Plans may be delighted with the recent court ruling striking the RADV rule, but they should not cheer for too long.
A federal court has vacated the 2023 Medicare Advantage (MA) Risk Adjustment Data Validation (RADV) audit rule finalized during the Biden years. The court 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. At the same time, it is a bit of a shocker as it throws the Trump administration’s plans for a 100% RADV audit commitment into great flux. That certainly raises uncertainty for plans.
Background
After years of operating RADV audits through both the Centers for Medicare and Medicaid Services (CMS) and the Health and Human Services’ (HHS) Office of Inspector General (OIG) without rule-making authority, the Biden administration finally proposed a RADV rule under which recoupments in the MA risk adjustment program could be executed.
Courageous Humana challenged the rule in September 2023 on several very sound grounds:
- First, Humana argued that the rule was procedurally invalid, arbitrary, and capricious as well as did not follow the Administrative Procedure Act (APA).
- Second, 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.
- Third, there was 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.
- Fourth, 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.
The ruling
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 in the RADV case found that CMS did not follow the procedural requirements of the 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.
The fundamental inequities
The harm really would have been pronounced via both extrapolation and retroactive application.
On retroactive application, books are long closed for prior periods. Plans never even had a chance to reserve dollars for potential recoupments as the new rule was published years later. Paying such penalties without reserves would come out of benefits, cost-sharing, and access in the program. 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. Indeed, government and private estimates suggest overpayments are in the tens of billions annually.
I also have questions about extrapolation. I do not argue that government should not be allowed to do focused audits and potentially use extrapolation to ensure integrity in healthcare. The problem is that the extrapolation methodology should be part of the rule, have had public input, and be fair and reasonable. The Trump administration’s 100% RADV audit announcement failed to scope or disclose the methodology as well. Further, the Trump administration seemed to focus its audit plan on the codes at the highest risk of abuse. The approach was not vetted publicly, and plans deserve answers on how recoupment is impacted by muliple and ongoing focused audits vs. fewer comprehensive ones over time.
The impact
In my mind, the court decision pretty much throws 100% risk adjustment audits under the Trump administration out the window right now. This is very problematic for CMS Administrator Dr. Mehmet Oz. Indeed, in two recent appearances, Oz has pressed the overpayment issue hard and seemed to leave open the possibility of implementing aggressive audits despite the ruling.
I think audit recoupments would easily be challenged in court by plans 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. The agency 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 show 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 court decision, it seems pretty clear that the appellate level or the Supreme Court would likely side in whole or part with the district court. We are now in a post-Chevron world. The Supreme Court’s decision in that case was far-reaching and stripped agencies of almost all discretionary authority in rule-making.
What should plans think?
Well, plans can spend a little time breathing a sigh of relief. But Oz’s commitment to Congress and the growing momentum to reform MA overpayments needs to worry plans just the same. There is little doubt that CMS or Congress will in time implement something far-reaching. I do expect CMS to move another rule forward to give it substantial or at least reasonable authority. That would clear the way to move forward with audits after a brief stall. So, MA plans should see this only as a brief respite.
The court ruling also opens up some ugly prospects. For example, a small number of large plans have risk scoring practices that are outliers and these plans generate a disproportionate share of the suspected overpayments. But now with audits in limbo, Congress or CMS now could push reforms that apply universally to save money on overpayments, including increasing the coding intensity negative adjustment for all plans. This would cripple smaller and regional plans that do not have outlier risk adjustment practices or patterns.
Plans should approach the issue in a few ways
First, consider reform of risk adjustment scoring practices internally if needed. The new risk model v28 already will reduce overpayments. My view is CMS or Congress will go after scores that are derived solely from manual chart reviews or health risk assessments (HRAs). Thus, investigate if your plan’s practices are too aggressive, assess overall recoupment risk, and reform practices if necessary.
Second, take the time to establish clear audit and documentation procedures. Establish mock audits with providers as well as pro-active documentation year-round. Educate providers on correct coding and the audit processes. If it is true that some plans abuse risk-adjustment coding, it is also true that some plans may actually undercode their populations.
Third, join Stars gap closure and risk adjustment data collection together. It makes a great deal of sense.
Fourth, if you are notified of a payment year audit, you have no choice but to comply with filing documentation even as you consider legal recourse.
Fifth, have the courage of Humana to challenge CMS if you believe the agency continues not following the APA and the audit standards published are unreasonable. They certainly are if they continue to look anything like the 100% RADV methodologies in place.
Sixth, consider advocating for reasonable risk adjustment reform, including disallowing risk scores derived solely from manual chart reviews or health risk assessments (HRAs). This, with ongoing model changes, should lessen overpayments dramatically. As well, push for instituting a data-based and fair interim, plan-specific added coding-intensity adjustment instead of increasing the negative adjustment universally. This could provide savings relief in the short term. This would better pull revenue from the true oultier plans.
As I say, a small number of bigger plans with suspected aberrant coding practices are giving the entire MA program a bad name. Ironically, that seems to include Humana as well — but maybe the new leadership understands what is at stake overall. The industry as a whole should focus reform on the outlier plans so as not to further destabilize MA. Congress and perhaps CMS need to be educated on this as well before they implement radical one-size-fits-all changes.
In many ways, a fair-and-equitable RADV audit system is one of the better permanent ways — along with HRA and chart review bars — to police bad behavior. So work with CMS on rolling out a new and truly accountable rule. Get comfortable with some of the extrapolation and recoupment policies and advocate for a smooth glide path to implementation so as to protect financial stability in the short term and prepare for the changes. This avoids more political reactions and curbs the usual “off-with-their-heads” political approaches we see on Capitol Hill.
#cms #medicareadvantage #riskadjustment #overpayments #radv
— Marc S. Ryan
