U.S. Department of Health and Human Services 
 Office of Inspector General 
 
Issue Brief 
 
 February 2023, OEI-03-21-00380 
 
The Inability To Identify Denied Claims in Medicare Advantage 
Hinders Fraud Oversight 
This issue brief summarizes results from our evaluation of 
Key Takeaways 
Medicare Advantage (MA) encounter data and examines 
whether the lack of an indicator to identify payment   Although most 2019 MA encounter records 
denials in the data hinders efforts to combat fraud, waste,  contained a payment adjustment, 
and abuse.  (In this issue brief, we use the term denied  identifying whether these adjustments are 
claim to refer to a record that contains a service for  payment denials is challenging and 
which the payer denied payment to the provider.)   imprecise. 
 Requiring MAOs to definitively identify 
Why OIG Did This Review 
payment denials on encounter records 
Detailed data about the services provided to enrollees are 
submitted for MA would enhance program 
essential for combating fraud and abuse in Medicare and  oversight and help combat fraud. 
Medicaid.  The oversight entities tasked with 
 
safeguarding these programs rely on service-level data to detect potentially inappropriate billing 
patterns and investigate suspected fraud and abuse.  In the MA program, the Centers for Medicare 
& Medicaid Services (CMS) does not require MA organizations (MAOs) to include an indicator that 
identifies denied claims in their MA encounter data.  Instead, MAOs must submit claim adjustment 
reason codes (hereafter adjustment codes) when MAOs do not pay the actual amount billed by the 
provider (e.g., the MAO pays a lesser amount).  Adjustment codes explain reasons for any payment 
adjustments to the claim, including denials, reductions, or increases in payment.  In contrast, for 
Medicare fee-for-service and Medicaid (including Medicaid managed care), CMSs records of services do 
include denied-claim indicators.   
How OIG Did This Review 
We analyzed 2019 MA encounter records to determine the extent to which these records contained 
adjustment codes.  We reviewed adjustment code descriptions and MAO payment amounts to identify 
records that may contain payment denials.  We interviewed and/or administered questionnaires to CMS 
staff regarding the methods used to identify payment denials in the Medicare and Medicaid data.  To 
identify how the lack of a denied-claim indicator affects their work, we interviewed and/or administered 
questionnaires to staff from oversight entities tasked with safeguarding MA program integrity.  These 
oversight entities include staff from CMSs Center for Program Integrity and the Medicare Drug Integrity 
Contractors (MEDICs) (hereafter CMS program integrity staff); OIG investigators and data analysts; and 
health care fraud staff at the Department of Justice (DOJ).  Finally, we also interviewed staff from CMSs 
Medicare Plan Payment Group (hereafter CMSs MA payment group) to determine the reasons why 
CMS does not require MAOs to submit a denied-claim indicator on MA encounter records.  
What OIG Found 
We found that adjustment codes are not a definitive method for identifying denied claims in the MA 
encounter data.  The descriptions for some adjustment codes are too vague to clearly identify whether 
 
  the MAO denied payment for a service.  For example, adjustment code 261 (The procedure or service is 
inconsistent with the patients history) does not specify whether payment was denied.  The descriptions 
for other adjustment codes seem to indicate that the MAO denied payment for the service, yet we 
found instances in which MAOs reported payments for these services.  We also found that most 
2019 MA encounter records contained at least 1 adjustment code and 55 million of these records 
contained codes that may indicate the denial of payments by MAOs.  However, without a definitive 
method for identifying denied claims in the MA encounter data, the full scope of payment denials in the 
data is unclear. 
In addition, oversight entitiesincluding CMS program integrity staff; OIG investigators and analysts; 
and DOJ health care fraud staffreported that a denied-claim indicator in the MA encounter data 
would improve the efficiency, scope, and accuracy of their efforts to combat fraud, waste, and abuse.  
Once identified, denied claims may be (1) analyzed to detect potential fraud schemes or (2) removed 
from analyses of inappropriate billing patterns among paid claims.  Without an indicator, oversight 
entities must make separate requests to MAOs asking them to identify denied claims in a subset of their 
data, which adds time and burden to investigations.  The lack of an indicator limits the scope of efforts 
to determine the full impact of potential fraud activities in MA.  For example, without an indicator, it is 
challenging or impossible for oversight entities to:  
  exclude denied claims and review only paid claims in the MA encounter data;  
  calculate financial exposure due to fraud; 
  investigate complaints that certain MAOs inappropriately deny payments to their providers; and 
  examine suspected providers billing activities across many plans. 
However, for Medicare fee-for-service and Medicaid, oversight entities can use the available 
denied-claim indicators to analyze data and perform enhanced program oversight. 
Despite oversight entities reporting the potential benefits of a denied-claim indicator to MA program 
integrity, CMSs MA payment group reported that MAOs are not required to submit a denied-claim 
indicator in MA because the MA payment group does not need this indicator to determine MA 
payments or to understand which services were provided to enrollees.  CMSs MA payment group 
raised concerns about the potential burden on MAOs of requiring a denied-claim indicator on their 
encounter records.  However, the private companies that cover most MA enrollees also have contracts 
for Medicaid managed carewhere CMS requires a denied-claim indicator on encounter recordsand 
thus have demonstrated their ability to make accommodations in their systems and report these 
indicators.  Once any initial challenges of modifying MAOs systems are addressed, the inclusion of a 
denied-claim indicator in the MA encounter data may reduce the burden on MAOs of providing 
denied-claim information to oversight entities for fraud analyses.  Finally, CMS may eventually need a 
denied-claim indicator to determine MA payments if it transitions to using the MA encounter data to 
estimate costs and set MA payments as it has previously stated that it will do in the future.  
 
What OIG Recommends  
To strengthen MA program oversight and combat fraud, we recommend that CMS require MAOs to 
definitively indicate on MA encounter data records when they have denied payment for a service on a 
claim.  CMS did not concur or nonconcur with our recommendation. 
 
   
BACKGROUND 
 
  
MAOs must submit claim adjustment reason codes on MA encounter records when 
MAOs deny claims billed by providers.  These adjustment codes are used when MAOs 
deny payment, and also to explain any other changes the MAOs make to the billed 
amount when determining payment for the claim.  CMS does not require MAOs to 
include an indicator to solely identify which services were denied payment.  (In this 
issue brief, we use the term denied claim to refer to a record that contains a service 
for which the payer denied payment to the provider.)   
This issue brief presents detailed findings on (1) whether there is a definitive method 
to identify denied claims in the MA encounter data; (2) how the lack of a denied-claim 
indicator affects the efforts of CMS program integrity staff, OIG investigators and 
analysts, and DOJ health care fraud staff who are tasked with safeguarding MA 
program integrity; and (3) the reasons why CMS has not required MAOs to submit 
denied-claim indicators.  
Payments to MAOs and providers in the MA program  
The MA program covered 27 million people in 2021 at a cost of $340 billion.1  Under 
MA, CMS contracts with private companies, known as MAOs, to provide coverage of 
Part A and B services through private health plan options.2  For each person enrolled, 
MAOs receive a capitated payment from CMS.3  To calculate capitated payments, 
CMS requires MAOs to submit records of services provided to enrollees.4  These 
encounter records often (though not always) begin as claims that health care 
providers submit to MAOs for payment.  MAOs must submit records of all services to 
CMS, including records of denied claimsi.e., records that contain a service for which 
the payer denied payment to the provider for the service.5   
CMSs payments to MAOs.  CMS pays MAOs a capitated payment that reflects the 
predicted cost of providing care to each enrollee.  CMS calculates risk-adjusted 
payments to pay MAOs more for enrollees with higher expected health care costs.  
For risk adjustment, MAOs submit encounter records to CMSs Encounter Data System 
that contain information on each service or medical item that an enrollee receives 
from a provider.6  CMS uses these encounter records to identify diagnoses for 
calculating risk-adjusted payments.  To estimate the expected health care costs 
associated with the diagnoses reported on MA encounter records, CMS currently uses 
health care costs for Medicare fee-for-service enrollees.7  As early as 2010, CMS 
announced plans to eventually transition to using the MA encounter data to estimate 
these expected costs.8  This transition has the potential to improve the accuracy of 
capitated payments to MAOs by compensating MAOs for the cost of providing care 
 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Background | 1 
  to enrollees in MA, rather than in Medicare fee-for-service.9, 10  CMS has not 
announced a specific proposal or timeline for this transition.   
MAOs payments to providers.  CMS requires MAOs to provideor pay providers 
forservices covered by Medicare Parts A and B that are reasonable and necessary 
for the diagnosis, treatment, and prevention of medical conditions.11  MAOs may 
contract with providers (i.e., in-network providers) through various provider payment 
arrangements based on (1) fee-for-service claims for services rendered (with or 
without links to quality and value), (2) alternative payment models that may include 
capitated payments, or (3) population-based payments that may include bundled 
services.  Overall, MAOs predominantly use fee-for-service provider payment 
arrangements in which providers submit claims to MAOs for reimbursement of 
services rendered.12   
CMS allows MAOs to deny payments to providers.  When providers submit claims 
to MAOs, CMS allows MAOs to make decisions about whether to reimburse or deny 
payment for services that enrollees received.13  MAOs may deny payment for various 
reasons,14 such as lack of medical necessity, noncoverage by the plan, provider 
ineligibility, and administrative reasons.  When an MAO denies payment to a provider 
after a service occurs, the enrollee may be required to pay for the service out of 
pocket, or the provider may never receive reimbursement for the service.  Therefore, if 
MAOs inappropriately deny payments, this may contribute to financial harm to 
enrollees or providers and may discourage providers from ordering needed health 
care.15  
Denied claims in the Medicare and Medicaid data 
Denied claims in the MA encounter data.  Although CMS requires MAOs to submit 
records of services for which payment was denied to the Encounter Data System, it 
does not require MAOs to submit a denied-claim indicator on their MA encounter 
records that would identify the services for which the MAOs denied payment.  MAOs 
include adjustment codes on MA encounter records that describe why they did not 
pay the actual amount billed by the provider.  Adjustment codes explain reasons for 
any payment adjustments to the claim, including denials, reductions, or increases in 
payment.16, 17  In cases in which MAOs deny claims billed by providers, MAOs are 
required to submit adjustment codes.  CMS instructs MAOs to include any adjustment 
codes on the header portion of the encounter record or certain claim lines of the 
encounter record, as appropriate.  As of October 2022, there were 294 active 
adjustment codes.18, 19   
Denied claims in CMSs data for Medicare fee-for-service and Medicaid.  For 
Medicare fee-for-service, CMS requires an indicator on records of services that 
definitively identifies claims for which CMS denied payment to the provider.  For 
Medicaid (including Medicaid managed care and Medicaid fee-for-service), CMS 
 
