Risk Adjustment

As CMS Finalizes RADV Rule, Prior Audits Shed Light on Payment Errors, High-Risk Codes

In a highly anticipated final rule on the Medicare Advantage Risk Adjustment Data Validation program, CMS on Jan. 30 said it would extrapolate RADV audit findings starting with the 2018 payment year. Notably, CMS will not extrapolate RADV audit findings for payment years 2011 through 2017 as it had previously proposed. Currently, CMS reviews a small sample of patient medical records to compare them with billing codes sent to the federal government. Under the final rule, CMS will extrapolate the error rate found in the sample to the entire plan. Additionally, the rule finalized a plan to not apply a “fee-for-service adjuster” to its audit methodology. Using the new methodology, CMS officials said the agency expected to recover $479 million in overpayments from 2018 alone, and an extra $4.7 billion from 2023 through 2032.

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Insurer Groups Object, but Analysts View RADV Rule Headwinds as ‘Manageable’

Although health insurance trade groups slammed a final rule that will cause the government to claw back billions of dollars’ worth of overpayments to Medicare Advantage organizations (MAOs), some equities analysts pointed out that the regulation was not as bad as it could have been. What remains unclear, however, is whether the industry will challenge the rule in court.

“Our high-level takeaway is that, while some components of the rule run counter to the industry’s requirements, the absolute impact that CMS is forecasting is manageable within the context of a program that will soon approach $400 [billion],” Credit Suisse’s A.J. Rice advised investors. In fact, CMS estimates that payment clawbacks under the rule will amount to $4.7 billion through 2032, or $470 million annually over 10 years, he noted. “This would represent roughly 0.1% of annual program spend.”

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With Final RADV Rule Out, MAOs Are Advised to Clean Up Risk Adjustment Practices

Medicare Advantage organizations may not have gotten the outcome they were hoping for in CMS’s recently finalized Risk Adjustment Data Validation rule, but industry experts say they weren’t surprised by the position CMS ultimately took after years of pressure to close out RADV audits and recover identified overpayments. And while one aspect of the rule could expose it to litigation and further delay CMS’s attempts to collect overpayments from MAOs, experts say plans still would be wise to sharpen their risk adjustment practices in order to limit their audit exposure.

Issued on Jan. 30, the final rule (88 Fed. Reg. 6643, Feb. 1, 2023) pertains to contract-level audits that CMS began conducting more than a decade ago to verify the accuracy of payments made to MA organizations and recover improper payments. The agency in 2012 said it planned to adopt a “fee-for-service adjuster” to account for any impact from unaudited diagnosis codes in FFS data that are used to calibrate the MA risk adjustment model. But in a November 2018 proposed rule (83 Fed. Reg. 54982, Nov. 1, 2018), CMS said its plans to recoup improper payments would not involve an FFS adjuster and that it may apply an extrapolation methodology when finalizing audits dating back to payment year 2011. The RADV provisions of the 2018 proposed rule received pushback from insurers and were never finalized by the Trump administration.

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News Briefs: CMS Projects Average Rate Increase of 1.03% for MA Plans in 2024

CMS in its 2024 Advance Notice projected that Medicare Advantage organizations can expect an average estimated change in revenue of 1.03%, when taking into account an average increase in risk scores of 3.3%. Even though analysts expected that rate to fall well below the robust 8% CMS predicted in its preliminary rate notice for 2023, they characterized it as low when excluding the risk scoring trend. The 2024 projection is also based on an effective growth rate of 2.09%, which CMS this time last year estimated would be 4.75%. Additionally, CMS will continue to apply the statutory minimum coding intensity adjustment of 5.9% to offset the effects of higher levels of coding intensity in MA relative to fee-for-service (FFS) Medicare. That coding intensity adjustment generated much discussion in comment letters on the Advance Notice last year. When asked during a Feb. 1 call with reporters why CMS again opted for the minimum adjustment, CMS Deputy Administrator and Center for Medicare Director Meena Seshamani, M.D., Ph.D., told AIS Health: “We continue to analyze and evaluate MA coding patterns, and 5.9% we feel is adequate at this time, and we continue to look at coding pattern differences, how we set that pattern adjustment [and] how that’s applied…in future years as well.” The preliminary rate notice also included technical updates to the risk adjustment model, including a reliance on condition categories from the ICD-10 classification system (instead of the ICD-9 system) and a shift to more recent underlying FFS data years to reflect 2018 diagnoses and 2019 expenditures.

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News Briefs: UnitedHealth Group Reported Full-Year Revenue Growth of 13%, Maintained ’23 Guidance

Reporting financial results for the quarter and year ending Dec. 31, 2022, UnitedHealth Group on Jan. 13 said full-year revenues grew 13% year over year to $324.2 billion, and earnings from operations rose 19% to $28.4 billion. The company ended the year with an 82.0% medical loss ratio, which was consistent with projections provided at its annual Investor Day. The UnitedHealthcare segment reported full-year revenues of $249.7 billion, up 12% from the prior year, and operating earnings of $14.4 billion, up 20% from 2021. Those results were largely driven by growth in the number of people served, including an additional 615,000 in Medicare Advantage; overall MA enrollment exceeded 7.1 million at the end of 2022. UnitedHealth also reported adjusted earnings per share of $22.19 for full-year 2022 and maintained guidance of adjusted EPS between $24.40 and $24.90 for 2023.

