The Centers for Medicare & Medicaid Services (CMS) finalized controversial policies to extrapolate data generated from 2018 Risk Adjustment Data Validation (RADV) audits without the use of a the Fee-For-Service (FFS) adjuster to offset the error rate.

After more than four years and two delays in finalizing the rule, CMS on Monday released the final policies for the Medicare Advantage (MA) RADV program, the agency’s primary audit and oversight tool for MA program payments.

Under the RADV program, CMS identifies improper risk adjustment payments made to MA organizations in instances where medical diagnoses submitted for payment weren’t supported by documentation in the beneficiary’s medical record. Although CMS referred to the final rule policies as “commonsense” because they will help the agency ensure Medicare and MA enrollees will be able to access the benefits and services they need while protecting the financial stability of Medicare, the decision to finalize these controversial provisions are likely to cause concern within the MA risk adjustment community and push MA organizations to sue the agency.

RELATED: CMS proposed rule: Big changes to RADV audits could lead to hefty penalties for Medicare Advantage plans

During a conference call with MA organizations on Monday afternoon following the release of the final rule, Dara Corrigan, deputy administrator and director of CMS’ Center for Program Integrity, said that the final policies were a significant step toward sustainability of the MA program, which serves 30 million seniors. These commonsense policies, she said, will help ensure a strong Medicare program in the future. RADV audits are the primary way the agency identifies improper payments and since CMS pays more for enrollees who are sicker, the agency must ensure that the submitted MA claims are accurate. The audits verify whether the diagnosis submitted in the claims are documented in the medical record. “Unfortunately,” she said, medical records don’t always support the diagnosis, which increases cost to the Medicare program.”

Corrigan also said that the final policies are in line with those of the Traditional Medicare FFS program. “In 2011, our medical review on the FFS program resulted in $11 billion recovered to the Medicare Trust Fund. We need the same oversight and consistency in Medicare Advantage,” she said.

Furthermore, she said, despite concerns from stakeholders, CMS does not believe the RADV final rule will impact premiums or benefits for MA enrollees.

RELATED: Regulatory roundup: What to expect in the final Medicare Advantage RADV rule

In a fact sheet about the final rule, which takes effect on April 3, CMS said it will:

  • Begin extrapolation with the payment year 2018 RADV Audit: In the proposed rule, CMS originally intended to extrapolate data generating from audits dating back to 2011. However, CMS now will only collect the non-extrapolated overpayments identified in the CMS RADV audits and OIG audits between payment years 2011 and 2017. That will come as a big relief as some industry experts expected CMS would demand repayment of billions of dollars in overcharges from audited plans dating back to 2011. Instead of a specific sampling or audit methodology, the agency will rely on any statistically-valid method for sampling and extrapolation that is determined to be well-suited to a particular audit. However, CMS said in the final rule and also in the stakeholder call, that any extrapolation methodology it adopts for RADV audits will focus on MAOs that are at the highest risk for improper payments. Extrapolation has been a long held auditing practice at CMS, including in FFS Medicare, and officials expect that the process will serve as an incentive to MA organizations to take meaningful steps to reduce improper risk adjustment payments in the future.
  • Eliminates the FFS Adjuster: As it originally proposed, CMS will not apply the FFS Adjuster in RADV rule. CMS said the decision is consistent with the district court ruling in UnitedHealthcare Insurance Co. v Becerra, that the actuarial equivalence provision in MA payments applies to how CMS risk adjusts the payments it makes to MA organizations and not to the obligation of MA organizations to return improper payments for unsupported diagnosis codes, including overpayments identified during a RADV audit. In addition, the agency said it’s not reasonable to read the Social Security Act as requiring a reduction in payments to MA organizations by a statutory set of minimum adjustment in the coding pattern adjustment, while at the same time prohibiting CMS from enforcing longstanding documentation requirements by requiring an offset to the recovery amounts calculated for CMS audits.

Risk Adjustment policy expert Sean Creighton, managing director of Avalere Health, said the final RADV rule will present challenges to the MA industry. “The lack of a FFS adjuster will introduce a difficult standard for documentation that will require additional administrative burden for providers at a time when CMS and the plans are working to reduce those activities. Medicare beneficiaries enrolled in MA plans also could face fewer benefits as a result, with dental, vision, hearing, and condition-related benefits at risk of being dropped,” he said.

Next steps

Ana Handshuh, principal of CAT5 Strategies and the chair of the RISE Association's Quality and Revenue Community, said that CMS believes that this final rule will help it target its audit focus on plans that the agency believes are at the highest risk for improper payments. CMS estimates they will recover almost $5 billion over the next decade as a result of these new policies.

Barring any future changes that may result from industry legal action (some of the major players are considering their options) this will have significant financial implications for payers and providers, according to Handshuh. She said there are several steps that plans can start doing now:

  • Expect increased RADV audit activities in the near future and take immediate action to shore up the compliance structure, policies, processes related to their risk adjustment activities
  • Work with their actuarial teams to evaluate the impact that this final rule will have on their upcoming bid
  • Work closely with their providers to understand how medical records are retained (over long periods of time) and accessible in the event of an audit

If there are gaps in these processes, Handshuh suggests that they prioritize investments in solutions to ensure records are complete and accessible. Lastly, plans and providers should have important conversations about who will bear responsibility for any payment recoupments that may ensue from RADV audits. 

Creighton will moderate a panel discussion on regulatory issues to follow in 2023, which will include a discussion of the RADV final rule, at RISE National 2023, March 6-8, at The Broadmoor Resort in Colorado Springs.