraud.

69% Unsupported Diagnoses: In 17 audits conducted since 2019, the OIG found nearly 69% of diagnoses used for risk adjustment lacked medical record support, leading to over $100 million in overpayments in just those sampled audits.

5-8% Overpayment Rate: CMS’s completed audits for payment years 2011-2013 found between 5% and 8% in overpayments across audited plans—a consistent pattern indicating systematic fraud rather than isolated errors.

Comparison to Traditional Medicare

The HRA fraud scheme exploits differences between Medicare Advantage risk adjustment and traditional Medicare:

Risk-Based Payments: Medicare Advantage uses “risk adjustment” to pay insurers more for sicker patients and less for healthier patients. This creates incentives to maximize diagnosis codes regardless of whether patients receive corresponding treatment.

Traditional Medicare Fee-for-Service: Traditional Medicare pays for actual services delivered, so there’s no financial benefit to documenting diagnoses without providing corresponding care. The payment structure prevents the type of fraud enabled by Medicare Advantage risk adjustment.

No HRAs in Traditional Medicare: Traditional Medicare doesn’t use HRAs because there’s no risk adjustment incentive to conduct them. The existence of HRAs almost exclusively in Medicare Advantage proves they serve billing rather than clinical purposes.

Better Value: Despite Medicare Advantage plans receiving higher payments per beneficiary (inflated by fraudulent diagnoses), traditional Medicare often provides better benefits and lower costs to beneficiaries—demonstrating that privatization increases costs without improving care.

Regulatory Capture and Audit Failures

The OIG report exposed massive regulatory failures enabling ongoing fraud:

Audit Backlog: CMS has failed to complete Risk Adjustment Data Validation (RADV) audits for payment years 2011-2017, creating a decade-long backlog during which fraud continued unchecked. The Trump administration only announced plans to clear this backlog in 2025.

Limited Sampling: When CMS does conduct audits, they sample only a small fraction of diagnosis codes, allowing insurers to ensure sampled codes meet documentation requirements while continuing fraud on unaudited claims.

Weak Extrapolation: Until recently, CMS didn’t use statistical extrapolation to recover overpayments across entire enrollee populations based on audit findings. This meant insurers kept fraudulent gains on unaudited claims even when audits proved systematic fraud.

Minimal Penalties: Even when audits identify overpayments, penalties are limited to repayment plus interest—no punitive damages or criminal charges. This makes fraud profitable even when caught, because the worst-case scenario is repaying a fraction of fraudulent gains years later.

Industry Lobbying: Medicare Advantage insurers spend hundreds of millions lobbying to prevent stronger audit processes, limit overpayment recovery, and weaken risk adjustment oversight—successfully blocking reforms that would curtail fraud.

Specific Plan Audit Findings

The OIG report included detailed findings from audits of specific Medicare Advantage organizations:

Humana (2024 Audit): For 202 of 240 sampled enrollee-years, diagnosis codes Humana submitted to CMS were not supported by medical records, resulting in $497,225 in overpayments. OIG estimated Humana received at least $13.1 million in overpayments for 2017-2018.

Independent Health Association (2024 Audit): For 230 of 247 sampled enrollee-years, medical records did not support diagnosis codes, resulting in $646,217 in overpayments. OIG estimated IHA received at least $7.0 million in overpayments for 2016-2017.

Pattern Across Audits: Of the 17 audits OIG conducted since 2019, virtually all found majority of sampled diagnoses lacked support—proving systematic fraud across the Medicare Advantage industry rather than isolated incidents.

Trump Administration Response

In 2025, the Trump administration announced plans to address the audit backlog:

2,000 Medical Coders: CMS planned to expand medical coding staff from 40 to approximately 2,000 by September 2025 to accelerate audit completion—an acknowledgment that understaffing enabled years of unchecked fraud.

Complete Audits by Early 2026: The administration committed to completing all remaining RADV audits for payment years 2018-2024 by early 2026—attempting to clear a 15-year backlog in less than one year.

Advanced Technology: CMS announced plans to use “advanced systems to efficiently review medical records and flag unsupported diagnoses”—though similar technological promises have been made and broken in the past.

Industry Reaction: Medicare Advantage insurers lobbied aggressively against accelerated audits, arguing they would create “administrative burden” and “uncertainty”—code for not wanting fraud exposed and overpayments recovered.

Congressional Response

The OIG findings prompted congressional attention:

Spending Without Care Delivery: Congressional healthcare committees questioned how Medicare Advantage plans could receive billions in payments for diagnoses that generated no medical spending—exposing the fraud’s blatant nature.

Calls for Clawbacks: Some members of Congress called for aggressive recovery of fraudulent payments dating back to the beginning of the audit backlog, potentially recovering tens of billions in overpayments.

Reform Proposals: Proposals included:

• Eliminating or significantly limiting HRAs
• Requiring all diagnoses used for risk adjustment to be linked to actual treatment spending
• Prohibiting insurer-owned companies from conducting HRAs
• Criminal penalties for systematic upcoding fraud

Industry Lobbying Defense: The insurance industry successfully lobbied against most reforms, arguing that HRAs serve legitimate care coordination purposes (despite evidence proving otherwise) and that aggressive audits would “destabilize” the Medicare Advantage program.

Medical Ethics Violations

The HRA fraud scheme involves systematic medical ethics violations:

Diagnoses Without Treatment: Medical ethics require that diagnoses serve patient care purposes—identifying conditions to guide treatment. Diagnoses added solely for billing purposes violate this fundamental principle.

Physician Complicity: Many HRAs are conducted by nurses, but physician sign-off is typically required to submit diagnoses to CMS. Physicians who approve HRA-generated diagnoses without examining patients or providing treatment violate professional standards.

