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2024 Medicare Advantage Compliance And Regulatory Issues

A number of folks have texted, LinkedIn messaged, or emailed and asked if I would give an overview of some of the major compliance and regulatory issues Medicare Advantage (MA) plans need to be aware of as the 2024 year gets going.

Here is my best take on the major issues from a compliance and regulatory standpoint:

Audits in full swing

I am hearing from health plan friends that MA audits have already begun this year with January notices. As promised by the Centers for Medicare and Medicaid Services (CMS), regular program audits are being supplemented with ad hoc audits concerning the 2024 rule requiring major changes to how MA plans perform prior authorization (PA) and utilization management (UM). In addition to adding the ad hoc audits for those under regular program audit, plans can be noticed for just an ad hoc audit as well.

 In general, the new rule requires plans to use the traditional Medicare fee-for-service (FFS) program coverage criteria (National Coverage Determinations (NCD) and Local Coverage Determinations (LCD)) instead of their own evidenced-based criteria. This was lobbied for by hospital and provider groups.  The health plan lobbies failed here and this is a tragic decision by CMS. It will lead to huge cost increases in the program and likely Medicare as a whole. The coverage criteria is meant for retrospective claims payment, not upfront prior authorizations. In addition, there is huge fat in terms of utilization in the FFS program that MA traditionally takes away. PA has a place in healthcare and CMS is essentially taking it off the table. What’s more, these increased costs will directly reduce the supplemental benefits that are so important to seniors and the disabled enrolled in MA. The PA rule directly impacts a critical social safety net for these folks.

In terms of the ad hoc audits on the 2024 rule, I am hearing CMS really does not have their bearings yet. There is much confusion. Auditors are ensuring policies related to the new rule are in place, including continuity of care; processes to follow the FFS criteria vs. the plan’s own criteria; validation that plan criteria is evidenced-based per the rule; the presence of a UM committee and policies to review and update UM policies; the availability of the criteria to the public; and the use of physicians with appropriate qualifications for PA reviews. A tracer approach appears to be being used to validate all this. During these ad hoc audits, CMS also will have a physician review of a sample of denied prior authorizations for the period of the audit. Let’s see how aggressive they are on the use of criteria.

More on the 2024 UM and PA changes

Many have asked my view on whether plans can use their own evidenced-based criteria in addition to the NCD and LCD information as well as general traditional FFS requirements. It will be allowed only where there truly are not fully developed NCDs and LCDs for a given request. And CMS is likely to take the position that criteria are fully developed except in very specific cases.

Some plans are hopeful that they can devise use of their own criteria with regard to initial inpatient admission, but I think plans will have a difficult time winning here. When it comes to the substitution of observation and other outpatient statuses in lieu of initial inpatient admission, CMS likely will take the position that the 2016 two-midnight benchmark and related circumstances regulation (when a beneficiary should receive inpatient treatment) constitutes the standard and the criteria and regulation are fully developed.

In essence, CMS will tell plans they cannot supplant the judgment of the physician as long as the physician order and concomitant medical record are sufficient. The physician must include the complex medical factors such as patient history, comorbidities, severity of illness or symptoms, medical needs, and risk of adverse events. As long as that is in place, the 2016 rule leaves it to the physician to determine whether inpatient admission is needed with three tests: (1) if the physician expects the patient to require medically necessary hospital care spanning at least 2 midnights; (2) if the hospital procedure is a service listed as “inpatient only” by Medicare; (3) if the care is projected to be needed for less than two midnights but the physician’s judgment is that inpatient admission is still warranted. Also, the two-midnight rule does not strictly require the patient spend two midnights in the hospital. It is about the expectations of the physician at the time of need.

