Written by: Lesley Weir, CRC, Senior Director, Customer and Product Success - Veradigm
CMS is required by law to adjust payments to Medicare Advantage Organizations (MAOs) based on the health status of their enrollees. CMS pays each MAO a monthly amount for each enrolled beneficiary, which is adjusted to account for differences in health status among the enrollees. This adjustment is referred to as a “risk adjustment.” Risk-adjusted payments are based on the medical diagnoses submitted by MAOs. Regulations require these diagnoses to be supported in the enrollees’ medical records to ensure accurate payments. This allows MAOs to receive larger payments for sicker enrollees while receiving lesser sums for healthier enrollees.
Risk Adjustment Data Validation (RADV) audits verify that the diagnosis codes, submitted by an MAO for calculation of payment, are supported by the medical record documentation for that enrollee. The RADV Program has been CMS’ primary means of addressing improper overpayments to MAOs—which CMS deems necessary because studies and audits performed separately by CMS and the Department of Health and Human Services Office of Inspector General (OIG) have shown that Medicare Advantage (MA) enrollees’ medical records do not always support the MAOs’ reported diagnoses. This has led to billions of dollars in overpayments to plans, increasing costs to Medicare programs and taxpayers. Despite this, no risk adjustment overpayments have been collected by MAOs since Payment Year (PY) 2007.
When CMS initially announced its intention to validate diagnoses submitted by MAOs via audits of their enrollees’ medical records, many insurers made plans—or, in some cases, even formed teams—to get ahead of this challenge, so they would be prepared to address CMS’ requests proactively. However, over the past decade, CMS has announced one delay after another. As a result, many health plans disbanded those teams and abandoned their contingency plans.
At the end of January—in what feels like a sudden change of direction—CMS announced that they will begin those audits in the near future. Many health plans are unprepared.
This final rule was initially proposed in 2018; however, it was delayed multiple times, in part due to the COVID-19 pandemic. On January 30, 2023, CMS announced that they will initiate audits after the final rule’s effective date of April 3, 2023. Federal regulators report that they expect to get back billions in overpayments made to MAOs beginning in PY 2018.
This change comes just as enrollment in MA is expected to reach a milestone, with more seniors enrolled in MA plans than in traditional fee-for-service Medicare. Currently, MA plans cover nearly 30 million individuals. As a result, many health plans are just starting to appreciate that they are no longer prepared for this approaching environment.
The CMS referred to the final rule policies as “common sense” because:
This final rule differs from the rule initially put forward in 2018 in that it will not begin extrapolation with PY 2011, as originally proposed. CMS will only collect non-extrapolated overpayments identified by CMS RADV audits and OIG audits from PY 2011 to PY 2017.
However, extrapolation will begin with PY 2018 plan information.
Through RADV audits, MAOs supply auditors with a sample of their enrollees’ medical records, which CMS reviews to confirm that the diagnoses reported for risk-adjusted payments are accurate and are supported in the medical records. Any risk adjustment discrepancies are then used to determine an overall level of payment error, which will be extrapolated to apply to the rest of the MAOs’ MA beneficiaries.
The Final Rule states that CMS is not adopting any specific sampling or extrapolation audit methodology. Instead, they plan to rely on “any statistically valid method” for sampling and extrapolation determined to be well-suited to a particular audit. Any extrapolation methodology used will be focused on those MAO contracts that, through statistical modeling and/or data analysis, are identified as being at the highest risk for improper payments.
The CMS-RADV Final Rule also finalized the proposed policy of not applying the previously-used adjustment factor (known as the Fee-For-Service, or FFS, adjuster) to RADV audits. The FFS adjuster was originally added to RADV audits to calculate permissible error levels. CMS would determine the FFS adjuster amount based on the degree of error found via a similar type of review of Fee-For-Service Medicare records. Without the adjuster, the argument went, MA was required to have no errors, while a small degree of error was permissible for Fee-For-Service Medicare accounts. However, in 2018, CMS reported internal research showing that the FFS adjuster is not required.
Commenters on CMS’ research have criticized the study, claiming that it has design flaws, inaccurate assumptions, inaccurate adjustments, and other errors, as well, but CMS continues to hold that removing the FFS adjuster is appropriate given the results of their research.
How can Payers prepare for the upcoming RADV audits of their MA contracts? Veradigm has an end-to-end solution that can help Payers address every required data element for CMS audits. They combine this with a network touching over 300,000 providers, delivering impact at scale. Veradigm’s solutions include:
Don’t let the CMS-RADV Final Rule catch you unprepared—instead, contact us to let us show you how we can help meet your unique needs.