Informed Consent Violations: Patients often don’t understand that HRAs primarily serve billing purposes rather than care improvement. This lack of informed consent about the assessment’s true purpose constitutes deception.

Conflicts of Interest: Healthcare professionals conducting HRAs face conflicts between professional obligations to patients and financial pressures from insurer employers to identify diagnosis codes that increase payments.

No Licensing Board Action: Despite widespread documentation of physicians participating in HRA-based fraud, state medical licensing boards have taken virtually no disciplinary action—demonstrating regulatory capture extends to professional licensing.

Impact on Medicare Trust Fund

The $7.5-$43 billion in annual overpayments threatens Medicare’s financial sustainability:

Trust Fund Depletion: Medicare’s Hospital Insurance Trust Fund faces projected insolvency in the 2030s. Eliminating $40+ billion in annual fraudulent payments would significantly extend solvency.

Opportunity Cost: The billions paid for fraudulent diagnoses could instead fund:

• Expanded benefits for traditional Medicare beneficiaries
• Lower Part B premiums
• Prescription drug cost reductions
• Home healthcare expansion

Subsidy to Private Industry: Medicare Advantage overpayments represent a massive transfer of taxpayer funds from the Medicare trust fund to private insurance company profits—privatization as taxpayer-funded corporate welfare.

Political Vulnerability: Fraudulent spending provides ammunition for those seeking to cut Medicare, who can point to waste and fraud (which they enable through weak oversight) as justification for reducing benefits rather than eliminating fraud.

Comparison to Other Fraud Schemes

The HRA fraud scheme’s scale is remarkable even in the context of major healthcare fraud cases:

$7.5 Billion Annually: The HRA fraud alone exceeds the total amount recovered in most years from all healthcare fraud prosecutions across the entire industry—yet it continues largely unchecked.

Systematic vs. Isolated: Unlike most fraud cases involving individual physicians or small companies, HRA fraud is systematic across the entire Medicare Advantage industry, involving the nation’s largest insurers.

Legal vs. Criminal: While most healthcare fraud results in criminal prosecution when detected, Medicare Advantage upcoding is treated as a civil matter requiring only repayment—despite meeting legal definitions of fraud (knowingly submitting false claims).

Too Big to Prosecute: The scale of HRA fraud across all major insurers creates a “too big to prosecute” situation where aggressive enforcement might destabilize the Medicare Advantage program, giving fraudsters immunity through systematic importance.

Patient Harm Beyond Financial

HRA fraud harms patients beyond the financial cost to Medicare:

Medical Record Contamination: False diagnoses added to medical records can affect future care, insurance eligibility, life insurance applications, and disability determinations—following patients even after they leave Medicare Advantage.

Physician Confusion: When HRAs add diagnoses without physicians’ knowledge, doctors may be confused about patients’ medical histories, potentially leading to unnecessary tests, inappropriate treatments, or failure to address actual health issues.

Prior Authorization Impact: Ironically, some diagnoses added through HRAs to increase payments may later be used to justify denying prior authorization for treatments—insurers profit twice by claiming patients are both sicker than they are (for higher payments) and not sick enough (to deny care).

Lost Trust: When patients learn HRAs were primarily billing exercises rather than care improvement tools, they lose trust in Medicare Advantage plans and the healthcare system generally.

The Risk Adjustment Paradox

The HRA fraud exposes a fundamental flaw in Medicare Advantage’s risk adjustment system:

Intended Purpose: Risk adjustment was designed to prevent cherry-picking by ensuring insurers received adequate payment for sicker beneficiaries, supposedly allowing them to compete on care quality rather than patient selection.

Actual Result: Rather than preventing cherry-picking, risk adjustment created incentives for systematic fraud. Insurers can maximize profits by:

1. Cherry-picking healthier patients through selective marketing
2. Inflating those healthy patients’ risk scores through HRAs and other upcoding
3. Receiving payments as if patients were sick while spending little on actual care

Perverse Incentives: The system pays insurers more for documenting chronic conditions while also incentivizing them to deny treatment for those same conditions—rewarding claims of sickness while penalizing actual care delivery.

Reform Difficulty: Fixing risk adjustment without creating new fraud opportunities or unintended consequences is extremely difficult, yet continuing the current system guarantees ongoing fraud on a massive scale.

Systematic Corruption

The HRA fraud exemplifies systematic corruption in Medicare Advantage:

Business Model Built on Fraud: Medicare Advantage insurers’ profitability depends substantially on risk adjustment upcoding. Eliminating fraud would make many plans financially nonviable—proving their business models are built on systematic false billing.

Regulatory Capture: CMS’s decade-long audit backlog, weak enforcement, and industry-friendly policies demonstrate that the agency regulating Medicare Advantage is captured by the industry it’s supposed to police.

Bipartisan Protection: Both Republican and Democratic administrations have protected Medicare Advantage from aggressive fraud prosecution, demonstrating that insurance industry political power transcends partisan politics.

Too Big to Fix: With approximately half of Medicare beneficiaries now enrolled in Medicare Advantage, the program has become “too big to fix”—aggressive fraud enforcement might cause plan exits and beneficiary disruption, giving fraudsters immunity through systematic importance.

Privatization Failure: The HRA fraud proves that Medicare privatization increased rather than decreased fraud and waste. The solution is not better regulation of privatized Medicare but ending privatization and returning to traditional Medicare’s fee-for-service model that lacks upcoding incentives.

The OIG report’s finding of $7.5 billion in HRA-driven overpayments in a single year exposes how Medicare Advantage operates as a systematic fraud scheme where insurers send representatives to beneficiaries’ homes to mine diagnosis codes that inflate federal payments without providing corresponding medical care—converting what was supposed to be a care coordination tool into a massive taxpayer-funded windfall for insurance corporations while regulatory capture ensures the fraud continues unchecked.