Medicare Enhances Risk-Adjustment Audits
By Jarrod Fowler, MHA, FMA Director of Healthcare Policy and Innovation | Feb. 2, 2023

On Jan., CMS announced that it will seek to crack down on Medicare Advantage plans through changes to the risk adjustment data validation (RADV) program in a newly proposed rule. The purpose of the RADV program is to ensure that Medicare Advantage programs are receiving proper reimbursement for patients, based on the medical diagnoses that are attributed to those patients via medical documentation. In general, the more and more complex medical diagnoses a Medicare Advantage patient has, the more money the Medicare Advantage plan will receive since sicker patients are expected to cost more to care for than healthier patients. This risk-adjustment system is known as the CMS Hierarchical Condition Category (HCC).

However, past audits of Medicare Advantage plans have revealed that there is not always sufficient evidence to support the medical diagnoses that the plans claim their patients have. This, in turn, has led to alleged overpayments and recoupments.

The main change that CMS is proposing, starting for audits occurring back in 2018, is to extrapolate the findings of RADV audits across the universe of patients served at the contract-level of the plan, rather than only recouping overpayments based on non-extrapolated samples of enrollees who were audited and identified as overcoded. CMS estimates that extrapolating RADV audits will result in much higher overpayment recoupments from plans. For instance, without these changes, CMS estimates that it would collect $11.6 million in recoupments in CY 2024 and $479.4 million with these changes in place.

Why it matters: Medicare Advantage plans now enroll nearly half of all Medicare beneficiaries and the size of the program is only projected to grow. The program has also been particularly prominent in Florida, where 56% of beneficiaries are enrolled in a Medicare Advantage plan, including 78% of beneficiaries in Miami-Dade County. The proposed rule has garnered criticism on both ends, with some commentators stating that CMS should apply this methodology back to 2011 and some insurance lobbyists claiming the rule is fatally flawed.