RADV Final Rule

Feb 3, 2023 | Risk Adjustment, Policy

Introduction

In a prior blog, we provided background and summary of the November 2018 Medicare Advantage risk adjustment data validation (RADV) proposed rule. After multiple delays, on January 30, 2023, the Centers for Medicare & Medicaid Services (CMS) published the much anticipated RADV final rule. The final rule’s primary goals are regulatory codification of CMS’s authority to, at its discretion, use extrapolation and not apply a FFS Adjuster in RADV audits. The final rule also includes the policy decision to forgo extrapolated recovery on all CMS-RADV and HHS-OIG audits for all payment years prior to 2018.

Extrapolation

In the final rule, CMS cites policy, statute, regulation, and applicable court decisions to reiterate its assertion of authority to use extrapolation in RADV audit recoveries. CMS establishes the authority to use extrapolation, as a matter of policy, while noting non-extrapolated overpayment recoveries at the beneficiary level will be conducted for payment years 2011 -2017. In addition, CMS has indicated they anticipate conducting those recoveries in calendar years 2023 and 2024. They go on to estimate a beneficiary-level recovery amount totaling $41.1 million, waiving an estimated $2 billion in extrapolated recovery.

CMS’ rationale in the rule to forgo extrapolated recoveries on the outstanding audits was to reduce burden for both the industry and CMS, stating “certain operational considerations and public comments on the timeliness of RADV audits” as primary factors. It also pointed to an anticipated backlog of appeals, as a result of the volume of audits. Reasonable questions arise with respect to this rationale. First, the appeals are based on medical record findings for sampled beneficiaries. Second, the findings eligible for appeal are in no way impacted by whether the recovery is extrapolated or used for beneficiary-level recovery. Given such, burden on the plan would be the same in either case. Because CMS stated that there are no changes to the RADV appeals process as part of this final rule, MAOs should reconsider their submissions and appeals strategy.

Also new in the final rule, beginning with payment year 2018, extrapolated recoveries will be conducted on HHS-OIG RADV audits. This is significant because, unlike CMS, OIG has consistently performed RADV audits, completing a number of audits through payment year 2017. This means that, while there has been no announcement, it is conceivable OIG could conduct audits on payment year 2018 in calendar year 2023, with potential for extrapolated recoveries in 2025. CMS also projects initiating extrapolated recoveries in 2025, however, the agency would be challenged to conclude RADV audits for payment years 2016-2018 in two calendar years. For that reason, it is reasonable to project that the first extrapolated recoveries will be on OIG-HHS RADV audits.

CMS also makes clear it is not adopting the contract-level sampling and extrapolation technique described in the 2012 methodology, nor the extrapolated audit methodology based on sub-cohorts of enrollees used in the 2014 and 2015 RADV audits. CMS only acknowledges they “will employ statistical methods to determine statistically valid sizes, accurately identify payment error, and extrapolate to the universe of enrollees from which the sample is selected.” Further detail is limited to the statement that CMS “may apply one or more RADV audit methodologies for any given audit” and that they intend to disclose their extrapolation methodology to Medicare Advantage Organizations (MAOs) in the future. They indicate the focus of sampling and extrapolation methodologies moving forward will be on identifying plans with high risk of improper payment. In anticipation of extrapolation, MAOs should take steps throughout the payment cycle year to ensure they are not in the high risk target group.

FFS Adjuster

In the 2018 proposed rule, CMS proposed to forgo the FFS Adjuster when calculating overpayment and recovery amounts to MAOs. CMS’s rationale outlined in the final rule to not include a FFS Adjuster stems from 2 reasons:

Actuarial Equivalence

CMS has made a final determination that the actuarial equivalence provision does not apply and is not appropriate when recovering overpayments in the MA program. CMS cited a court ruling on UnitedHealthcare’s challenge of the Overpayment Rule. In a 2021 ruling related to the UnitedHealthcare case, a federal appeals court purported that actuarial equivalence is not applicable to the Overpayment Rule. Although this court decision did not specifically address RADV, the final rule relies on its underlying rationale that actuarial equivalence is a payment issue, not a recovery issue. The purposes of the Overpayment Rule and RADV are fundamentally the same – to recover payments made improperly based on diagnoses not supported by medical record documentation. Consequently, actuarial equivalence would not be an applicable justification for a FFS Adjuster in RADV. CMS specifically states that it does not intend for this conclusion to make a determination that a FFS Adjuster is necessary outside of the RADV context.

Coding Pattern Adjustment

Under statute, CMS is required to make a minimum coding intensity adjustment to account for differences in coding patterns between MA and Medicare FFS. The adjustment factor accounts for the greater propensity of MAOs to report diagnoses compared to their FFS counterparts. Many commenters cited that extrapolating without applying a FFS Adjuster to payment recoveries obtained in RADV overlaps with the coding pattern adjustment to create a double-recovery by CMS.

On the contrary, CMS cites that the coding pattern adjustment provision strengthens CMS’s argument to not apply a FFS adjuster. CMS believes that the coding pattern provision acknowledges the bias between FFS and MA claims, and that recovering an offset reduction amount in these payments would be contradictory. Simply put, they assert a coding adjustment provision addresses the bias that MAOs are overpaid compared to FFS, while the underpinning assumption of the FFS adjuster is that MAOs are underpaid compared to FFS. Both cases cannot exist simultaneously, with the former supported by statute and empirical study. Therefore, CMS will uphold and enforce the medical record documentation requirement through RADV audits without a FFS adjuster in overpayment recoveries. Whether a MAO anticipated or relied on a FFS adjustment, plans can take steps to avoid negative impact from CMS’s determination to not adjust.

What happens next?

CMS adheres to the common theme that this final rule does not impose a new documentation standard on MAOs. It is the obligation and requirement of MAOs to maintain accurate medical record documentation for diagnostic support when receiving risk-adjusted payments. These issues are set in place to restore payment oversight into the Medicare Advantage program. Although CMS has finalized and codified its plans for extrapolation and no FFS adjuster, many questions still linger. CMS has given little insight or suggestion on any methodologies planned to use for future audits. However, there is language in this final rule that suggests CMS plans on ramping up its audit presence and conducting future RADV audits “as soon as practicable after an MAO payment year concludes.” We also foresee a prolonged legal battle over the finalized RADV rule. Matt Eyles, president of America’s Health Insurance Plans, has commented, “This rule is unlawful and fatally flawed, and it should have been withdrawn instead of finalized” (AHIP, 2023). Even with all of the uncertainty, CMS expects and estimates a total of $4.7 billion in recoveries from 2023-2032.

Stay tuned for additional coverage of these issues in upcoming blogs and webinars, including:

  • Implications to audit methodologies under the final rule
  • Re-consideration of risk mitigation strategies with CMS and OIG RADV audits
  • Considerations for appeals 

Don’t miss our next Advisory Forum, and hear directly from guest speaker, former CMS Technical Advisor and MA RADV Program lead, Jonathan D. Smith as he discusses key interpretation and implications of the latest CMS RADV Final Rule.