Federal Judge Strikes Risk Adjustment Audit Rule
A federal court has vacated the 2023 Medicare Advantage (MA) Risk Adjustment Rule finalized during the Biden years. The court nullified the entire rule not just portions of it. I will write more on this in a blog in coming days.
Humana challenged the rule in September 2023 on several grounds:
- The lack of a fee-for-service (FFS) adjuster, a mainstay of prior audits to ensure consistency between MA and traditional Medicare. Humana said the methodology held private Medicare insurers to a higher standard than the fee-for-service program.
- Imposition of extrapolation, where the audit is on a sample but penalties are calculated across all membership or a portion of membership.
- Retroactive recoupments on years long closed.
The court found that the Centers for Medicare and Medicaid Services (CMS) did not follow the procedural requirements of the Administrative Procedures Act. 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.
The harm really would have been pronounced via retroactive application. Books are closed for prior periods for MA plans. Plans never even had a chance to reserve dollars for potential recoupments as the new rule was published years later. Indeed, CMS said the rule would result in insurers returning $4.7 billion to the agency between 2023 and 2032. I would argue the amount would have been much greater with the new targeted, 100% annual audit approach the Trump administration announced.
The decision here perhaps rivals what occurred in 2024 on Star ratings when a number of plans challenged CMS on guardrail application when Tukey was introduced. These plans said CMS ignored existing rules. Courts agreed.
The court decision pretty much throws 100% risk adjustment audits out the window. Decisions would easily be challenged based on the fact that no rule to conduct the audits now exists. I do not think CMS can carry out such far-reaching audits on general regulatory authority, especially with extrapolation and other features. They certainly cannot recoup for prior years unless there is evidence of fraud or other legal violations.
While I am a supporter of CMS overall, the Star lawsuit and this one shows how regulatory agencies can become too powerful and ignore procedures and due process. It is important for plans to push back as they did with the Star suit and risk adjustment audits. While the Trump administration could appeal the decision, it seems pretty clear that the appellate level or the Supreme Court would likely side with the district court. We are now in a post-Chevron world. The Supreme Court’s decision in that case was far-reaching.
Kudos to Humana for having the courage to lead this risk adjustment audit fight. Challenging CMS on such a threshold issue has to be hard. And Humana’s life blood is MA. Without the program, Humana does not exist as we know it. There surely was fear of reprisal when the suit was filed, but the leadership of former CEO Bruce Broussard and current CEO Jim Rechtin was key here. All MA plans owe them a debt of gratitude.
MA plans should see this only as a brief respite. CMS in time will come back on this. It seems serious on risk adjustment recoupment and reform. CMS can put a reasonable rule in place over time by following the rules. Congress now could also act, which may or may not be good for MA.
Additional articles: https://www.modernhealthcare.com/insurance/mh-medicare-advantage-audit-rule-radv-lawsuit/ and https://www.healthcaredive.com/news/judge-vacates-cms-medicare-advantage-audit-rule-humana/761219/ and https://www.beckerspayer.com/legal/judge-sides-with-humana-tosses-medicare-advantage-audit-rule/
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#medicareadvantage #cms #radv #riskadjustment #overpayments
