On January 30, the Centers for Medicare & Medicaid Services (CMS) released a long-awaited final rule addressing how it will calculate and collect overpayments from Medicare Advantage (MA) plans arising from risk adjustment errors discovered through data validation audits. In the final rule, CMS announces that it will recover excess premiums paid to MA plans when it finds unsupported or inaccurate plan-submitted risk adjustment data. CMS will not only recover the specific premiums associated with a specific error but will also extrapolate a plan’s error rate across entire cohorts of beneficiaries, thereby magnifying the potential scope of recoveries.
What is Medicare Advantage Risk Adjustment Data Validation (RADV)?
Understanding RADV is important to appreciating the impact of this rule. Avalere has an excellent review of the rule and RADV. They explain that CMS pays MA plans a capitated amount per member per month on a risk-adjusted basis using the CMS Hierarchical Condition Category (HCC) risk adjustment model. Under the HCC model, CMS determines risk scores based on health status and demographic characteristics. MA enrollee HCCs are assigned based on diagnosis data collected from certain healthcare providers (e.g., hospitals, physicians, and outpatient facilities) and submitted by plans to CMS for payment.
Avalere continues, that under federal rules, CMS has the authority to conduct annual audits to ensure MA payment integrity through a process called RADV. Through these audits, CMS validates the accuracy of the diagnosis codes plans submitted for payment. Currently, for each health plan selected for RADV (5%–10% of MA contracts), CMS generates a random sample of enrollees and reviews medical records for the sample to validate their risk scores and the corresponding payments to the plan. CMS estimates payment error by taking the difference between the actual paid amount, based on plans’ submitted diagnoses, and the amount that would have been paid based on RADV-validated diagnoses. The process of applying the error rate of a sample of plan enrollees to the plan’s membership is known as extrapolation.
Key Points from the Rule
When CMS first issued guidance in 2012 for a methodology to conduct annual RADV audits, it stated that it would apply an offsetting Fee-For-Service Adjuster to any recoupment resulting from such an audit. The purpose of the FFS Adjuster would have been to account for differences in documentation standards between fee-for-service Medicare and Medicare Advantage, and it would have served to significantly reduce the amount of any payment recoupment resulting from a RADV audit. In line with CMS’s proposal in 2018, CMS confirmed that it will reverse its position on this point and will seek to recoup payments without first applying an offsetting FFS Adjuster.
CMS further stated it will conduct recoupments as far back as to payment year 2011. For audits covering payment years 2011 through 2017, it will collect only the non-extrapolated findings. For audit findings from 2018 and subsequent years, however, CMS intends to extrapolate the results of its audits to broader populations. These extrapolations will likely result in substantially larger recoveries, because they magnify any recoupment amount resulting from distinctly observed coding variances. CMS did not announce any particular extrapolation methodology, rather, it will “rely on any statistically valid method” for conducting such extrapolations.
Importantly, CMS announced that it will seek to recoup overpayments that HHS-OIG identified in its own RADV audits. HHS-OIG has published several such audits to date and likely has more in the pipeline. Up until now, it has been unclear whether or how CMS would seek recoupments based on such HHS-OIG audit findings.
Plan reaction
Fierce Healthcare reports that Humana is weighing its options to challenge the rule. Humana CEO Bruce Broussard said the company is still reviewing the rule but that it was “disappointed” with exclusions in the final regulation.
“We are considering all of our options to address or challenge this omission and to obtain clarity about our compliance obligations,” he said.
Fierce Healthcare notes that Broussard added the company is also concerned by the lack of specifics on audit methodology included in the rule. He said it “did not provide the details needed to fully understand the potential impact of future audits,” and that the company is looking forward to working with CMS to learn more about its thinking on contract selection, sampling and extrapolation.
Broussard did praise CMS’ decision to not issue penalties on audits prior to 2018, which have not yet been conducted.
AHIP holds a similar view. The association issued a statement saying: “Our view remains unchanged: This rule is unlawful and fatally flawed, and it should have been withdrawn instead of finalized. The rule will hurt seniors, reduce health equity, and discriminate against those who need care the most. Further, the rule would raise prices for seniors and taxpayers, reduce benefits for those who choose MA, and yield fewer plan options in the future.”