Fact Sheets

Medicare Advantage Risk Adjustment Data Validation Final Rule (CMS-4185-F2) Fact Sheet

In a final rule released today, the Centers for Medicare & Medicaid Services (CMS) finalized technical details regarding the Medicare Advantage (MA) Risk Adjustment Data Validation (RADV) program that CMS uses to recover improper risk adjustment payments made to Medicare Advantage (MA) plans. The RADV final rule will help CMS to protect the MA program (also known as “Medicare Part C”) by addressing instances where Medicare paid Medicare Advantage Organizations (MAOs) more than they otherwise should have received because the medical diagnoses submitted for risk adjustment payment were not supported in the beneficiary’s medical record. Specifically, this final rule codifies in regulation that, as part of the RADV audit methodology, CMS will extrapolate RADV audit findings beginning with payment year (PY) 2018.

MA Payment and the Role of RADV Audits

CMS contracts with private companies, called Medicare Advantage Organizations (MAOs), to offer various health plan options for Medicare beneficiaries. These MAOs provide all Medicare Part A and Part B benefits (also known as “Traditional Medicare” or “Medicare Fee-For-Service” (FFS)), and most offer additional benefits, such as Medicare drug coverage, beyond those covered under the Medicare FFS program. Nearly 30 million individuals receive their Medicare benefits through MA. CMS has a statutory obligation and fiduciary duty to ensure payments in the Medicare program are accurate, including conducting oversight of payments made to MAOs. This approach is well-established among other CMS programs and ensures consistency in CMS’ oversight of the Medicare FFS and MA programs.

Section 1853(a)(1)(C) of the Social Security Act (the Act) requires CMS to risk-adjust payments made to MAOs. CMS pays each MAO a monthly amount for each beneficiary enrolled in an MA plan, which is adjusted to account for differences in health status amongst enrolled beneficiaries. This adjustment is referred to as “risk adjustment.” Risk-adjusted payments are based on medical diagnoses submitted by the MAOs that, by long-standing regulations, must be supported in the Medicare enrollees’ medical records to ensure accurate payment. Risk adjustment strengthens the MA program by ensuring that accurate payments are made to MAOs based on the health status and demographic characteristics of their enrolled beneficiaries, and that MAOs are paid appropriately for their plan enrollees (that is, less for healthier enrollees who are expected to incur lower health care costs, and more for less healthy enrollees who are expected to incur higher health care costs).

Making accurate payments to MAOs is part of CMS’ responsibility to ensure accurate payments across the Medicare program and ensures continued access to benefits and services for people with Medicare while safeguarding federal taxpayer dollars. Studies and audits done separately by CMS and the HHS Office of Inspector General (OIG) have shown that medical records do not always support the diagnoses reported by MAOs, which leads to billions of dollars in overpayments and increased costs to the Medicare program. RADV audits are the main corrective action for those improper payments. Through RADV audits, a sample of beneficiary medical records are provided by MAOs, and CMS reviews those records to verify that diagnoses reported for risk adjusted payments are accurate and supported in the medical record. Risk adjustment discrepancies can be aggregated to determine an overall level of payment error, which can then be extrapolated. The HHS-OIG also undertakes audits of MAOs, similar to RADV audits, as part of its oversight functions.  CMS can collect the improper payments identified during those HHS-OIG audits, including the extrapolated amounts calculated by the HHS-OIG.

Final Rule Policies

Extrapolation

Rather than applying extrapolation beginning for payment year (PY) 2011 audits as we proposed, we are finalizing a policy not to extrapolate RADV audit findings for PYs 2011-2017 and beginning extrapolation with the PY 2018 RADV audit. As a result, CMS will only collect the non-extrapolated overpayments identified in the CMS RADV audits and OIG audits between PY 2011 and PY 2017. CMS is not adopting any specific sampling or extrapolation audit methodology but will rely on any statistically-valid method for sampling and extrapolation that is determined to be well-suited to a particular audit. However, any extrapolation methodology adopted by CMS for RADV audits will be focused on MAO contracts that, through statistical modeling and/or data analytics, are identified as being at the highest risk for improper payments. While not required, CMS will continue to disclose our extrapolation methodology to MAOs, providing MAOs with the information sufficient to understand the means by which CMS extrapolated the RADV payment error.

Extrapolation has historically been a normal part of auditing practice at CMS, including in FFS Medicare, and CMS interprets our existing authority as authorizing the use of sampling and extrapolation in RADV audits. It is also expected that the use of extrapolation will incentivize MAOs to take meaningful steps to reduce improper risk adjusted payments in the future.

FFS Adjuster

The rule also finalizes a policy, as proposed, that CMS will not apply an adjustment factor (known as an FFS Adjuster) in RADV audits. As described in the final rule, and consistent with a recent D.C. Circuit Court decision in UnitedHealthcare Insurance Co. v. Becerra, 16 F.4th 867 (D.C. Cir. August 13, 2021, reissued November 1, 2021), cert. denied, 142 S. Ct. 2851 (U.S. June 21, 2022) (No. 21-1140), the requirement for actuarial equivalence in MA payments applies to how CMS risk adjusts the payments it makes to MAOs and not to the obligation to return overpayments for unsupported diagnosis codes, including overpayments identified during a RADV audit. In addition, we do not believe that it is reasonable to read the Act as requiring a reduction in payments to MAOs by a statutorily set minimum adjustment in the coding pattern adjustment, while at the same time prohibiting CMS from paying at those reduced rates by mandating a FFS Adjuster for RADV audits.

The RADV final rule can be accessed at the Federal Register at https://www.federalregister.gov/public-inspection/current

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