Don’t confuse what I say above with my actual views on the policy. I do not agree with this and think it is wasteful. With a majority of doctors now owned by hospitals and health systems, of course a doctor is going to say inpatient is needed. In essence, we no longer have managed care regarding prior authorizations. We have a physician-driven (also hospital-driven) framework. MA plans now will become simple administrators as they can only confirm the presence of diagnoses or other medical criteria and ensure that the furnishing of a service or benefit is medically necessary against the FFS standard or for supplemental benefits. I would argue that MA plans could deny an authorization for inpatient if the physician does not supply the necessary order and records.

Some will question my interpretation given some confusing language in Question #8 of the CMS Frequently Asked Questions (FAQs) released by CMS ( ) as well as within the finalized rule itself –particularly pages 22191 and 22192 ( ). But here is the skinny: It is important to realize that there is a critical difference between the two-midnight benchmark and two-midnight presumption.

In the FAQs, CMS states that: “The term ‘two-midnight rule’ is sometimes used to describe different things: either the “two-midnight presumption” or the “two-midnight benchmark” admission criteria. As explained further below, MA plans do not have to follow the “two-midnight presumption,” which relates to medical review instructions for contractors in Traditional Medicare. However, another colloquial use of the term “two-midnight rule” is to describe the inpatient admission criteria in 42 C.F.R. § 412.3, which include a “two-midnight benchmark;” MA plans are required to follow these inpatient admission criteria.

It seems pretty clear to me that CMS is directing plans to follow the 2016 rule (42 C.F.R. § 412.3) regarding two midnights and that what the physician says goes on the initial admission. The confusing part is discussion around the two-midnight presumption, which relates to FFS payment by FFS claims contractors. The two-midnight presumption is that all inpatient claims that cross two midnights following the inpatient admission order are “presumed” appropriate for payment under Medicare Part A and are not the focus of medical review by the contractors absent other evidence. CMS specifically says the claims presumption does not apply to MA plans in terms of reviewing inpatient claims.

That is where some MA plans see an opening. The FAQs go on to say that plans may conduct medical necessity reviews before, during (concurrently), or after the service provision. The rule on page 22192 states something similar in the claims review section. But this does not change the fact that the two-midnight benchmark must be followed and the physician seemingly decides that. Again, I would argue that MA plans at best could deny an authorization for inpatient care if the physician does not supply the necessary order and records (and plans might be able to use outside evidence-based criteria to help here). But this is more of a procedural issue. If the physician does document all of it, the MA plan likely must bow to the assessment of the physician with regard to the need for inpatient care as opposed to observation even if it may disagree. Indeed, CMS writes in the rule at 22191: “Therefore, under § 422.101(b)(2), an MA plan must provide coverage, by furnishing, arranging for, or paying for an inpatient admission when, based on consideration of complex medical factors documented in the medical record, the admitting physician expects the patient to require hospital care that crosses two-midnights (§ 412.3(d)(1), the “two midnight benchmark”); when admitting physician does not expect the patient to require care that crosses two-midnights, but determines, based on complex medical factors documented in the medical record that inpatient care is nonetheless necessary (§ 412.3(d)(3), the “case-by-case exception”); and when inpatient admission is for a surgical procedure specified by Medicare as inpatient only (§ 412.3(d)(2)).”

So it will be tremendously difficult for MA plans to favor observation over inpatient care as they justifably did in the past for many inpatient requests. If the doctor has an adequate medical record and order and recommends inpatient care, the plan would need to accede. While CMS exempted MA plans from the two-midnight presumption for claims payment, the reality is that costs will be driven up. Plans are unlikely to forego PA upfront. But the FAQs make it clear that a claim cannot be denied for lack of medical necessity if it was approved through upfront PA.

Now, if I were an MA plan, what would I do? I would continue a thorough medical necessity review using outside criteria (e.g., MCG or InterQual) of these observation vs. inpatient cases. While I do not think a plan can override the physician either upfront or on claims review if the right order and medical record is provided, I think the reviews can deny an authorization for inpatient care if the physician does not supply the necessary information. And I think outside, evidence-based criteria could help here on this more procedural issue. I would also argue that outside criteria could be used to perform concurrent reviews along with aggressive care transitions once a patient is in the hospital as the traditional program has no equivalent practice (once a person is in under the traditional program, they stay in as long as the doctor and the hospital agree). So, the physician may decide whether a hospital stay is warranted, but the plan could exert its authority on how long the patient stays. As important, the thorough criteria reviews would provide a body of evidence in the future to change this terrible CMS decision. The difference between the plan recommended decision and the physician requests can be tied to claims over time to see how much costs are rising as more and more cases are converted from observation or related status to inpatient stays.

