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On January 30, the Centers for Medicare & Medicaid Services (CMS) finalized a rule to update the Medicare Advantage (MA) Risk Adjustment Data Validation (RADV) program to recoup more overpayments from MA plans and incentivize MA plans to take meaningful steps to reduce improper risk adjusted payments in the future.

Background

Under the RADV program, Medicare conducts audits in which they compare MA-submitted patient diagnosis codes with patients' medical records to identify potential instances of upcoding, or inflating the severity or number of medical conditions for a patient, during the risk adjustment process.

The rule, which was originally proposed in 2018, finalizes updates to the methodology Medicare uses to conduct audits under the RADV program that have been nearly two decades in the making. CMS said the final rule will apply to all MA plans and projected the agency will recover $479 million in overpayments from MA plans for 2018. The agency said it expects to collect $4.7 billion for plan years 2023 to 2032.

MA plans, which have opposed the use of extrapolation to determine overpayments and pushed for the inclusion of a fee-for-service (FFS) adjuster, are expected to challenge the rule in court.

Final Rule: Key Updates

CMS in the rule finalized its proposal to extrapolate RADV audit findings and apply error rates based on a statistically valid data sample across the whole plan. CMS said it will focus its extrapolation policy on MA organization contracts that it identifies as being at the highest risk for improper payments. CMS noted it 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."

In addition, CMS finalized its proposal not to apply a fee-for-service adjuster — a proposal originally put forward by MA organizations to account for data discrepancies between MA-submitted diagnoses data and Medicare FFS data. MA plans argued that Medicare FFS data would understate the cost of treating multiple conditions because FFS data is typically based on the item or service, not the actual diagnosis.

The final rule also includes some notable updates from the initial proposal. For example, it applies the agency's plan to extrapolate RADV audit findings beginning with the payment year (PY) 2018 RADV audit, as opposed to PY 2011. CMS stated it plans to initiate improper payment recoveries for PY 2018 audits in calendar year 2025.

• For more information on the proposed rule: Press Release, Fact Sheet, Final Rule

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