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  requires a denied-claim indicator on records of services that States submit to the 
Transformed Medicaid Statistical Information System (T-MSIS), as shown in Exhibit 1.20  
In addition to identifying whether the State or managed care plan denied payment for 
an entire record, CMS requires States to definitively identify when only certain 
portions (i.e., claim lines) of these records were denied.  Although adjustment codes 
are not used to identify denied claims for Medicare fee-for-service and Medicaid, 
adjustment codes may be included on these records of services to explain any 
adjustments to the billed amounts. 
Exhibit 1: CMS does not require a denied-claim indicator in MA, but does in 
Medicare fee-for-service and Medicaid. 
Source: OIG summary of CMSs requirements for submitting records of service.   
 
Note: The payer is CMS for Medicare fee-for-service and is the State or Medicaid managed care plan for 
Medicaid. 
 
Using the MA encounter data for program oversight   
Program integrity.  To safeguard the integrity of the MA program, oversight entities 
rely on having comprehensive data about the services provided to MA enrollees.  The 
MA encounter data are a tool used by CMS, OIG, DOJ, and other oversight entities to 
prevent and detect MA fraud, waste, and abuse, such as by investigating allegations 
of providers billing for services that were never provided.  For example, CMS, OIG, and 
DOJ reviewed MA encounter data and Medicare fee-for-service claims data as part of 
their efforts to investigate companies and providers that potentially defrauded 
taxpayers out of $900 million.21   
 
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  Prior OIG work identified the need for comprehensive encounter data to safeguard 
MA program integrity.  CMSs MEDICthe contractor tasked with detecting and 
preventing fraud, waste, and abuse in MA and Part Dmay analyze MA encounter 
data to carry out its oversight activities, such as identifying providers that accepted 
more than one payment for the same service.  However, a 2018 OIG report found that 
the MEDIC did not have access to certain variables in the MA encounter data needed 
to effectively carry out its activities.22  At the time of this review, CMS contracted with 
a single MEDIC, but CMS now contracts with two MEDICs: the Program Plan Integrity 
MEDIC and the Investigations MEDIC.  OIG recommended that CMS provide the 
MEDIC with centralized access to all MA encounter data.  CMS concurred with this 
recommendation but has not yet implemented it.   
Quality of care.  CMS has the authority to use the MA encounter data to conduct 
quality review and improvement activities.23  A 2017 Government Accountability 
Office (GAO) report noted that CMS was developing plans to use the MA encounter 
data to review how MA plans coordinate care.24  However, CMS currently does not 
use MA encounter data to review enrollees quality of care, including access to care, 
and instead uses other data sources.  CMS has not yet determined whether it will use 
the MA encounter data to develop retrospective quality of care metrics.   
Prior OIG work about MAOs payment denials  
The capitated payment model used in MA creates a potential incentive for MAOs to 
inappropriately deny payment for health care services in an attempt to increase their 
profits.  A 2018 OIG report analyzed the annual performance data that MAOs 
submitted to CMS and found that MAOs denied 36 million payment requests in 2016 
for services provided to enrollees.25  This report found that a high percentage of 
appealed denials were overturned, which raises concerns that some providers were 
denied payments for services that MAOs are required to provide.  A 2022 OIG 
evaluation conducted medical record reviews for a sample of MA denials of payments 
and services.  This report found that 18 percent of payment denials were for services 
that met Medicare coverage rules and MAO billing rules and should have been 
approved by the MAOs.26 
 
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RESULTS 
 
There is no definitive method to identify denied claims in the MA 
encounter data 
Adjustment codes provide an imprecise and challenging method to identify denied 
claims in the MA encounter data because some adjustment code descriptions (1) are 
too vague or (2) seem to indicate that the MAO denied payment for a service even 
though MAOs also reported payment amounts for that service.  When we requested a 
method from CMS to identify denied claims in the MA encounter data, CMS informed 
us that it did not have a list of definitive adjustment codes or other method for 
identifying denials. 
Some adjustment code descriptions are too vague to clearly 
identify whether the MAO denied payment   
Some adjustment codes provide little information regarding whether the billed 
amount was reduced, increased, or denied by the MAO.  For example, adjustment 
codes 216 (Based on the findings of a review organization) and 261 (The procedure 
or service is inconsistent with the patients history) are too ambiguous to indicate 
whether payment was denied.27  Using only these vague adjustment code 
descriptions without a denied-claim indicator, one might inappropriately include or 
exclude these types of adjustment codes from any analyses of denied claims.      
MAOs reported payment amounts for some services where they 
also reported adjustment codes that seemed to indicate denial of 
payment   
MAOs reported payment amounts on millions of claim lines, despite these lines 
containing adjustment codes that seemed to indicate payment denials.  For example, 
on 2.1 million encounter records, MAOs reported payment amounts for claim lines 
containing adjustment code A1 (Claim/service denied).  These contradictions 
highlight the need for a more definitive way of identifying denied claims within MA 
encounter data. 
Fifty-five million MA encounter records contained adjustment 
codes that may indicate a payment denial    
Without a definitive method for identifying denied claims, the full scope of payment 
denials in the data is unclear.  Of the 772 million MA encounter records submitted by 
MAOs to CMS for 2019, 86 percent contained at least 1 adjustment code.28  From 
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  these records, we identified 55 million records with an adjustment code that may 
indicate that the MAO denied payment for the service.  We excluded adjustment 
codes with vague descriptions when selecting our list of 55 codes that may signal 
payment denials, even though such excluded codes may have represented actual 
denials.  Among the top 5 adjustment codes that may indicate a potential payment 
denial, MAOs reported code 96 (Noncovered charge(s)) on nearly 16 million 
encounter records submitted for 4.9 million enrollees, as shown in Exhibit 2.  
Appendix A contains a full list of the 269 adjustment codes which appeared on 
2019 MA encounter records, including the 55 codes that may indicate payment 
denials. 
Exhibit 2: Millions of encounter records contained one of the top five 
adjustment codes that may indicate that MAOs denied payments to 
providers.  
Adjustment  Description  Number of 2019 MA 
Code  Encounter Records1  
 
96  Noncovered charge(s).   15,810,573 
  18  Exact duplicate claim/service.   7,911,595 
A1   Claim/service denied.   6,881,112 
  50  These are noncovered services because this is not  4,332,382 
deemed a medical necessity by the payer.   
B13  Previously paid.  Payment for this claim/service may  3,143,094 
 
have been provided in a previous payment. 
Source: OIG analysis of MA encounter records for 2019 from CMSs Integrated Data Repository.   
1 These are the number of MA encounter records that contained an adjustment code on the header and/or claim 
line portion of the record. 
 
