HHS files appeal to reinstate controversial MA overpayment rule

Gavel and flag in courtroom
The Department of Health and Human Services filed a new appeal to reinstate a controversial 2014 overpayment rule for Medicare Advantage plans. (Getty/AlexStar)

The Department of Health and Human Services (HHS) has filed an appeal to reinstate a key rule that handles overpayments to Medicare Advantage (MA) plans, arguing a lower court's ruling was based on a flawed premise.

The appeal, filed Thursday in the federal Court of Appeals for the District of Columbia Circuit, could decide how much money MA plans, an increasingly lucrative market for insurers, will have to give back to Medicare for diagnosis errors. HHS argues that an earlier ruling striking down the plan misunderstood how Medicare audits MA plans.

The appeal is the latest salvo in a legal fight with insurers over a 2014 rule proposed by the Centers for Medicare & Medicaid Services (CMS).

CMS audits a sample of any MA plan’s claims to determine an error rate, then extrapolates that error rate across the entire plan.

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The insurer must return any overpayments calculated based on that rate.

CMS also had a fee-for-service adjuster that estimates the error rate for Medicare cases. MA plans only had to repay Medicare for any audit errors that exceeded that error rate.

However, in 2014, CMS finalized a rule that would eliminate the adjuster.

UnitedHealthcare, the country's largest private insurer, challenged the overpayment rule in 2016, arguing that traditional Medicare still pays out claims even if they are erroneous.

In 2018, federal Judge Rosemary Collyer found that the rule would cause MA plans to be paid less for covering beneficiaries with certain Medicare conditions than CMS would “expect to spend on those beneficiaries in traditional Medicare,” the legal brief said.

Collyer also ruled that CMS creates a major difference in auditing standards between traditional Medicare and MA plans. The judge wasn’t satisfied with HHS’ reasoning for why the fee-for-service adjuster was no longer necessary.

However, CMS published a study in 2018 that concluded diagnosis errors in fee-for-service claims data don’t lead to a systematic payment error for MA plans.

HHS sought for the district court to reconsider its earlier decision on the rule in light of the study, but the court denied the motion.

UnitedHealthcare argued in court filings that the agency’s study on the adjuster is flawed because it mixes unaudited and audited data to look at payments to insurers.

HHS is now trying again by taking its case to the Court of Appeals for the District of Columbia Circuit.

The potential effects of the ruling becoming permanent are “far-reaching and would appear to foreclose CMS from ever requiring repayment for unsupported diagnoses, no matter how discovered, until CMS can demonstrate that the insurer’s error rate exceeds a certain amount.”

The agency also says the lower court's ruling was flawed because Collyer believed that diagnosis data in traditional Medicare is unaudited and "therefore understate the cost of treating various conditions."

But the rule doesn't create any mismatch between audited or unaudited data, HHS argues. 

"CMS conducts limited error correction of traditional Medicare diagnosis data through a variety of means," the appeal said. "And in Part C, the overpayment rule requires only that insurers delete erroneous diagnoses."

The appeal comes as the federal government has clashed with insurers over MA fraud claims. 

The U.S. Attorney for the Southern District of New York sued Anthem back in March, alleging the insurer failed to find or delete inaccurate diagnosis codes from 2014 to early 2018. By not doing its due diligence, Anthem got millions of dollars in MA payments for inaccurate codes, the lawsuit said.

The Department of Justice was also forced back in 2018 to abandon much of its case against UnitedHealthcare for charges that it sought to game MA billing practices to get higher payments.