$500 Million in Medicare Underpayments in California?

A California attorney has filed a class action lawsuit, saying that Medicare knowingly underpaid physicians in 10 counties in California, as well as dozens of counties in 32 other states. The suit alleges $500 million in underpayments in California, and a total of $3.2 billion throughout the nation.

“Medicare has acknowledged that certain counties are being underpaid, according to standards they set back in 1996,” according to attorney Dario de Ghetaldi, of the Corey, Luzaich, Pliska, de Ghetaldi & Nastari law firm.  “It’s a problem they’ve created, and it’s a problem they’ve allowed to continue to exist.”

San Diego County physicians lead the nation in Medicare underpayment, Ghetaldi said.

At issue is the formula Medicare officials devised in 1996 to divvy up Medicare dollars.

“The method they came up with was ranking the counties in the state based on cost of providing medical care,” Ghetaldi said. “And they came up with this formula, and if a county had costs above a certain threshold, they were paid accordingly. And if costs were below a certain threshold, they decided to group them together.”

Rural districts in the state were pooled together and paid based on the average cost of care in those counties, Ghetaldi said. Which seemed fair at the time, he said.

But what happens when a county’s costs rise above that threshold? Ghetaldi said that, in that case, Medicare did not move them out of the rural pool — because if those counties were paid more, the rural counties would have to be paid less.

And that would be a political nightmare, Ghetaldi said — but not nearly the nightmare Medicare officials face if they lose this lawsuit. Because it’s a distribution of funds across a state, theoretically if Medicare officials give $3.2 billion to those underpaid counties, the money should really be paid back by the overpaid counties.

“Potentially, Medicare would have go back and recoup that money” from counties that received higher payments,” Ghetaldi said. “But I don’t think they’d do that. It would be unpopular, to say the least.”

The lawsuit was prompted by California physicians, who Ghetaldi said have been trying to change the Medicare rules for the past decade, with numerous studies, to no avail.

“It’s a real problem when Medicare does not pay actual costs to begin with,” Ghetaldi said, “let alone underpaying. It’s a problem for Medicare beneficiaries, because many doctors in those counties aren’t taking new Medicare patients anymore. And secondarily, many insurance companies set their rates based on Medicare rates, and that’s another financial burden.”

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