The lack of a denied-claim indicator in the MA encounter 
data hinders program integrity oversight 
The lack of a denied-claim indicator in the MA encounter data 
creates challenges for the CMS program integrity staff; OIG 
investigators and data analysts; and DOJ health care fraud staff 
who use MA encounter data to combat MA fraud, waste, and 
abuse.  Efforts to identify denied claims add time and burden to 
their analyses and investigations.  Further, because they are 
unable to definitively identify denied claims throughout the MA 
data, oversight entities are unable to obtain a complete and 
accurate understanding of billing and payment patterns across paid and/or denied 
MA claims for all plans and providers.   
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  Oversight entities noted that certain types of analyses are challenging or impossible 
to perform due to the lack of a denied-claim indicator in the MA data, including 
analyses that:  
  exclude denied claims and review only paid claims in the MA encounter data 
to accurately identify inappropriate payments to providers;  
  calculate financial exposure due to fraud; 
  investigate complaints that certain MAOs inappropriately deny payments to 
their providers; 
  examine suspected providers billing activities across many plans; 
  determine accurately whether known fraud schemes from other health care 
programs are occurring in MA; and 
  analyze MAOs reasons for denial of certain procedures and compare this 
information across plans in a particular geographic area to understand fraud 
patterns and alert plans to potential schemes. 
The lack of a denied-claim indicator in MA substantially increases the time and 
resources needed for program integrity activities, such as investigating 
allegations of provider fraud.  Any attempts by 
oversight staff to identify denied claims in the 
MA program increase staff workload, as shown in 
Exhibit 3.  To definitively identify denied claims in 
the MA encounter data, the MEDICs, OIG, and 
DOJ must request that MAOs (or providers) 
identify the denied claims in a subset of MA 
encounter data.  While able to furnish this 
information, MAOs vary in the timeframe needed 
to gather and submit this information to oversight entities.  The MEDICs estimated 
that it may take up to 60 days or more for MAOs to provide the requested data.  In 
addition, the type and format of data provided vary across MAOs, requiring even 
more time for oversight entities to decipher data formats and identify denied claims. 
 
 
 
 
 
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  Exhibit 3: The lack of a denied-claim indicator necessitates additional steps 
to investigate allegations of provider fraud in MA as compared to CMSs 
other health care programs. 
Source: OIG analysis of oversight entities responses to 2022 OIG interviews and questionnaires.   
 
The lack of a denied-claim indicator limits the scope and accuracy of efforts to 
 conduct analyses and detect fraud, waste, and abuse.  Because MA encounter data 
do not contain a denied-claim indicator, oversight entities are unable to use MA 
encounter data to obtain a complete and accurate picture of billing and payment 
patterns across numerous plans and/or providers.29  Without requesting and receiving 
data from MAOs, oversight staff are unable to accurately distinguish between paid 
and denied claims.  When requesting that MAOs identify their denied claims, staff 
must limit their data request to select MAOs.  For example, the MEDICs may request 
data from only the top three to five plans impacted by potential fraud due to the time 
and resources involved in requesting, understanding, and analyzing MAOs data.  This 
limits the scope of program integrity contractors efforts to determine the full impact 
of a providers fraud activities across all plans.  In addition, without removing denied 
claims from their analyses of the MA encounter data, the MEDICs may not be able to 
accurately identify the top plans impacted by potential fraud.  
 
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  Oversight entities rely on denied-claim indicators in Medicare 
fee-for-service and Medicaid to enhance program oversight 
Although CMS does not require a denied-claim indicator on MA encounter records, it 
does for records of services for other health care programs.  To conduct analyses to 
combat fraud, waste, and abuse in the Medicare fee-for-service and Medicaid 
programs, CMS program integrity staff; OIG investigators and data analysts; and DOJ 
health care fraud staff use denied-claim indicators to identify denied claims in the 
payment data.  Once identified, these denied claims may be (1) analyzed to detect 
potential fraud schemes or (2) removed from analyses of inappropriate billing 
patterns among paid claims.  When such analyses are conducted, denied-claim 
indicators provide an efficient and definitive method to identify denied claims in the 
Medicare fee-for-service and Medicaid data. 
For other CMS health care programs, oversight entities use denied-claim 
indicators to identify and analyze denied claims for known or potential fraud 
schemes.  CMS, OIG, and DOJ review denied claims in their efforts to identify 
providers that engage in fraud.  A claim can be denied for various reasons, and the 
denial may indicate an intent by the 
provider to engage in fraud.  For example, 
as part of the national enforcement 
initiative known as Operation Brace 
Yourself, CMS, OIG, and DOJ reviewed 
denied claims in Medicare fee-for-service 
to identify medical equipment suppliers 
that billed for services that were never 
provided.  OIG routinely identifies these 
types of fraudulent billing practices in 
medical equipment fraud investigations.  
For other analyses, CMS and OIG may use 
denied claims to understand the providers intent or to predict and/or identify 
potential fraud.  CMS may also detect potential fraud by analyzing the percentage of 
denied claims occurring within a certain timeframe for a provider.  The use of denied-
claim indicators enhances the scope of oversight activities for these other CMS health 
care programs.  
To enhance the accuracy and efficiency of fraud analyses for other CMS health 
care programs, oversight entities often remove denied claims to focus only on 
paid claims.  By focusing only on paid claims, CMS, OIG, 
and DOJ can more accurately identify inappropriate billing 
patterns or fraud schemes in which providers received 
compensation.  Excluding denied claims can also be more 
efficient, as it reduces the volume of claims under review.  In 
addition, oversight entities may remove denied claims from 
analyses to estimate the dollar amount that Medicare or 
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  Medicaid paid to providers or insurers due to fraudulent activities.  For example, for 
purposes of a sentencing recommendation, understanding which claims were denied 
and which were paid would be helpful in determining loss amounts. 
CMSs MA payment group reported that CMS does not require 
MAOs to submit a denied-claim indicator because such an 
indicator is not currently needed to determine payments to 
MAOs  
According to CMSs MA payment group, CMS does not require MAOs to submit a 
denied-claim indicator because the MA payment group does not need this indicator 
to determine MA risk-adjusted payments or to understand what services have been 
provided to enrollees.  CMSs MA payment group noted that it would be an 
unnecessary burden on MAOs to modify their systems to submit this information 
because the main purpose of the MA encounter data is to collect information on MA 
enrollees service utilization and determine MA payments.  Currently, the electronic 
form that MAOs use to submit encounter records to CMS does not contain a field for 
a denied-claim indicator.  CMSs MA payment group said that to use this form to 
collect a denied-claim indicator, CMS would need to (1) explore repurposing an 
unused field on this electronic form or (2) request industry-wide modification to this 
electronic form.  Notably, the private companies that cover most MA enrollees also 
have contracts to offer Medicaid managed care plans, and Medicaid requires the 
submission of denied-claim indicators.  As such, MAOs that also have Medicaid lines 
of business have demonstrated their ability to make accommodations in their systems 
to meet this requirement for submitting denied-claim indicators for Medicaid 
managed care encounter data.  In addition, an indicator in the MA encounter data 
may reduce the burden on MAOs to provide information on their denied claims to 
oversight entities. 
Although CMS does not currently need a denied-claim indicator to determine 
risk-adjusted payments, such an indicator could be relevant to determining accurate 
MA payments if CMS transitions to using the MA encounter datarather than 
Medicare fee-for-service datato estimate expected health care costs.  While CMS 
has not announced any specific plans or timeframes for making this transition, it has 
announced its intent to eventually use the MA encounter data to estimate these 
expected costs.  This transition has the potential to improve the accuracy of capitated 
payments to MAOs by compensating MAOs for the cost of providing care to enrollees 
in MA, rather than in Medicare fee-for-service.  If CMS goes forward with this 
transition, it will not be able to definitively exclude denied claims, which may lead to 
overestimating expected costs and limit potential cost savings to the MA program.  
Currently, when CMS estimates expected costs using Medicare fee-for-service data, it 
excludes denied claims from these calculations.   
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CONCLUSION AND RECOMMENDATIONS 
 
