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/
(Some articles may require a subscription.)
#medicareadvantage #cms #radv #riskadjustment #overpayments
CMS Puts Best Spin On 2026 Benefits
In its annual release trying to plug stability in the Medicare Advantage (MA) and Part D programs, the Centers for Medicare and Medicaid Services (CMS) said 2026 filed bids and benefit packages show average premiums, benefits, and plan choices for Medicare Advantage and the Medicare Part D standalone Part D (PDP) program should remain relatively stable next year.
The agency says premiums for MA will drop from $16.40 to $14.00. On average, the total premium for standalone Part D is estimated to fall $3.81. Over 99% of Medicare beneficiaries will have access to an MA plan, and 97% of Medicare beneficiaries will have access to 10 or more MA plan choices. The total number of available MA plans nationally will decrease slightly from 5,633 in 2025 to approximately 5,600 in 2026.
Part of what CMS says is true. Plans aim for stability and offering plans with $0 premiums is job one no matter the financial challenges. And it is good news that $0 premium PDPs will still be in the market in a majority of states. But little more was announced on cost-sharing changes and other benefit impacts. The reality is that the standalone PDP program is in precarious financial shape due to rising costs and the changes passed in 2022 lowering out-of-pocket costs. MA saw up to 2 million people impacted by shuttered plans in 2025 and we will see at least 1 million impacted in 2026. That number could rise considerably. Cost-sharing went up and benefits reduced dramatically.
CMS also predicts MA will shrink in 2026. Given ongoing challenges, I expect a further step down in growth even beyond the drop in 2025. But I have a hard time believing the program will shrink. I see ongoing disruption that creates risks, but the value of MA compared with fee-for-service (FFS) is clear. The only thing that could make CMS right is if there is a massive pullout in rural areas where participation is low. We don’t know that yet, but that could happen I guess. And while PPO contraction will occur again, most will choose HMOs instead of the huge costs of Medicare Supplement. And in many states, moving back to FFS is difficult.
Additional articles: https://www.beckerspayer.com/policy-updates/2026-medicare-ma-prescription-drug-pricing-stable-cms/ and https://www.cms.gov/newsroom/press-releases/medicare-advantage-medicare-prescription-drug-programs-expected-remain-stable-2026
(Some articles may require a subscription.)
#medicareadvantage #partd #pdp
https://www.modernhealthcare.com/insurance/mh-medicare-advantage-enrollment-drop-cms
Trump Sets Brand Drug Tariffs At 100%
President Donald Trump announced drug tariffs for brand drugs of 100% effective October 1. While the levies could be attacked in court, they are rooted in a different statute than Trump has used for other tariffs. The measure will not apply to companies building drug manufacturing plants in the U.S. He said that the exemption covers projects where construction has started, including sites that have broken ground or are under construction.
The tariffs could have impact on a number of European nations. For those in the EU, it is unclear if the 15% tariffs on brand drugs would increase to 100% or not. The EU believes their deal trumps the latest announcement. The tariffs could impact Switzerland as well as the U.K., which are outside the EU. Japan also believes it has negotiated a much lower cap like the EU.
#drugpricing #tariffs
Government Shutdown Update
Prominent conservative organizations are urging Republican leaders in Congress to remain firm and allow the enhanced premium subsidies in the Exchange to expire.
There are backroom discussions between some Democrats in the Senate and the GOP on possible ways for the Republicans to attract enough Democrats to obtain 60 votes. Democrats also cried foul over President Trump’s threat of major layoffs if the government shuts down.
Advocates and healthcare providers are predicting major impacts to healthcare, both in terms of ongoing regulation as well as grants and funding to community providers.
Further, Drew Altman of healthcare policy group KFF describes the impacts to family budgets of the Exchange subsidy expiration. And the Urban Institute says hospitals and doctors could lose $32B in revenue next year if the subsidy enhancements go away. Uncompensated care would increase as well.
Additional articles: https://thehill.com/policy/healthcare/5522607-conservatives-trump-obamacare-tax-credits/ and https://www.medpagetoday.com/publichealthpolicy/healthpolicy/117676 and https://www.kff.org/from-drew-altman/how-an-aca-premium-spike-will-affect-family-budgets-and-voters/ and https://www.healthcaredive.com/news/provider-revenue-drop-aca-subsidies-expire-urban-institute/761157/ and https://www.fiercehealthcare.com/providers/providers-face-321b-lost-2026-revenue-if-aca-enhanced-premiums-expire
#governmentshutdown #healthcare #coverage
https://thehill.com/homenews/senate/5522680-schumer-trump-threat-federal-workers/
— Marc S. Ryan