I would note, too, that providers may actually be incentivized to use the same outside, evidence-based criteria that appear to be de-emphasized at the plan level. What better way for providers to assure swift approval of a PA other than a good order, adequate documentation, and a provider-supplied MCG or InterQual assessment. That is, of course, if the corporate hospital parent of the provider does not object!

Another huge driver of costs will be the requirement that MA plans also authorize services in a post-acute facility that would be covered under traditional Medicare if the attending physician orders such services in a given type of facility. The FAQ document makes it clear MA plans cannot deny the post-acute setting. Again, MA plans should continue thorough medical necessity review using outside criteria and build a similar case for CMS as I describe above for inpatient.

Another cost driver: MA plans’ approval of a prior authorization request for a course of treatment must be valid for as long as medically reasonable and necessary to avoid disruptions in care. This must be in accordance with applicable coverage criteria, the patient’s medical history, and the treating provider’s recommendation.

And yet another cost driver: MA plans must provide a minimum 90-day transition period for new enrollees. In that period no prior authorization requirements can be exercised for any active course of treatment, even for an out-of-network provider.

Despite their costs, I personally do not think the last two of these provisions are unreasonable.

Program audit, universe, and regulatory reporting changes

The program audit protocols and current universe formats were extended through January 31, 2027. There were a few suspensions of data collection. Check the program audit website for the latest 2023 protocols:  See the 2024 changes memo here:

Some updates to regulatory reporting were made. Check out the plan reporting website: and . CMS is recommending changes in 2025 for Part D reporting. See the proposed rule here:

Data validation requirements have also changed in 2024 for 2023 reports. See the changes here:

Areas to keep an eye on

2022 overpayments rule:

CMS recently reiterated the requirement that MA plans report and return any overpayment within 60 days of identifying such overpayment. This stems from a May 2014 rule. A number of MA plans led by United Healthcare challenged the rule’s inclusion of instances where a plan “should have determined through the exercise of reasonable diligence. . . that [it] has received an overpayment.” A federal district court struck this provision, but otherwise the rule remains in place. So plans need to abide by what is in place.

In a proposed rule from December 14, 2022, CMS sought to clarify the struck provision by recommending that an MA or Part D plan would have identified an overpayment if it acted in “reckless disregard” or “deliberate ignorance” of the overpayment. CMS is hopeful that this less rigorous standard will pass legal muster. A final rule could come on this proposal in 2024. Plans are likely to challenge even this clarification if it is finalized.

2024 RADV rule:

Humana wisely has challenged the finalization of the 2024 Risk Adjustment Data Validation (RADV) rule. The rule would subject plans to ongoing review of risk adjustment submissions and require plans to submit evidence (e.g., charts and other data) justifying the disease states or conditions submitted for its members. Errors and penalties would be extrapolated across the entire membership and revenue of the plan for the given year. It would result in huge penalties. The rule also allows audits back to the 2018 year, prior to the rules finalization. The rule’s formula does not include a FFS adjuster, which CMS at one time thought was very important.

Humana is challenging the rule on a number of fronts, including CMS going beyond its regulatory authority, issues with the administrative procedures act, the retroactive nature of the rule, the lack of the FFS adjuster, and extrapolation. Humana is likely to win at least on a few fronts and delay implementation. Plans need to watch this issue and at the same time ready for potential audits. A robust infrastructure that ties to the encounter submission process is key.

#medicareadvantage #audits #reporting #priorauthorization #radv #overpayments

— Marc S. Ryan

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