In a move likely to ignite strident industry opposition, on January 30, 2023, the Centers for Medicare & Medicaid Services (“CMS”) announced finalization of its rule on Medicare Risk Adjustment Data Validation (“RADV”) audit methodology and resulting collection of overpayments from Medicare Advantage Organizations (“MAOs”). Experts estimate that the final rule will result in CMS collecting $4.7 billion in overpayments from MAOs for payment years 2011 through 2017. Further, CMS estimates that beginning with payment year 2018, it will identify approximately $479 million per audit year in overpayments to MAOs.
Background
RADV audits are the main tool that CMS uses to correct overpayments made to MAOs. MAOs receive capitated payments from CMS based on the number of enrolled individuals. Annually, MAOs participate in a risk adjustment process that allows MAOs to report diagnosis codes that result in additional payment based on the complexity of the enrollee’s care needs. CMS RADV audits review documentation in the medical record to ensure the medical records support the diagnoses reported by the MAO for risk adjustments. In the event there is a lack of documentation in the medical record to support the diagnoses reported by the MAO for the risk adjustment, CMS may collect any risk adjustment payment amount, or overpayment, from the MAO.
Targeted Audits
In the rule and accompanying release, CMS provided that it will conduct RADV audits targeted at diagnosis categories that it deems more likely to be reported in error (referred to as high-risk Hierarchical Condition Categories, rather than its previous method of an untargeted random sample methodology. CMS states that the criteria for medical record documentation does not change with the implementation of this new rule. Accordingly, MAOs cannot claim additional administrative burden and financial risk in response to the new rule.
On January 31, 2023, CMS will begin releasing the results of RADV audits and overpayment demands for payment years 2011 through 2017. MAOs are required to remit payments identified during RADV audits in the manner specified by CMS.
Extrapolation
For audits for payment year 2018 forward, CMS will implement extrapolation of audit findings against the MAOs plan’s entire audit population to derive the overpayment amount.
CMS discusses the use of extrapolation in the Medicare program at length, coming to the conclusion that the practice has been validated by multiple courts. CMS argues that its past practice of adjusting payments for specific enrollees from an audit sample does not accomplish its mandate to safeguard federal tax dollars. Moving towards an extrapolation methodology better allows CMS to calculate the cost of inaccurate diagnosis coding across the entire contract value, thereby reducing the amount of improper payments in the Medicare program. Rather than adopt a specific extrapolation methodology, CMS specified that it shall use “any statistically valid method for sampling and extrapolation that is determined to be well-suited to a particular audit.”
Fee For Service Adjuster Rejected
To alleviate some of the financial impacts of the RADV audit final rule, MAOs urged CMS to implement a fee for service (“FFS”) adjuster to account for the differences in the Medicare FFS program and the Medicare Advantage program. Asserting that FFS program data is unaudited and prone to include erroneous diagnosis codes not captured in enrollee medical records, MAOs argued that CMS should offset this imbalance by (a) increasing payment to MAOs, or (b) relaxing the documentation standards for medical diagnoses for MAOs. Citing section 1853(a)(1)(C)(i) of the Social Security Act (the “Act”), the MAOs argued that implementing a FFS adjuster complies with the Secretary’s mandate to adjust MAO payments for demographic and health-related risk factors to ensure “actuarial experience.” CMS disagrees with this argument, indicating that the cited provision of the Act does not apply to the obligation to return improper payments for MAO diagnosis codes unsupported by medical records.
Practical Takeaways
We expect MAOs to sue CMS to challenge each of its positions taken in the new rule. Whether a stay will be issued for implementation of all or part of the rule remains to be seen. In the meantime, we advise providers to consider the following actions:
- Understand and implement the medical record documentation requirements found in Chapter 7 of the Medicare Managed Care Manual and the flow-down impact to you;
- Consider inclusion of provider protection language in your provider agreements to shield from any pass-through liability for RADV overpayment collection;
- Provide full and complete copies of medical records to MAOs, and if applicable, RADV auditors;
- Understand medical record documentation standards and audit rights in your provider agreements with MAOs; and
- Consider implementing a medical records quality assurance program to ensure correct coding.
In addition, we advise MAOs to consider the following actions:
- Understand and implement the medical record documentation requirements found in Chapter 7 of the Medicare Managed Care Manual;
- Implement compliance programs and processes to ensure accurate diagnosis coding and submission of accurate diagnosis dates as required by 42 CFR 422.503 and 504;
- Conduct regular evaluations of your compliance programs and processes and implement corrective action as needed;
- Maintain accurate medical records to support your risk adjustment records; and
- Provide full and complete copies of medical records to RADV auditors.
Whether an MAO or provider, Hall Render and Hall Render Advisory Services are here to help you navigate your legal and compliance needs. We are available to:
- Assist with audit responses;
- Help develop your coding compliance records keeping, program, processes, and evaluations; and
- Review your medical records documentation policies and procedures.
If you have questions regarding the CMS rule, please contact:
- Laetitia Cheltenham at (919) 447-4968 or lcheltenham@hallrender.com;
- Jennifer Hatchett at (859) 361-5706 or jlhatchett@hallrender.com;
- Lisa Lucido at (248) 457-7812 or llucido@hallrender.com;
- Amy Mackin at (919) 447-4963 or amackin@hallrender.com;
- Matt Reed at (317) 429-3609 or mreed@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
