Medicare Advantage plans are concerned that the Centers for Medicare & Medicaid Services’ (“CMS”) final Risk Adjustment Validation Rule (“RAVR”), which is expected to be published on February 1, 2023, will be used to seek millions of dollars in retrospective adjustments going back to 2011.

Medicare Advantage plans have been highly profitable for private health insurers. The Medicare program pays Medicare Advantage plans on a capitated per member per month basis. In order to encourage these private plans to cover high-risk individuals, the capitated payments are risk adjusted to account for members’ demographics and diagnoses. Past HHS Office of the Inspector General audits, however, have found that Medicare Advantage plans have improperly added diagnosis codes to obtain higher risk adjustment payments based solely on diagnoses found on health risk assessments and chart reviews even if the beneficiaries had not been treated for these diagnoses.  One OIG Report found that the Medicare program had overpaid Medicare Advantage plans $2.6 billion in 2017 based on diagnoses added after health risk assessments. Another OIG Report found that health risk assessments were “a major driver of improper payments” in the Medicare Advantage program.

CMS audits a subset of each Medicare Advantage plans’ beneficiaries’ diagnosis codes to determine whether Medicare has over- or underpaid. The final RAVR is expected to govern how CMS will conduct these audits. The proposed rule, which was issued in 2018, would eliminate the current fee-for-service adjuster, which limits Medicare Advantage error rates to those found in fee-for-service plans. In addition, the proposed rule would apply the new audit rules retroactively, allowing CMS to seek past overpayments back to 2011.

In comments seeking withdrawal of the proposed rule, America’s Health Insurance Plans (“AHIP”), which lobbies for health insurers, advocated for retention of the FFS adjuster. In addition, AHIP argued that applying the rule retroactively was prohibited by federal law and that CMS lacked legal authority to extrapolate audits going back to 2011. The Medicare Advantage plans are expected to carefully scrutinize the final RAVR.  Legal action seeking to overturn the rule may follow its publication.

Whatley Kallas, LLP’s earlier articles on OIG reports on its audits of Medicare Advantage plans’ addition of diagnosis codes to increase risk adjustment payments are linked here and here. The attorneys at Whatley Kallas will continue to follow developments related to the RAVR when it is published and any legal proceedings thereafter.

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