Medicare Advantage (MA) plans could face tougher risk adjustment audits after the Biden administration finalized a highly anticipated regulation Monday.
The Centers for Medicare & Medicaid Services (CMS) unveiled a final rule Monday that details how it will handle Risk Adjustment Data Validation (RADV) audits to determine whether MA plans were overpaid by Medicare. The rule will apply the new methodology to plan contracts dating back to 2018 and will not adjust the overpayment amount based on a similar amount calculated by fee-for-service, known as the FFS adjuster.
“Thanks to this final rule, CMS will now be able to provide appropriate oversight and ensure the integrity of the entire Medicare program by taking specific steps to collect payments made to the MA plans to which they were never entitled under our laws and regulations,” said Department of Health and Human Services Secretary Xavier Becerra during a call with reporters Monday.
Currently, CMS takes a sample of enrolled beneficiaries in MA plans in a certain year and compares the diagnoses to the medical records to ensure the plan was billed correctly. However, under the final rule, CMS will extrapolate an error rate created by these audits to the entire plan.
The original proposed rule released back in 2018 would have applied this extrapolation to every plan year starting in 2011. However, the final version only would apply extrapolation to the 2018 plan year, which could result in collecting $479 million in overpayments from plans, according to CMS officials.
CMS estimates that from 2023 through 2032, the plan will recover an extra $4.7 billion from insurers via the new audit methodology.
Agency officials told reporters that they declined to apply extrapolation to plan years 2011 through 2017 in light of major pushback from the insurance industry. Insurers have complained it would be unfair to apply the new rules to older audits.
“We made the decision that going forward and extrapolating from payment year 2018 was the balanced and right approach,” said Dara Corrigan, deputy administrator and director of CMS’ Center for Program Integrity, during the briefing.
However, insurers have said they don’t want extrapolation to be applied to any prior plan years and only to be applied going forward.
Insurers have also expressed trepidation at losing the FFS adjuster, a change that was originally included in the 2018 proposed rule. Back in 2012, CMS applied the adjuster to offset the preliminary overpayment amount that it sought to recover from an MA plan. The adjuster was meant to account for the difference in the documentation requirements for the RADV audits compared to traditional Medicare.
CMS has previously said that the adjuster is no longer needed and pointed to a 2018 study that found it had a negligible effect of less than 1% on average in favor of the plans. It also found that any errors in FFS claims don’t have any “systematic effect” on the MA risk scores.
The agency stood by the 2018 proposed rule and decided to get rid of the FFS adjuster.
“This is about ensuring accurate payments … it’s about verifying the documentation that diagnosis codes that were submitted were accurate,” said Corrigan. “Whether or not there are issues that need to be discussed between MA and a FFS payment model, that’s not what RADV is about.”
Insurers have previously argued that without the FFS adjuster, plans will be held to an impossible burden of no errors whatsoever in their claims.
There's likely to be legal blowback from the insurance industry, especially as the MA program has exploded in popularity and topped more than 30 million beneficiaries for this year. For instance, Humana Chief Financial Officer Susan Diamond said at J.P. Morgan’s healthcare conference earlier this month that litigation from the industry is likely should the FFS adjuster be removed. The bulk of Humana's insurance business is in the MA market, and it's one of the two dominant players there along with UnitedHealthcare.
Becerra shrugged off any potential for litigation during the call with reporters.
“We believe we put together a rule that is not just balanced and measured and fair but one that is ready for prime time,” he said.
Several insurer advocacy groups were livid after the rule was released on Monday.
The Alliance of Community Health Plans (ACHP) said in a statement that it will create a massive burden on smaller regional plans that operate on thin margins.
Insurer advocacy group AHIP also questioned the legality of the rule.
"This rule is unlawful and fatally flawed, and it should have been withdrawn instead of finalized," said Matt Eyles, president of the trade group AHIP in a statement. "The rule will hurt seniors, reduce health equity, and discriminate against those who need care the most. Further, the rule would raise prices for seniors and taxpayers, reduce benefits for those who choose MA, and yield fewer plan options in the future."