 
Knowing whether MAOs paid or denied claims is critical for oversight entities that use 
the MA encounter data to detect inappropriate billing patterns and investigate fraud, 
waste, and abuse effectively and efficiently.  However, CMS does not require MAOs to 
include a denied-claim indicator on encounter records to identify denied claims in the 
MA encounter data.   
Requiring a denied-claim indicator on MA encounter data would enhance program 
oversight and be consistent with program integrity efforts in Medicare fee-for-service 
and Medicaid.  For these other CMS health care programs, oversight entities rely on 
denied-claim indicators when using payment data to combat fraud, waste, and abuse.  
CMS program integrity staff; OIG investigators and data analysts; and DOJ health care 
fraud staff reported that the lack of a denied-claim indicator in the MA encounter 
data hinders the efficiency, scope, and accuracy of their program integrity oversight, 
rendering it more difficult to ensure that the MA program is operating properly.  
Requiring MAOs to submit a denied-claim indicator in the MA encounter data would 
enhance efforts to combat fraud, waste, and abuse in MA.  A denied-claim indicator 
also could be leveraged to review potential concerns with access to care in MA, as 
inappropriate payment denials may discourage providers from ordering needed care.  
In addition, such an indicator in the MA encounter data may reduce the burden on 
MAOs of identifying their denied claims for oversight entities.  Finally, in the future, a 
denied-claim indicator may also be needed if CMS implements its plan to use MA 
encounter data to enhance the accuracy of MA payments. 
We recommend that CMS: 
Require MAOs to definitively indicate on MA encounter data 
records when they have denied payment for a service on a claim  
To enhance the MA program, CMS should implement changes in the way MAOs 
submit data so that it is apparent when the MAO has not paid a claim for a reported 
service.  The lack of such an indicator in the MA encounter data limits the efficiency, 
scope, and accuracy of oversight entities efforts to combat fraud, waste, and abuse in 
MA.  Although changes in submission will necessitate changes to MAOs systems, 
companies have demonstrated their ability to report these indicators for Medicaid 
managed care.  Further, once any initial challenges are addressed, an indicator will 
greatly improve efforts to ensure the integrity of MA for the futureand may reduce 
the burden to MAOs of submitting denied-claim information to oversight entities for 
fraud analyses.  Specifically, CMS could implement changes that would require MAOs 
to identify whether the MAO denied payment for the entire record or only certain 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Conclusion and Recommendations | 11  services (i.e., claim lines) included on the record.  Finally, CMS should provide 
oversight entities, including the MEDICs and DOJ staff, with access to any data that 
identify when the MAO has denied payment for a claim.  
 
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AGENCY COMMENTS AND OIG RESPONSE 
 
 
 
CMS did not concur or nonconcur with our recommendation to require MAOs to 
definitively indicate on MA encounter data records when they have denied payment 
for a service on a claim.  Instead, CMS acknowledged the potential of this information 
to aid program integrity efforts but stated that it has not determined the feasibility 
and burden on MAOs of implementing this recommendation.  CMS noted that to 
make this determination, it would need to assess what additional information MAOs 
would be able to provide, if any, given the existing format that MAOs use to report 
encounter data.  CMS also stated that it will use the information in this report to 
enhance program integrity efforts as appropriate. 
OIG understands CMSs need to balance administrative burden and reporting 
requirements with the program integrity benefits.  With respect to requiring MAOs to 
definitively indicate when they have denied payment for a service on a claim, the 
program integrity benefits would be substantial.  For example, the ability to identify 
denied claims in the MA encounter data is critical for detecting inappropriate billing 
patterns and pursuing fraud investigations.  In addition, the availability of a denied-
claim indicator in the MA encounter data may (1) enhance CMSs and other entities 
ability to perform reviews of access to care in MA; (2) reduce some burden on MAOs 
of submitting denied-claim information to oversight entities for fraud analyses; and 
(3) be needed if CMS implements its plan to use MA encounter data to enhance the 
accuracy of MA payments.  We also note that many of the companies that participate 
in MA have demonstrated their ability to report these indicators for their Medicaid 
managed care plans. 
OIG encourages CMS to implement this recommendation.  We ask that, in its Final 
Management Decision, CMS clarify its concurrence or nonconcurrence with our 
recommendation; provide the results of its assessments of feasibility and burden or its 
plans to make such assessments if they are needed; and detail its plans to enhance 
program integrity on the basis of this report. 
The full text of CMSs comments can be found in Appendix B. 
 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Agency Comments and OIG Response | 13   
M  ETHODOLOGY 
 
Analysis of the 2019 MA encounter data  
In May 2022, we extracted 772 million MA encounter records from CMSs Integrated 
Data Repository for all records with dates of service in 2019 to identify the 667 million 
encounter records that contained adjustment codes.  We began this evaluation during 
the COVID-19 pandemic.  Because this evaluation examined the volume of MA 
encounter records containing adjustment codes, we expected that if we selected a 
timeframe during the pandemic, our results might not be indicative of the full scope 
of payment adjustments in the MA encounter data.  Therefore, we focused the 
analysis on records of services provided in 2019the most recent full year that 
preceded the COVID-19 pandemic.   
We summarized the number and types of reasons that MAOs gave for paying 
differently from providers billed for services provided to MA enrollees.  Of the 755 
MAOs that submitted MA encounter records for 2019, 51 did not submit any records 
containing an adjustment code.30  Data elements for adjustment codes are located on 
both the header and claim line portion of the encounter record.  While most MAOs 
either always or mainly reported their adjustment codes at the claim line level, other 
MAOs reported their codes at the header and/or line level.31  We also determined the 
number and percentage of MA encounter records in which the MAO reported an 
adjustment code and a payment amount on the header portion of the record and/or 
the line portion of the record. 
Identification of adjustment codes that indicate potential denied claims.  To 
identify potential denied claims, we identified 55 million records containing 
adjustment codes (1) with descriptions that reasonably indicate that the MAO may 
have denied payment for the service, and (2) for which MAOs did not report payment 
to providers on more than half of the records that contained the adjustment code.    
Interviews and questionnaires 
To determine whether there is a definitive method to identify denied claims in the MA 
encounter data, we summarized responses to interviews and/or questionnaires 
administered to CMS (including program integrity staff and its MA payment group).  
In addition, we summarized responses to interviews and/or questionnaires 
administered to CMS (including program integrity staff and Medicaid data staff) 
regarding methods for identifying denied claims in the Medicare fee-for-service and 
Medicaid data. 
To identify whether the lack of a denied-claim indicator on services in the MA 
encounter data hinders MA program oversight, we summarized responses to 
interviews and questionnaires administered to CMS (including program integrity staff 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Methodology | 14 
  and the MEDICs); OIG investigators and data analysts; and DOJ health care fraud staff, 
regarding: 
  their use of denied-claim indicators in Medicare fee-for-service and Medicaid 
data to conduct analyses to detect and prevent fraud, waste, and abuse; and 
  the impact that the lack of a denied-claim indicator in MA has on their ability 
to conduct analyses to detect and prevent fraud, waste, and abuse. 
We also summarized responses from CMSs MA payment group to questions that 
addressed: 
  CMSs reasons for not requiring a denied-claim indicator in the MA encounter 
data; and 
  the potential challenges of requiring a denied-claim indicator in the MA 
encounter data. 
Standards 
We conducted this study in accordance with the Quality Standards for Inspection and 
Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency.  
 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Methodology | 15 
   