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News Briefs: CMS Innovation Center Report Recognizes Potential for ‘Upcoding’ in Models

A new report from the CMS Innovation Center identified redesigning financial benchmarks and risk adjustment to improve model test effectiveness as a priority going forward. In its annual report to Congress, the Innovation Center noted that “[m]any financial benchmarks and risk adjustment methodologies have created opportunities for potential gaming and upcoding among participants — and have therefore reduced savings for Medicare.” The Innovation Center largely tests models serving fee-for-service Medicare beneficiaries and has relied on risk adjustment as a critical component of its models, including all accountable care organization (ACO) based models. The agency added that it has launched “an examination of its benchmarking and risk adjustment approaches to provide incentives to encourage participation, especially among providers caring for underserved beneficiaries and ACOs with varying levels of experience, as well as ensure payment accuracy.” The report also highlighted health equity as an ongoing focus and observed ways to improve communications with potential hospice benefit enrollees, referring to one component of the ongoing Medicare Advantage Value-Based Insurance Design model, to ensure that hospice and palliative care are accessible to all beneficiaries.

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News Briefs: CMS Issues Sweeping MA, Part D Rule Cracking Down on Marketing, Utilization Management

In a sweeping proposed rule issued Dec. 14, CMS addresses a variety of hot-button aspects of the Medicare Advantage and Part D programs, including Medicare marketing, prior authorization and overpayments. The 957-page proposed rule, scheduled for publication in the Dec. 27 Federal Register, seeks to protect MA and Part D enrollees from misleading marketing by banning the use of advertisements that “do not mention a specific plan name as well as ads that use words and imagery, such as the Medicare name or logo, that may confuse beneficiaries in a way that is misleading, confusing, or misrepresents the plan,” according to a fact sheet. It also proposes to adopt the False Claims Act definition of “knowing” and “knowingly” regarding when an MA or Part D sponsor identifies an overpayment, thereby removing the “reasonable diligence” standard. In addition, CMS proposes new requirements to ensure continuity of care, such as requiring that an approved prior authorization remain in place for a beneficiary’s full course of treatment and that all MA plans annually review their utilization management policies to maintain consistency with traditional Medicare’s coverage guidelines. Moreover, the rule proposes the creation of a health equity index in the Star Ratings program that would encourage plans to improve care for enrollees with certain social risk factors, starting with measurement data from 2024. In a statement on the proposed rule, Better Medicare Alliance President and CEO Mary Beth Donahue called it a “thoughtful, comprehensive proposed rule” and said BMA “appreciates the agency’s engagement with stakeholders across the health care spectrum ahead of the rulemaking process.” CMS on Aug. 1 published a request for information seeking input on how to address various aspects of the MA program; it received nearly 4,000 comments.

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KHN Report Underscores Looming Issue of Extrapolation, FFS Errors in RADV Audits

After settling a three-year Freedom of Information Act (FOIA) lawsuit, Kaiser Health News (KHN) last month finally made public the results of multiple CMS audits of Medicare Advantage plans — which showed the federal government intends to collect an estimated $12 million for overpayments identified over a three-year period. KHN said it filed the lawsuit against CMS in September 2019, after the agency failed to respond to a FOIA request for the audits pertaining to care delivered between 2011 and 2013.

Those years represent the latest Risk Adjustment Data Validation (RADV) audits to be completed, referring to contract-level audits conducted by CMS to verify the accuracy of payments made to MA organizations and recover improper payments. Industry experts say the results obtained by KHN may not be representative of insurer practices today, and that they highlight the overarching question of whether the audit methodology that CMS may soon finalize aligns with the current payment and bidding system that’s in place for MA.

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OIG Audits Add to Debate Over Extrapolation in Recovering MA Overpayments

As the Medicare Advantage industry draws attention for millions of net overpayments identified in a recent Kaiser Health News report on audits conducted by CMS, the HHS Office of Inspector General in two new reports seeks to recover estimated MA overpayments for inaccurate diagnosis codes. Separate from the contract-level Risk Adjustment Data Validation (RADV) audits used by CMS to verify the accuracy of MA organizations’ risk adjusted payments, the OIG audits may further support the notion that MA plans are overpaid. They also exemplify insurers’ fierce opposition to the use of sampling to approximate a plan’s true payment error rate.

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News Briefs: CMS Extended Plans to Issue a Final Rule on Extrapolation in RADV Audits

CMS is buying itself more time to make a final determination about its use of extrapolation in Risk Adjustment Data Validation (RADV) audits. In a Federal Register notice, the agency pushed its Nov. 1 deadline to issue a final RADV rule to Feb. 1, 2023, saying it was unable to meet the already extended deadline “because of ongoing exceptional circumstances.” The Trump administration in a November 2018 proposed rule (83 Fed. Reg. 54982, Nov. 1, 2018) said its plans to recoup improper payments starting with payment year 2020 would not involve a “fee-for-service adjuster” and that it may apply this extrapolation methodology when finalizing audits dating back to payment year 2011. That rule received pushback from insurers for its potential to inflate audit recoveries, skew the MA bidding process and impact beneficiary cost-sharing and MA product offerings. The provision was not finalized by the Trump administration. CMS in October 2021 extended the statutory three-year timeline for completing the rulemaking, explaining that it received extensive public comments on the proposal and the FFS adjuster study that it released just prior to publishing the November 2018 proposed rule.

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