Legal Alert

CMS Releases Final Rule for Risk Adjustment Data Validation Audit Methodology

January 31, 2023

On January 30, 2023, CMS posted for inspection a final rule describing its Risk Adjustment Data Validation audit methodology (the Final RADV Rule). As we have discussed in prior alerts, the finalization of the RADV Rule, which was first proposed in 2018, is a significant event for Medicare Advantage Organizations (MAOs) and providers.

A summary of the key points in the Final RADV Rule is below.

  • No Fee-For-Service Adjuster. When CMS first issued guidance in 2012 for a methodology to conduct annual RADV audits, it stated that it would apply an offsetting Fee-For-Service Adjuster (FFS Adjuster) to any recoupment resulting from such an audit. The purpose of the FFS Adjuster would have been to account for differences in documentation standards between fee-for-service Medicare and Medicare Advantage, and it would have served to significantly reduce the amount of any payment recoupment resulting from a RADV audit. In line with CMS’s proposal in 2018, CMS confirmed that it will reverse its position on this point and will seek to recoup payments without first applying an offsetting FFS Adjuster.

    • When CMS first proposed the rule in 2018, its rationale for not applying a FFS Adjuster was premised on a study that found that no FFSA was needed.  Several commenters, including reputed actuaries, critiqued CMS’s study, noting significant flaws in its methodology and resulting conclusions.

    • In the Final RADV Rule, CMS states that its decision not to apply a FFS Adjuster does not rely on its 2018 study. Rather, CMS appears to rely primarily on developments in case law since the 2018 proposed rule was first announced. In particular, CMS cites to UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867 (D.C. Cir. August 13, 2021, reissued November 1, 2021), cert. denied, 142 S. Ct. 2851. That case, paradoxically, relied in part on the 2018 study.

  • Payment Recoveries Extrapolated Retroactive to 2018. CMS stated it will conduct recoupments as far back as to payment year (PY) 2011. For audits covering PY 2011 through PY 2017, it will collect only the non-extrapolated findings (meaning, only findings based on distinct coding variances it directly observed). For audit findings from PY 2018 and subsequent years, however, CMS intends to extrapolate the results of its audits to broader populations. These extrapolations will likely result in substantially larger recoveries, because they magnify any recoupment amount resulting from distinctly-observed coding variances.

    • CMS did not announce any particular extrapolation methodology, rather, it will “rely on any statistically valid method” for conducting such extrapolations.

  • Recoupments Based on HHS-OIG Audits. Importantly, CMS announced that it will seek to recoup overpayments that HHS-OIG identified in its own RADV audits.  HHS-OIG has published several such audits to date and likely has more in the pipeline. Up until now, it has been unclear whether or how CMS would seek recoupments based on such HHS-OIG audit findings.

In sum, though widely expected, there had been hope that a Final RADV Rule would not be as stringent as proposed. The new announcement largely ends such hope, as the forward-looking methodology in the Final RADV Rule includes essentially all of the key elements included in the 2018 proposed rule. That said, retroactive extrapolated recoupments will not go quite as far back as feared, which will be a relief to MAOs.

In light of this development, any MAO, large or small, that receives notice that it will be subject to either (1) a CMS RADV audit, or (2) an HHS-OIG RADV audit, should immediately retain counsel who are experienced in handling Medicare Advantage coding issues generally and RADV audits specifically.

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