APPENDIX A 
 
List of 269 adjustment codes included on MA encounter records 
submitted by MAOs to CMS for 2019 
We identified 269 adjustment codes that appeared on MA encounter records 
submitted by MAOs to CMS for 2019.  As shown in Exhibit A-1, the number of records 
with each code ranged from almost 540 million to just 1 record.  The 55 adjustment 
codes that OIG identified as indicators of potential denied claim encounters are 
identified in the table by a blue highlight. 
Exhibit A-1: Number of 2019 MA encounter records that contained an adjustment code 
Number of 
2019 MA 
Adjustment  Encounter 
Description 
Code  Records with 
Adjustment 
Codes1 
Charge exceeds fee schedule/maximum allowable or contracted/legislated 
45  538,277,812 
fee arrangement. 
3  Co-payment amount.  182,907,217 
253  Sequestration - reduction in Federal payment.  171,992,197 
2  Coinsurance amount.  54,577,461 
24  Charges are covered under a capitation agreement/managed care plan.  46,072,731 
131  Claim specific negotiated discount.  21,608,675 
The benefit for this service is included in the payment/allowance for 
97  17,926,544 
another service/procedure that has already been adjudicated. 
96  Noncovered charge(s).  15,810,573 
94  Processed in excess of charges.  15,135,161 
1  Deductible amount.  12,988,531 
Processed based on multiple or concurrent procedure rules (For example 
59  12,426,279 
multiple surgery or diagnostic imaging, concurrent anesthesia). 
246  This nonpayable code is for required reporting only.  10,612,553 
16  Claim/service lacks information or has submission/billing error(s).  8,825,406 
18  Exact duplicate claim/service.  7,911,595 
The impact of prior payer(s) adjudication including payments and/or 
23  7,709,108 
adjustments.  
104  Managed care withholding.  7,301,122 
A1   Claim/service denied.  6,881,112 
234  This procedure is not paid separately.  5,596,714 
Adjustment code for mandated Federal, State, or local law/regulation that 
223  is not already covered by another code and is mandated before a new code  5,489,008 
can be created. 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Appendix A | 16  These are non-covered services because this is not deemed a medical 
50  4,332,382 
necessity by the payer. 
Previously paid.  Payment for this claim/service may have been provided in 
B13  3,143,094 
a previous payment. 
29  The time limit for filing has expired.  2,780,330 
4  The procedure code is inconsistent with the modifier used.  2,686,536 
225  Penalty or interest payment by payer.  2,497,563 
An attachment/other documentation is required to adjudicate this 
252  2,237,899 
claim/service.   
197  Precertification/authorization/notification/pre-treatment absent.  2,095,508 
This service/equipment/drug is not covered under the patients current 
204  1,547,601 
benefit plan. 
102  Major medical adjustment.  1,450,018 
B9   Patient is enrolled in a hospice.  1,400,268 
242  Services not provided by network/primary care providers.  1,227,822 
11  The diagnosis is inconsistent with the procedure.  1,190,175 
243  Services not authorized by network/primary care providers.  1,170,363 
Claim/service not covered by this payer/contractor.  You must send the 
109  1,160,412 
claim/service to the correct payer/contractor. 
119  Benefit maximum for this time period or occurrence has been reached.  1,018,597 
22  This care may be covered by another payer per coordination of benefits.  785,529 
Exceeds the contracted maximum number of hours/days/units by this 
222  723,684 
provider for this period.  This is not patient specific.   
The claim/service has been transferred to the proper payer/processor for 
B11  721,835 
processing.  Claim/service not covered by this payer/processor. 
Payment adjusted because the payer deems the information submitted 
151  692,499 
does not support this many/frequency of services. 
272  Coverage/program guidelines were not met.  642,528 
This service/procedure requires that a qualifying service/procedure be 
B15  received and covered.  The qualifying other service/procedure has not been  616,142 
received/adjudicated.   
Denied for failure of this provider, another provider or the subscriber to 
228  601,228 
supply requested information to a previous payer for their adjudication. 
143  Portion of payment deferred.  581,616 
5  The procedure code/type of bill is inconsistent with the place of service.  525,403 
This provider was not certified/eligible to be paid for this procedure/service 
B7   475,740 
on this date of service. 
6  The procedure/revenue code is inconsistent with the patients age.  435,712 
170  Payment is denied when performed/billed by this type of provider.  392,344 
256  Service not payable per managed care contract.  392,050 
182  Procedure modifier was invalid on the date of service.  388,790 
288  Referral absent.  334,652 
Payer deems the information submitted does not support this level of 
150  325,294 
service. 
186  Level of care change adjustment.  299,443 
Information requested from the billing/rendering provider was not 
226  278,929 
provided or not provided timely or was insufficient/incomplete. 
144  Incentive adjustment, e.g. preferred product/service.  259,933 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Appendix A | 17  B16  New patient qualifications were not met.  247,896 
39  Services denied at the time authorization/pre-certification was requested.  219,565 
Procedure/treatment/drug is deemed experimental/investigational by the 
55  218,582 
payer.   
167  This (these) diagnosis(es) is (are) not covered.  212,389 
185  The rendering provider is not eligible to perform the service billed.  202,652 
273  Coverage/program guidelines were exceeded.  196,378 
Claim received by the medical plan, but benefits not available under this 
297  plan.  Submit these services to the patients vision plan for further  192,532 
consideration. 
181  Procedure code was invalid on the date of service.  181,633 
146  Diagnosis was invalid for the date(s) of service reported.  178,318 
237  Legislated/regulatory penalty.  171,227 
This procedure or procedure/modifier combination is not compatible with 
another procedure or procedure/modifier combination provided on the 
236  170,529 
same day according to the National Correct Coding Initiative or workers 
compensation State regulations/ fee schedule requirements. 
192  Nonstandard adjustment code from paper remittance.  167,228 
203  Discontinued or reduced service.  162,812 
198  Precertification/notification/authorization/pre-treatment exceeded.  161,957 
133  The disposition of this service line is pending further review.  152,712 
245  Provider performance program withhold.  146,630 
95  Plan procedures not followed.  145,625 
147  Provider contracted/negotiated rate expired or not on file.  130,146 
Treatment was deemed by the payer to have been rendered in an 
58  114,618 
inappropriate or invalid place of service. 
The applicable fee schedule/fee database does not contain the billed code. 
Please resubmit a bill with the appropriate fee schedule/fee database 
P7   114,478 
code(s) that best describe the service(s) provided and supporting 
documentation if required.      
Original payment decision is being maintained.  Upon review, it was 
193  109,607 
determined that this claim was processed properly. 
161  Provider performance bonus.  109,168 
107  The related or qualifying claim/service was not identified on this claim.  92,929 
108  Rent/purchase guidelines were not met.  91,720 
231  Mutually exclusive procedures cannot be done in the same day/setting.  91,474 
Prior contractual reductions related to a current periodic payment as part 
271  of a contractual payment schedule when deferred amounts have been  88,821 
previously reported. 
137  Regulatory surcharges, assessments, allowances or health related taxes.  88,195 
Allowed amount has been reduced because a component of the basic 
B10  procedure/test was paid.  The beneficiary is not liable for more than the  86,826 
charge limit for the basic procedure/test. 
The procedure code is inconsistent with the provider type/specialty 
8  84,203 
(taxonomy).  
Precertification/authorization/notification/pre-treatment number may be 
284  81,303 
valid but does not apply to the billed services. 
129  Prior processing information appears incorrect.  76,863 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Appendix A | 18  Per regulatory or other agreement.  The provider cannot collect this 
209  amount from the patient.  However, this amount may be billed to  75,415 
subsequent payer.  Refund to patient if collected. 
Claim received by the medical plan, but benefits not available under this 
280  plan.  Submit these services to the patients pharmacy plan for further  72,796 
consideration. 
This is a non-covered service because it is a routine/preventive exam or a 
49  diagnostic/screening procedure done in conjunction with a  72,441 
routine/preventive exam. 
100  Payment made to patient/insured/responsible party.  71,372 
31  Patient cannot be identified as our insured.  69,878 
Attachment/other documentation referenced on the claim was not 
163  63,894 
received. 
216  Based on the findings of a review organization.  63,794 
B20  Procedure/service was partially or fully furnished by another provider.  58,005 
44  Prompt-pay discount.  56,028 
105  Tax withholding.  53,374 
27  Expenses incurred after coverage terminated.  46,905 
78  Non-covered days/room charge adjustment.  45,219 
35  Lifetime benefit maximum has been reached.  43,425 
Payer deems the information submitted does not support this length of 
152  42,424 
service. 
The attachment/other documentation that was received was incomplete or 
251  41,398 
deficient.  The necessary information is still needed to process the claim.   
54  Multiple physicians/assistants are not covered in this case.    39,601 
115  Procedure postponed, canceled, or delayed.  39,589 
Not otherwise classified or unlisted procedure code (CPT/HCPCS) was 
189  38,598 
billed when there is a specific procedure code for this procedure/service. 
Predetermination: anticipated payment upon completion of services or 
101  38,335 
claim adjudication. 
172  Payment is adjusted when performed/billed by a provider of this specialty.  35,513 
20  This injury/illness is covered by the liability carrier.  33,149 
