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FACT SHEET

MEDICARE ADVANTAGE RISK ADJUSTMENT DATA VALIDATION FINAL RULE (CMS-4185-F2) FACT
SHEET



Jan 30, 2023
 * Medicare Part C

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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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