CMS plows ahead on RADV without underlying rule
On March 20, the Centers for Medicare and Medicaid Services (CMS) announced that it will proceed with Payment Year 2020 Risk Adjustment Data Validation (RADV) audits. In May 2025, CMS Administrator Dr. Mehmet Oz promised to audit every contract every year to reduce overpayments in the Medicare Advantage (MA) program.
But that promise took a bit of a hit when a federal judge in September 2025 sided with Humana and struck the RADV rule finalized by the Biden administration in 2023. The judge nullified the entire rule, not just portions of it. The decision was not unexpected. The Biden administration included so many far-fetched and indefensible provisions.
The court in the RADV case found that CMS did not follow the procedural requirements of the Administrative Procedure Act (APA). There were inadequate notice requirements. CMS did not justify its decisions via the comment period, either. Because of the potential harm to plans, the court vacated the rule entirely, even though it did not decide on many of the specific arguments from Humana.
Humana argued a number of points:
- That the rule was procedurally invalid, arbitrary, and capricious as well as did not follow the APA.
- There was the lack of a fee-for-service (FFS) adjuster, a mainstay of prior audits. The adjuster took into consideration relative differences between the risk adjustment processes in the traditional FFS system and MA. Humana argued the FFS adjuster is essential for maintaining “actuarial equivalence” between the two programs as the adjuster accounts for the difference in documentation standards used for payments. Traditional Medicare’s payment model relies on unvalidated claims data, while RADV audits of MA plans require validated medical record documentation.
- It challenged the imposition of extrapolation, where the audit is on a sample, but penalties are calculated across all membership or a portion of membership depending on the audit scope. Humana argued the extrapolation certainly could not be applied without an FFS adjuster as it would violate the actuarial equivalence principle by holding MA plans to a higher standard than FFS Medicare. Humana also said the extrapolation would lead to financial instability and dramatically increase MA plans’ financial risk and liabilities from audits. This would undermine the ongoing stability and predictability of MA.
- Then there were the retroactive recoupments on years long closed (back to 2018). Humana argued this retroactive application was illegal as it would create significant and unforeseen costs for MA plans and that plans legitimately relied on previous guidance regarding recoupments.
I felt the striking of the rule would throw RADV audits in flux and likely slow or stop them. But a late January 2026 memo from CMS seemingly signaled, although somewhat cautiously, that the audits would likely proceed as it updated stakeholders on recent developments. It said “… [the Department of Health and Human Services] HHS will fully comply with the district court’s order as long as it remains in effect, while continuing to pursue upcoming RADV payment year audits.”
Then on March 2020, the next round of audits were announced for Payment Year 2020. CMS does have the authority to conduct such audits and has general recoupment authority. MA plans are also obligated to report overpayments within 60 days to CMS. But the memo seemed to continue down the road of many of the more controversial elements that seemingly were in the now void rule. While CMS has appealed the judge’s ruling, there is no stay of the district court ruling that zapped the rule entirely.
CMS is using the statistical sampling methodology from the rule to conduct the audit and says it has not decided if it will extrapolate penalties — but it leaves open that possibility. The details are skimpy and not to plans’ liking. Further, it continues to target the audits at the enrollees who have the highest risk of overcoding. There is no discussion of an FFS Adjuster. Since the payment year is before 2023, it clearly seeks to recoup retroactively with no notice to plans.
Clearly CMS is hedging in continuing its aggressive RADV audit program given the lack of an underlying rule in place. Plans certainly can challenge an audit finding in court on any number of grounds once a recoupment is issued by CMS. As I note, CMS might well have the underlying ability to audit and potentially recoup. But plans could argue the underlying methodology was not properly noticed, extrapolation is not allowed, an FFS Adjuster is a requirement of any RADV process, and recoupment retroactively may be disallowed (at the very least of extrapolation occurs).
Why CMS continued when the rule was struck is a mystery to me. Why wouldn’t the agency reissue a properly noticed rule that addresses at least some of the industry concerns and then proceed with audits? That seems like the best approach given any audit findings will lead to litigation unless they are closely honed to avoid controversy. Perhaps the agency is deploying a multi-faceted approach – appealing the ruling, looking to issue small audit findings for now, and issuing a new less-expansive rule.
#riskadjustment #radv #overpayments #medicareadvantage
— Marc S. Ryan