7  The procedure/revenue code is inconsistent with the patients gender.  32,334 
Payment is included in the allowance for a Skilled Nursing Facility (SNF) 
190  30,609 
qualified stay. 
B12  Services not documented in patients medical records.  29,500 
B14  Only one visit or consultation per physician per day is covered.  29,222 
Procedure/treatment has not been deemed proven to be effective by the 
56  25,877 
payer. 
Payment is denied when performed/billed by this type of provider in this 
171  25,692 
type of facility. 
Indemnification adjustment - compensation for outstanding member 
121  24,652 
responsibility. 
The benefit for this service is included in the payment/allowance for 
P14  24,581 
another service/procedure that has been performed on the same day.        
208  National Provider Identifier - not matched.  24,032 
Charges for outpatient services are not covered when performed within a 
60  23,882 
period of time prior to or after inpatient services. 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Appendix A | 19  89  Professional fees removed from charges.  22,813 
70  Cost outlier - adjustment to compensate for additional costs.  22,802 
Patient is responsible for amount of this claim/service through set aside 
201  21,908 
arrangement or other agreement. 
199  Revenue code and procedure code do not match.  21,838 
202  Noncovered personal comfort or convenience services.  19,643 
21  This injury/illness is the liability of the no-fault carrier.  19,268 
10  The diagnosis is inconsistent with the patients gender.  17,518 
This is a work-related injury/illness and thus the liability of the workers 
19  17,392 
compensation carrier. 
215  Based on subrogation of a third-party settlement.  14,743 
9  The diagnosis is inconsistent with the patients age.   14,368 
142  Monthly Medicaid patient liability amount.  13,560 
140  Patient/Insured health identification number and name do not match.  12,873 
Information requested from the patient/insured/responsible party was not 
227  12,855 
provided or was insufficient/incomplete.   
26  Expenses incurred prior to coverage.  12,657 
169  Alternate benefit has been provided.  11,957 
183  The referring provider is not eligible to refer the service billed.    11,735 
206  National Provider Identifier  missing.  11,137 
B22  This payment is adjusted based on the diagnosis.  10,883 
40  Charges do not meet qualifications for emergent/urgent care.  9,501 
103  Provider promotional discount (e.g., senior citizen discount).  9,348 
235  Sales tax.  8,573 
110  Billing date predates service date.  8,052 
249  This claim has been identified as a readmission.  7,876 
135  Interim bills cannot be processed.  7,555 
A8   Ungroupable DRG.  6,859 
Attachment/other documentation referenced on the claim was not received 
164  6,506 
in a timely fashion. 
Information from another provider was not provided or was 
148  6,465 
insufficient/incomplete. 
132  Prearranged demonstration project adjustment.  6,365 
The attachment/other documentation that was received was the incorrect 
250  5,349 
attachment/document.  The expected attachment/document is still missing.     
Payment adjusted because pre-certification/authorization not received in a 
210  5,229 
timely fashion. 
B8   Alternative services were available, and should have been utilized.  5,066 
B1   Non-covered visits.  4,796 
287  Referral exceeded.  4,704 
178  Patient has not met the required spend down requirements.  4,569 
274  Fee/Service not payable per patient Care Coordination arrangement.  4,482 
134  Technical fees removed from charges.  3,954 
153  Payer deems the information submitted does not support this dosage.  3,797 
Lifetime benefit maximum has been reached for this service/benefit 
149  3,200 
category. 
195  Refund issued to an erroneous priority payer for this claim/service.  2,823 
130  Claim submission fee.  2,598 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Appendix A | 20  177  Patient has not met the required eligibility requirements.  2,528 
112  Service not furnished directly to the patient and/or not documented.  2,527 
69  Day outlier amount.  2,435 
Precertification/authorization/notification/pre-treatment number may be 
296  1,904 
valid but does not apply to the provider. 
91  Dispensing fee adjustment.  1,799 
Claim spans eligible and ineligible periods of coverage.  Rebill separate 
239  1,791 
claims. 
Claim received by the medical plan, but benefits not available under this 
291  plan.  Claim has been forwarded to the patients dental plan for further  1,735 
consideration. 
Claim received by the medical plan, but benefits not available under this 
300  plan.  Claim has been forwarded to the patients Behavioral Health Plan for  1,634 
further consideration. 
136  Failure to follow prior payers coverage rules.  1,319 
Claim received by the medical plan, but benefits not available under this 
270  plan.  Submit these services to the patients dental plan for further  1,104 
consideration. 
85  Patient interest adjustment.  1,084 
B4   Late filing penalty.  1,079 
261  The procedure or service is inconsistent with the patients history.  1,071 
200  Expenses incurred during lapse in coverage.  1,023 
The prescribing/ordering provider is not eligible to prescribe/order the 
184  1,005 
service billed. 
Procedure billed is not authorized per your Clinical Laboratory 
B23  959 
Improvement Amendment (CLIA) proficiency test. 
Patient identification compromised by identity theft.  Identity verification 
224  844 
required for processing this and future claims. 
51  These are non-covered services because this is a pre-existing condition.  770 
179  Patient has not met the required waiting requirements.  750 
106  Patient payment option/election not in effect.  702 
118  ESRD network support adjustment.  642 
286  Appeal time limits not met.  622 
299  The billing provider is not eligible to receive payment for the service billed.  615 
Consumer Spending Account payments (includes but is not limited to 
187  Flexible Spending Account, Health Savings Account, Health Reimbursement  568 
Account, etc.). 
282  The procedure/revenue code is inconsistent with the type of bill.  467 
211  National Drug Codes (NDC) not eligible for rebate, are not covered.  448 
Claim received by the medical plan, but benefits not available under this 
298  plan.  Claim has been forwarded to the patients vision plan for further  439 
consideration. 
207  National Provider identifier - invalid format.  421 
155  Patient refused the service/procedure.  418 
These services were submitted after this payers responsibility for 
166  392 
processing claims under this plan ended. 
160  Injury/illness was the result of an activity that is a benefit exclusion.  375 
173  Service/equipment was not prescribed by a physician.  375 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Appendix A | 21  A5   Medicare claim PPS capital cost outlier amount.  366 
276  Services denied by the prior payer(s) are not covered by this payer.  332 
The disposition of the claim/service is undetermined during the premium 
payment grace period, per Health Insurance Exchange requirements.  This 
257  330 
claim/service will be reversed and corrected when the grace period ends 
(due to premium payment or lack of premium payment).  
P8   Claim is under investigation.  326 
Payment denied based on the Medical Payments Coverage (MPC) and/or 
P21  Personal Injury Protection (PIP) benefits jurisdictional regulations, or  306 
payment policies. 
12  The diagnosis is inconsistent with the provider type.  284 
32  Our records indicate the patient is not an eligible dependent.  271 
Contracted funding agreement - subscriber is employed by the provider of 
139  268 
services. 
13  The date of death precedes the date of service.  264 
114  Procedure/product not approved by the Food and Drug Administration.  227 
Not a work-related injury/illness and thus not the liability of the workers 
P2   215 
compensation carrier. 
Services/charges related to the treatment of a hospital-acquired condition 
233  212 
or preventable medical error. 
A0   Patient refund amount.  202 
Claim/service not covered when patient is in custody/incarcerated. 
258  165 
Applicable Federal, State or local authority may cover the claim/service. 
260  Processed under Medicaid ACA Enhanced Fee Schedule.  157 
34  Insured has no coverage for newborns.  144 
14  The date of birth follows the date of service.  140 
240  The diagnosis is inconsistent with the patients birth weight.  135 
Procedure is not listed in the jurisdiction fee schedule.  An allowance has 
P18  114 
been made for a comparable service.      
111  Not covered unless the provider accepts assignment.  113 
The Claim spans two calendar years.  Please resubmit one claim per 
268  104 
calendar year. 
265  Adjustment for administrative cost.   100 
Medical Payments Coverage (MPC) or Personal Injury Protection (PIP) 
P23  99 
benefits jurisdictional fee schedule adjustment. 
Based on payer reasonable and customary fees.  No maximum allowable 
P5   94 
defined by legislated fee arrangement.      
279  Services not provided by preferred network providers.  92 
267  Claim/service spans multiple months.  87 
266  Adjustment for compound preparation cost.  80 
Claim received by the medical plan, but benefits not available under this 
301  plan.  Submit these services to the patients Behavioral Health Plan for  80 
further consideration. 
Medical provider not authorized/certified to provide treatment to injured 
P16  76 
workers in this jurisdiction. 
This product/procedure is only covered when used according to FDA 
188  75 
recommendations. 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Appendix A | 22  Prior payers (or payers) patient responsibility (deductible, coinsurance, co-
275  73 
payment) not covered. 
175  Prescription is incomplete.  66 
33  Insured has no dependent coverage.  64 
232  Institutional transfer amount.  49 
174  Service was not prescribed prior to delivery.  47 
Workers compensation claim adjudicated as non-compensable.  This Payer 
P4   42 
not liable for claim or service/treatment.  
Services by an immediate relative or a member of the same household are 
53  37 
not covered. 
Payment adjusted based on the Medical Payments Coverage (MPC) and/or 
P22  Personal Injury Protection (PIP) benefits jurisdictional regulations, or  28 
payment policies. 
