In new final rule, CMS looks to claw back billions in overpayments to Medicare Advantage health plans

CMS has confirmed a new approach to its auditing of payments directed to Medicare Advantage health plans, but the agency says the regulatory burden on providers should not increase.

A newly published final rule on risk adjustment data validation (RADV) establishes that CMS will use an extrapolation methodology to recoup overpayments to MA plans beginning with the 2018 payment year. The rule first was proposed more than four years ago and has been a source of consternation among MA plans while undergoing a drawn-out comment and study period.

As background, CMS noted in the rule that despite studies and audits turning up numerous instances where the medical records of MA enrollees don’t support the diagnoses reported by plans, no risk adjustment overpayments have been collected since 2007. CMS has spent part of the interim refining its auditing methodology and codifying the changes.

The stakes have risen in recent years with the growth of the MA program, which in 2022 served 49% of Medicare beneficiaries (29.1 billion enrollees). That trend creates an increasing potential for budget-busting overpayments.

During a meeting last month, the Medicare Payment Advisory Commission (MedPAC) reported that in 2021, risk scores were 4.9% higher in MA than in Medicare fee-for-service (FFS) because of discrepancies in coding. The financial incentives and available infrastructure to code more diagnoses in MA, compared with Medicare FFS, lead to distorted MA risk scores, MedPAC noted.

The result was $17.1 billion in overpayments to MA plans in 2021. According to the commission’s projections, the disparity will rise to a combined $43.6 billion in 2022 and 2023.

Key points of the new rule

Going forward, MA health plans and their contracted providers must submit a sample of medical records for the validation of risk adjustment data. CMS then will calculate program-wide overpayments starting with the 2018 payment year, using “statistically valid methods for sampling and extrapolation that we determine to be well-suited to a particular RADV audit.”

The rule states that the audits will focus on health plan contracts and hierarchical condition categories that “through statistical modeling and/or data analytics are identified as being at highest risk for improper payments.”

In one respect, the final rule is more lenient to MA plans than the 2018 proposed rule, which called for extrapolating RADV findings to determine overpayments going back to 2011. In the final rule, the only overpayments to be collected between 2011 and 2017 are those specifically identified in previous audits by CMS and the HHS Office of Inspector General. The decision was made in part to try to limit the number of active appeals.

Starting with the 2018 payment year, however, all plans will be on the hook to remit extrapolated overpayments “in accordance with a manner specified by CMS.”

Minimal projected impact on providers

CMS said the rule would not impose new documentation requirements on providers, given that health plans are “already required to ensure that contracted providers meet MA documentation requirements.” In addition, HIPAA obligates providers and plans to use standard formats and coding for healthcare transactions.

In public comments, provider advocates “expressed concern that extrapolation for past payment years will destabilize physician care,” CMS wrote in the rule, because providers would be at risk for losses if they participate in MA risk-sharing arrangements and have not completed a final settlement.

CMS did not address that concern directly, saying it encourages “all parties to those agreements to take steps to mitigate the submission of diagnosis codes that are not properly submitted in the medical record.” The agency added that nothing in the rule constitutes the imposition of “additional liabilities, penalties or retroactive application of new requirements or policy.”

Health plan advocates voice displeasure

While providers may avoid direct consequences of the rule, health plan advocates are not sanguine about the implications. They have signaled plans to challenge the rule in court.

Matt Eyles, president and CEO of AHIP, issued a statement saying the rule “is unlawful and fatally flawed, and it should have been withdrawn instead of finalized.” He added that it likely will reduce health equity and also “raise prices for seniors and taxpayers, reduce benefits for those who choose MA and yield fewer plan options in the future.”

The Better Medicare Alliance, an MA advocacy group, also criticized the rule, saying it would promote “unintended consequences” that include higher premiums and fewer benefits for enrollees.