The Risk Adjustment Data Validation (RADV) rule was finalized today. The new rule for governing how CMS audits Medicare Advantage plans for overpayment due to inflated risk adjustment could cost insurers billions of dollars.
Insurance trade groups blasted the risk adjustment rule for Medicare Advantage (MA) plans that CMS finalized today, signaling the start of what may be a prolonged legal battle over a rule that could cut payments to health insurers by billions and possibly slow the booming enrollment in MA plans.
“Our view remains unchanged: This rule is unlawful and fatally flawed, and it should have been withdrawn instead of finalized,” said Matt Eyles, president and CEO of AHIP, the main trade association for the health insurance industry, in a prepared statement.
“This rule comes with enormous costs and fails to target the most egregious diagnosis coding violations,” said Ceci Connolly, president and CEO of Alliance of Community Health Plans, a group that represents prominent nonprofit health plans such as Geisinger Health Plan in Danville, Pennsylvania and Kaiser Permanente, headquartered in Oakland, California.
In the news release about the Risk Adjustment Data Validation (RADV) rule, Health and Human Secretary Xavier Becerra called it “commonsense rule (that) is a critical accountability measure that strengthens the Medicare Advantage program.”
Even if there are court battles ahead, today’s promulgation of the final RADV rule is a significant development in a healthcare payment and audit saga that goes back five years to when the draft rule was published.
The Wall Street Journal and other outlets reported that a high-ranking official at the Center for Medicare and Medicaid Services (CMS) said the new rule could mean $479 million in recovered overpayments from insurers for 2018 and $4.7 billion in recovered payments over a decade.
Earlier this month, a report from the Medicare Payment Advisory Commission (MedPAC), an independent congressional agency that advises Congress on Medicare policy and program, estimated that in MA scores were 4.9% higher than risk scores for traditional fee-for-service Medicare in 2021 because of coding differences and that difference resulted in $17 billion in overpayment to MA plans.
The source of the overpayment is the adjustment of CMS payments to Medicare Advantage plans based on the health status of their enrollees. The intention is to compensate the plans if their enrollees are sicker and need more healthcare services, and, therefore, are more expensive to cover. However, evidence from studies and government audits has shown that the risk adjustments are often higher than what is warranted by the enrollees’ medical conditions, resulting in overpayment to the plans.
Despite the strong rhetoric from the trade group leaders, the today’s final rule favored the insurers in some respects. CMS had proposed using its new methods for auditing MA plans for risk adjustment overpayment going back to 2011. But the final rule says the new audit methods, which involve extrapolation from a sample of patients, will start with 2018.
The final rule, though, leaves out an “FFS adjuster” to the risk adjustment audits that the insurers have argued is important to because fee-for-service claims — on which some aspects of MA risk scoring is based — are not audited.
A CMS factsheet about the new rule says CMS is not any specific sampling or extrapolation methodology “but will rely on any statistically valid method for sampling and extrapolation that is determined to be well-suited for a particular audit,”
The backdrop to this insiders’ struggle over overpayment calculations between the federal health officials and the insurers in the MA market is the rapid growth in MA enrollment. Nearly half of Medicare beneficiaries are now enrolled in MA plans. Insurers and their allies say the enrollment shows that the MA plans deliver on their promises of better, more coordinated care and added benefits, such as dental coverage. Critics say beneficiaries may not be fully aware of some of the drawbacks of the plans, included limited networks and the possibility of higher out-of-pocket expenses relative to coverage with a supplemental “Medigap” plan, and that the government overpays insurers for MA plan coverage, partly because the plans have taken advantage of risk adjustment.