158  Service/procedure was provided outside of the United States.  22 
P12  Workers compensation jurisdictional fee schedule adjustment.  21 
76  Disproportionate share adjustment.  17 
Anesthesia performed by the operating physician, the assistant surgeon or 
194  16 
the attending physician. 
180  Patient has not met the required residency requirements.  15 
The disposition of the related property & casualty claim (injury or illness) is 
P11  14 
pending due to litigation. 
128  Newborns services are covered in the mothers allowance.  13 
212  Administrative surcharges are not covered.  13 
Claim spans eligible and ineligible periods of coverage, this is the reduction 
238  13 
for the ineligible period. 
Payment reduced to zero due to litigation.  Additional information will be 
P10  12 
sent following the conclusion of litigation.      
74  Indirect medical education adjustment.  9 
Non-compliance with the physician self-referral prohibition legislation or 
213  9 
payer policy. 
Partial charge amount not considered by Medicare due to the initial claim 
229  8 
type of bill being 12X. 
Transportation is only covered to the closest facility that can provide the 
117  7 
necessary care. 
Claim received by the medical plan, but benefits not available under this 
292  plan.  Claim has been forwarded to the patients pharmacy plan for further  7 
consideration. 
Payment reduced or denied based on workers compensation jurisdictional 
P13  7 
regulations or payment policies, use only if no other code is applicable. 
The advance indemnification notice signed by the patient did not comply 
116  6 
with requirements. 
176  Prescription is not current.  6 
P9   No available or correlating CPT/HCPCS code to describe this service.  6 
219  Based on extent of injury.  5 
P24  Payment adjusted based on Preferred Provider Organization (PPO).  5 
Claim received by the dental plan, but benefits not available under this 
254  plan.  Submit these services to the patients medical plan for further  4 
consideration. 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Appendix A | 23  295  Pharmacy Direct/Indirect Remuneration (DIR).  4 
A6  Prior hospitalization or 30-day transfer requirement not met.  4 
75  Direct medical education adjustment.  3 
Deductible for professional service rendered in an institutional setting and 
247  3 
billed on an institutional claim. 
283  Attending provider is not eligible to provide direction of care.  3 
285  Appeal procedures not followed.  3 
Workers compensation case settled.  Patient is responsible for amount of 
P3  this claim/service through WC Medicare set aside arrangement or other  3 
agreement. 
66  Blood deductible.  2 
90  Ingredient cost adjustment.  2 
263  Adjustment for shipping cost.  2 
61  Adjusted for failure to obtain second surgical opinion.  1 
157  Service/procedure was provided as a result of an act of war.  1 
205  Pharmacy discount card processing fee.  1 
241  Low Income Subsidy (LIS) co-payment amount.  1 
Coinsurance for professional service rendered in an institutional setting and 
248  1 
billed on an institutional claim. 
264  Adjustment for postage cost.  1 
269  Anesthesia not covered for this service/procedure.  1 
The disposition of the claim/service is undetermined during the premium 
payment grace period, per Health Insurance SHOP Exchange requirements. 
277  1 
This claim/service will be reversed and corrected when the grace period 
ends (due to premium payment or lack of premium payment). 
278  Performance program proficiency requirements not met.  1 
State-mandated requirement for property and casualty, see claim payment 
P1  1 
remarks code for specific explanation. 
Procedure has a relative value of zero in the jurisdiction fee schedule, 
P19  1 
therefore no payment is due. 
P6  Based on entitlement to benefits.  1 
Source: OIG analysis of 2019 MA encounter records from CMSs Integrated Data Repository.   
1 These are the number of MA encounter records that contained an adjustment code on the header and/or line portion of the record. 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight   
OEI-03-21-00380  Appendix A | 24  AGENCY COMMENTS
DATE:  January 30, 2023
TO: Ann Maxwell
Deputy Inspector General for Evaluation and Inspections
Office of Inspector General
FROM: Chiquita Brooks-LaSure
Administrator
Centers for Medicare & Medicaid Services
SUBJECT: Office of Inspector General (OIG) Draft Issue Brief: The Inability to Identify 
Denied Claims in Medicare Advantage Hinders Fraud Oversight (OEI-03-21-
00380)
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
comment on the Office of Inspector Generals (OIG) draft report. CMS is committed to its 
oversight and enforcement of the requirements of the Medicare Advantage program. 
CMS pays each Medicare Advantage Organization (MAO) a monthly per-person amount for 
each beneficiary enrolled in its plan. The per-person amount is adjusted for the risk of the 
beneficiary, which takes into account differences in health status between enrolled beneficiaries. 
Beneficiary risk scores are calculated with diagnoses that MAOs report to CMS. Diagnosis codes 
used for risk adjustment must meet specific criteria, including that the diagnosis is documented 
in the medical record. MAOs must submit encounter data records to CMS in order to report each 
item and service furnished to an enrollee under the MA plan and provided to an enrollee, 
regardless of the payment status of any claim (i.e. regardless of whether a claim is accepted or 
denied for payment, as long as the item or service was received by the enrollee). A claim may be 
denied for many administrative or coverage reasons. A provider may correct and re-submit a 
claim that was denied for technical reasons, and the MAO may subsequently pay it. The MAO is 
not required to submit an update to CMS when the claim is paid because CMS collects encounter 
data for risk adjustment, and payment status of a claim is not relevant to risk adjustment. 
However, MAOs are required to submit adjustment reason codes when they have not paid the 
exact amount that the provider billed. These codes explain changes to the paid amount, such as a 
denial, reduction, or increase in payment.
To ensure that MAOs are being paid appropriately, CMS conducts annual audits of a sample of 
MAOs to evaluate compliance with the terms of the MAOs contracts with CMS; in particular, 
the requirements associated with access to medical services, drugs, and other enrollee protections 
required by Medicare. CMS also targets audits to areas of concern, such as service types with a 
high rate of denial. CMS notifies plans of noncompliance, such as when it believes a plans 
coverage is more restrictive than under original Medicare and represents a possible barrier to 
accessing care. MAOs are required to submit corrective action plans to address cited 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight
OEI-03-21-00380                     Appendix B | 25 deficiencies. Plans that are found to have repeated violations are subject to increasing penalties, 
including Civil Monetary Penalties, intermediate sanctions (suspension of payment, enrollment, 
and/or marketing activities), and even contract terminations. In recent years, CMS has increased 
the transparency of audit findings by publishing them on the Medicare.gov website and 
developing a publicly available audit annual report with best practices MAOs can adopt to 
continue improving performance. CMS is also committed to ensuring that diagnoses that MAOs 
submit for risk adjustment are accurate. For example, CMS uses contract-level Risk Adjustment 
Data Validation (RADV) audits to validate that diagnoses used for risk adjustment meet program 
rules. RADV audits measure the accuracy of the plan-submitted diagnostic information through 
medical record and coding reviews, and uses the results of these audits to identify overpayments 
for individual MA contracts. 
CMS appreciates the OIGs efforts in assessing Medicare Advantage data and will consider how 
to use the information from the report to further enhance program integrity efforts.  
OIGs recommendations and CMS' responses are below. 
OIG Recommendation 
CMS should require MAOs to definitively indicate on MA encounter data records when they 
have denied payment for a service on a claim. 
CMS Response 
CMS has focused on the collection of encounter data for risk adjustment purposes in the MA 
program. The payment status of a claim (i.e. whether a claim is accepted or denied for payment) 
for an item or service is not necessary for the purposes of risk adjustment. Further, a claim 
submitted by a provider may be denied by the MAO for many administrative or coverage 
reasons. In addition, the fields and codes on the encounter data submission form are industry 
standards that CMS does not have unilateral control over.  
While this data could potentially be helpful for program integrity purposes, CMS has been 
mindful of balancing immediate needs with long-term goals for the use of the data, as well as 
plan burden. As a result, we have not made a determination regarding the feasibility and burden 
in definitively indicating on MA encounter data records when an MAO has denied payment for 
an item or service. CMS would need to assess what additional information plans would be able 
to provide, if any, given the existing format in use for plans to report encounters. 
Finally, it is important to be aware of the fact that CMS does not receive all denied claims. For 
example, plans cannot submit encounters to CMS for denied claims in situations when the claim 
cannot be processed through a plans adjudication system. Therefore, identifying records within 
the encounter data system will not provide agencies with information on all denied claims. 
Oversight agencies may still need to reach out to plans in order to obtain information on all 
denied claims. CMS will continue to focus data collection efforts on fields in the encounter data 
record necessary for risk adjustment purposes, but will use the information in this report to 
further enhance program integrity efforts as appropriate. 
CMS thanks OIG for their efforts on this issue and looks forward to working with OIG on this and 
other issues in the future. 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight
OEI-03-21-00380                     Appendix B | 26  
ACKNOWLEDGMENTS AND CONTACT 
 
