Proposed changes to Medicare Advantage audits could put insurers on the hook for billions

An overlooked portion of a proposed rule released by the Trump administration on Friday could turn out to be a significant financial headwind for Medicare Advantage insurers.

Buried in last week's proposal that touts new telehealth flexibilities for MA plans for 2020, the Centers for Medicare & Medicaid Services (CMS) unveiled a significant change to the way it audits MA insurers that would extrapolate data generated from risk adjustment audits.

Since plans are reimbursed based on each member’s sickness level, CMS uses Risk Adjustment Data Validation (RADV) audits to ensure data submitted by insurers matches the patient’s diagnoses. Unlike provider audits for traditional Medicare payments, data from RADV audits are not extrapolated. For example, if CMS audits 100 members and 12 are found to have improper payments, the plan is only responsible for paying back overpayments in those 12 identified cases.

The proposed rule (PDF) would change that to extrapolate those findings, meaning insurers could be on the hook for much higher recoupments.

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“It’s a big change because as opposed to being told you need to pay CMS $100,000, you could be told to pay $100 million,” said Tara Dwyer, a member at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, in Washington, D.C.

CMS expects to recover $4.5 billion over the next 10 years due to this change, including $1 billion in 2020. That first-year figure includes $650 million in audit recoveries from 30 plans for payments made in years 2011-2013.

In a statement issued on Wednesday morning, AHIP CEO Matt Eyles questioned the changes, particularly a change that would no longer account for fee-for-service error rates, thereby increasing Medicare Advantage recoveries. Eyles said he was "greatly concerned" with that specific part of the proposal, adding that the FFS adjuster is "legally and actuarially required" and any changes could cause "highly random and arbitrary results."

"To deliver for beneficiaries, insurance providers must have clarity and certainty regarding the MA program," he said. "AHIP supports program oversight to protect taxpayers and beneficiaries – but audits must be conducted in ways that are methodologically and actuarially sound, and are legally appropriate, to avoid highly inaccurate findings that could undermine the ability of MA plans to deliver for the 20 million Americans they serve."

It’s not the first time, CMS has tried to tweak its methodology. In 2010, it outlined similar steps in proposed guidance that was quickly shot down by the insurance industry. Dwyer, who was an associate at Mintz when that guidance came out, recalls that “many of my weeks were spent just writing comments.”

Nearly eight years later, CMS is likely to face similar resistance from insurers. Although it was expected that CMS would come back to this change given improper payments among Medicare Advantage plans exceeded $14.4 billion in 2017, insurers are likely to balk at the agency’s plan to recover payments as far back as 2011 and implement this new approach as soon as 2020.

Dwyer expects the extrapolation methodology could be pushed as far back as 2022.

Still, CMS is likely keeping a close eye on litigation against UnitedHealthcare claiming the insurer's risk adjustment calculations led to fraudulent payments, along with ongoing investigations against insurers like Anthem over similar issues.

“It’s separate but it’s related in the sense that you have the government paying more attention to improper payments,” Dwyer said. “Even though CMS isn’t involved, they are of course following those cases.”

Editor's Note: This article has been updated to include a statement from AHIP CEO Matt Eyles.