Medicare Advantage plans brace for final controversial risk adjustment rule by Feb. 1

Medicare Advantage (MA) plans are bracing for a final rule that could overhaul the risk adjustment process and may leave them on the hook for errors going back more than a decade. 

Plans have circled Feb. 1 as the date they expect the Centers for Medicare & Medicaid Services (CMS) to publish the final Risk Adjustment Data Validation (RADV) rule, which will govern how CMS audits for coding errors. Some plans have said they want to make sure a fee-for-service (FFS) adjuster to the audits is included, which would limit error rates made by MA plans to a similar rate in FFS. 

“What we will be looking for is hopefully the acknowledgment that a FFS adjuster is necessary to recognize the inherent error rate in all claims data sets within Medicare,” said Susan Diamond, chief financial officer for Humana, during a presentation at the J.P. Morgan Healthcare Conference earlier this month. 

Currently, CMS audits a subset of around 200 MA beneficiaries in a plan. It compares all of the diagnosis codes for those beneficiaries to their medical records to determine whether Medicare over- or underpaid for the diagnoses. CMS has tried since 2012 to instead extrapolate the results of the audit to the entire population of that plan.

In 2018, the agency released a proposed rule that got rid of the FFS adjuster. It also would apply the new rule’s methodology retroactively to plans dating back to 2011. 

CMS did not finalize the rule for several years in part due to a delay caused by the COVID-19 pandemic and has announced a new deadline of Feb. 1 to publish the final version. A copy of the final rule has been sent to the Office of Management and Budget, a key final step before publishing a regulation.

Insurers have said they are not opposed to additional oversight.

“Like all government programs, taxpayers and beneficiaries need to know that the Medicare Advantage program is well-managed,” said Tim Noel, CEO of UnitedHealthcare’ medicare and retirement business, during a briefing with reporters Tuesday.

But Noel cautioned that leaving out the adjuster could lead to “flawed” audit results and shift away from a well-established CMS position.

The problem with getting rid of the FFS adjuster is that it will hold plans to an impossible burden of no errors whatsoever in its claims, insurers argue.

The insurance lobbying group AHIP said in comments to CMS that any changes to RADV need to be applied prospectively. It also called for all contract-level audits to be completed “more swiftly, and notifications and appeals processes should occur in a more timely manner.”

The financial impact on plans remains to be seen, especially as bids for the 2024 coverage year are fast approaching. 

Some within the industry have hinted at a legal battle if CMS finalizes a rule with no FFS adjuster and retroactively applies the methodology back to 2011. 

“I think the industry stands to respond if it is not a fair and equitable approach,” said Drew Asher, Centene’s chief financial officer, during a presentation at JPM. 

Diamond was more specific that the industry could sue to halt the rule

“We will have to evaluate from a legal perspective the options,” she said. “There would be a strong public response.”

AHIP has also said that applying the regulation retroactively is “legally impermissible” and that extrapolation isn’t within CMS’ statutory authority. 

“The RADV proposal undermines confidence in CMS’ willingness to be a fair partner with the private sector,” AHIP said. “It injects uncertainty and risk into the system.”