Acknowledgments 
Jacqualine Reid served as the team leader for this study.  Others in the Office of 
Evaluation and Inspections who conducted the study include Sadie Ellington and 
Karolina Hill.  Office of Evaluation and Inspections staff who provided support include 
Joe Chiarenzelli, Rob Gibbons, Christine Moritz, Linda Ragone, and Sarah Swisher.  
We would also like to acknowledge the contributions of other Office of Inspector 
General staff, including Marissa Baron, Julie Brown, and Francis Verslues.   
This issue brief was prepared under the direction of David Tawes, Acting Regional 
Inspector General for Evaluation and Inspections in the Philadelphia regional office, 
and Joanna Bisgaier, Deputy Regional Inspector General. 
Contact 
To obtain additional information concerning this report, contact the Office of Public 
Affairs at Public.Affairs@oig.hhs.gov.  OIG reports and other information can be found 
on the OIG website at oig.hhs.gov. 
Office of Inspector General 
U.S. Department of Health and Human Services 
330 Independence Avenue, SW 
Washington, DC 20201 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight   
OEI-03-21-00380  Acknowledgments and Contact | 27   
EENNDDNNOOTTEESS  
 
1 CMS, CMS Financial Report Fiscal Year 2021, November 2021, p. 46.  Accessed at https://www.cms.gov/files/document/cms-
financial-report-fiscal-year-2021.pdf on March 2, 2022. 
2 An MAO is the private entity that contracts with CMS to provide coverage of Medicare Part A and B services through private
hEeaNlth plDan oNptionOs.  MTAOEs doS no t cover hospice costs for enrolleesthese costs are covered through Medicare
fee-for-service.  However, MAOs may provide supplemental benefits that are not included in Medicare fee-for-service.  MAOs 
may also offer prescription drug coverage under Medicare Part D.  MA is also known as Medicare Part C. 
3 CMS, Medicare Managed Care Manual, Payments to Medicare Advantage Organizations, Pub. No. 100-16 (Rev. 118, September 
19, 2014), ch. 8,  10.  Accessed at https://www.cms.gov/regulations-and-guidance/guidance/manuals/ 
downloads/mc86c08.pdf on July 25, 2022. 
4 42 CFR  422.310(b); CMS, Encounter Data Submission and Processing Guide, Medicare Advantage Program, October 2020, 
ch. 3, p. 17.  Accessed at https://www.csscoperations.com/internet/csscw3_files.nsf/F/CSSCED_Submission_Processing_Guide 
_20201009.pdf/$FILE/ED_Submission_Processing_Guide_20201009.pdf on May 17, 2021.   
5 CMS, Encounter Data Submission and Processing Guide, Medicare Advantage Program, October 2020, ch. 2, p. 7.  Accessed at 
https://www.csscoperations.com/internet/csscw3_files.nsf/F/CSSCED_Submission_Processing_Guide_20201009.pdf/$FILE/ED_Su
bmission_Processing_Guide_20201009.pdf on May 17, 2021. 
6 Social Security Act,  1853(a)(3)(B); 42 CFR  422.310(b). 
7 CMS, Medicare Managed Care Manual, Risk Adjustment, Pub. No. 100-16 (Rev. 118, September 19, 2014), ch. 7,  70.1.  
Accessed at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/mc86c07.pdf on July 26, 2022. 
8 CMS, Announcement of Calendar Year (CY) 2011 Medicare Advantage Capitation Rates and Medicare Advantage and Part D 
Payment Policies and Final Call Letter, p. 19.  Accessed at https://www.cms.gov/Medicare/Health-
Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2011.pdf on April 27, 2022.  
9  Urban Institute and American Action Forum, Using Encounter Data in Medicare Advantage Risk Adjustment, January 2019.  
Accessed at https://www.urban.org/sites/default/files/publication/99623/using_encounter_data_in_medicare_7.pdf on April 27, 
2022. 
10 According to the Medicare Advisory Payment Commission (MedPAC), MA plans implement efficiencies that reduce their 
health care costs year over year.  However, due to CMSs payment policies, these savings are not passed on to CMS.  MedPAC 
estimates that CMS spends 4 percent more on MA than it would spend on Medicare fee-for-service.  MedPAC, Report to the 
Congress: Medicare Payment Policy, March 2022, pp. 415-417.  Accessed at https://www.medpac.gov/wp-
content/uploads/2022/03/Mar22_MedPAC_ReportToCongress_SEC.pdf on April 27, 2022. 
11 42 CFR  422.100(a); CMS, Medicare Managed Care Manual, Benefits and Beneficiary Protections, Pub. No. 100-16 (Rev. 121, 
April 22, 2016), ch. 4,  10.1-10.2.  Accessed at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads 
/mc86c04.pdf on September 20, 2022. 
12 CMS, Report to Congress: Alternative Payment Models & Medicare Advantage, January 2020, p. 29.  Accessed at 
https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/APMs_and_MA_RTC_508.pdf on August 24, 2022. 
13 42 CFR  422.566(b)(3).   
14 42 CFR  422.566(a)-(b) and (d). 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight   
OEI-03-21-00380  Endnotes | 28   
ENDNOTES 
15 OIG, Medicare Advantage Appeal Outcomes and Audit Findings Raise Concerns About Service and Payment Denials, 
OEI-09-16-00410, September 2018.   
16 CMS, Medicare Claims Processing Manual, Remittance Advice, Pub. No. 100-04 (Rev. 11414, May 12, 2022), ch. 22,  60.2.  
Accessed at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c22pdf.pdf on June 30, 
2022.  
17 CMS, Encounter Data Submission and Processing Guide, Medicare Advantage Program, October 2020, ch. 3, p. 6.  Accessed at 
https://www.csscoperations.com/internet/csscw3_files.nsf/F/CSSCED_Submission_Processing_Guide_20201009.pdf/$FILE/ED_Su
ENDNOTES 
bmission_Processing_Guide_20201009.pdf on May 17, 2021. 
18 X12, Claim Adjustment Reason Codes.  Accessed at https://x12.org/codes/claim-adjustment-reason-codes on October 
 
25, 2022.  X12 is chartered by the American National Standards Institute and maintains electronic data interchange standards 
for the health care industry, including external code lists distributed by the Washington Publishing Company. 
1 9 The Claim Adjustment Status and Reason Code Maintenance Committee maintains the adjustment code set and updates it 
three times a year.   
2 0 CMS, CMS Guidance: Reporting Denied Claims and Encounter Records to T-MSIS, May 2020.  Accessed at 
https://www.medicaid.gov/medicaid/data-and-systems/macbis/tmsis/tmsis-blog/entry/53973 on July 20, 2021. 
2 1 OIG, Nationwide Brace Scam, April 2019.  Accessed at https://oig.hhs.gov/newsroom/media-materials/nationwide-brace-
scam/ on July 14, 2022. 
 
22 OIG, The MEDIC Produced Some Positive Results but More Could Be Done to Enhance its Effectiveness, OEI-03-17-00310, July 
2018. 
 
23 42 CFR  422.310(f)(1)(iv). 
 
24 GAO, Medicare Advantage: Limited Progress Made to Validate Encounter Data Used to Ensure Proper Payments, January 2017, 
p. 18.  Accessed at https://www.gao.gov/assets/gao-17-223.pdf on March 2, 2022. 
 
25 OIG, Medicare Advantage Appeal Outcomes and Audit Findings Raise Concerns About Service and Payment Denials, 
OEI-09-16-00410, September 2018. 
 
26 OIG, Some Medicare Advantage Organization Denials of Prior Authorization Requests Raise Concerns About Beneficiary Access 
to Medically Necessary Care, OEI-09-18-00260, April 2022.  OIG identified these denials from datasets that we obtained directly 
from MAOs, not from the MA encounter data. 
 
27 In addition to the adjustment code, the payer may use a remittance advice remark code (hereafter remark code) to further 
explain the reason for the adjustment.  However, some remark codes also provide little information about the status of the 
billed amount.  For example, remark code N33 (No record of health check prior to initiation of treatment) does not 
definitively identify whether the MAO denied payment for the claim.  CMS, Medicare Claims Processing Manual, Remittance 
Advice, Pub. No. 100-04 (Rev. 11414, May 12, 2022), ch. 22,  60.3.  Accessed at https://www.cms.gov/regulations-and-
Guidance/Guidance/Manuals/Downloads/clm104c22pdf.pdf on June 30, 2022. 
28 We included records containing adjustment codes that appeared at the header and/or line portion of the record. 
29 In addition, the MEDICs and DOJ reported that they do not have access to all payment variables in the MA encounter data. 
30 We use the term MAO to refer to a unique MA contract. 
31 MAOs that mainly reported adjustment codes only at the line level did so on at least 90 percent of their encounter records 
that contained these codes.  Just two MAOs always reported their codes only at the header level (and never at the line level).   
 
Issue Brief: The Inability To Identify Denied Claims in Medicare Advantage Hinders Fraud Oversight    
OEI-03-21-00380  Endnotes | 29