Federal court nixes CMS overpayment rule, handing a big win to Medicare Advantage insurers

Medicare Advantage insurers scored a significant legal victory on Friday when a D.C. federal court struck down a 2014 rule requiring payers to report and return overpayments.

The judgment could have significant implications for fraud cases involving Medicare Advantage diagnosis codes.

In her ruling (PDF), U.S. District Judge Rosemary Collyer in D.C. sided with UnitedHealth, which argued the rule that requires MA plans to return overpayments based on an analysis of its members’ health status was “wholly inconsistent” with Medicare fee-for-service requirements.

UnitedHealth sued the agency in 2016. Last year it asked the court to scrap the rule entirely

Collyer granted UnitedHealth’s motion for summary judgment, indicating the rule “violates the statutory mandate of ‘actuarial equivalence’ and constitutes a departure from prior policy that the government fails adequately to explain.”

The rule specified that any incorrect diagnostic code that isn’t properly documented in a patient chart classifies as an overpayment, but dozens of UnitedHealth insurers argued CMS doesn’t apply that same level of scrutiny to its traditional Medicare program, which they said is riddled with errors.

RELATED: DOJ abandons much of its Medicare Advantage fraud suit against UnitedHealth  

The standard is compounded by the fact that under the Affordable Care Act, overpayments must be returned within 60 days after being identified.

The court sided with that reasoning, ruling that actuarial equivalence is impossible to achieve since traditional Medicare pays for all diagnostics codes, erroneous or otherwise.

“The effect of the 2014 Overpayment Rule, without some kind of adjustment, is that Medicare Advantage insurers will be paid less to provide the same healthcare coverage to their beneficiaries than CMS itself pays for comparable patients,” Collyer wrote.

A CMS spokesperson said the agency is evaluating the court's decision.

“Today’s ruling sets an important precedent and affirms the government must apply its actuarial standards equally to Medicare Advantage plans and fee-for-service Medicare,” UnitedHealth spokesperson Matt Burns said in an emailed statement to FierceHealthcare.

RELATED: DOJ takes Anthem to court over refusal to comply with Medicare Advantage fraud investigation

The decision could have a huge effect on an ongoing fraud case against UnitedHealth in which the government alleges the insurer knowingly submitted inaccurate diagnosis codes.

Federal prosecutors abandoned a second MA fraud case against UnitedHealth last year.

The feds are also in the midst of a similar investigation into Anthem’s MA plans, which is focused on many of the same issues raised in the UnitedHealth case around the accuracy of diagnosis codes and retrospective chart reviews.

Last month, the DOJ took Anthem to court to compel testimony about its program, but the insurer has fought back, claiming it tried to meet nearly a dozen times with prosecutors resolve the scope of the request.