Reed Smith Client Alerts

On January 30, 2023—after over four years of waiting—the Centers for Medicare & Medicaid Services (“CMS”) issued the final Medicare Advantage (“MA”) Risk Adjustment Data Validation (“RADV”) rule, which implements significant changes to the RADV audit process (the “RADV Final Rule”). RADV audits are the process by which CMS selects MA organizations to review a sampling of enrollee records to confirm the diagnosis codes submitted by the plans for risk adjustment purposes. If the records do not substantiate the diagnosis codes, then CMS may recover funds from the plan. Historically, CMS conducted RADV audits and then recovered the funds for the sampled records. However, in December 2018, CMS formally proposed changes to the RADV audit process, including most significantly, extrapolation of its audit findings across contracts or populations starting with audits conducted for payment year (“PY”) 2011. The proposed rule triggered extensive comments from stakeholders and the public.

After numerous extensions of the comment period, the RADV Final Rule codifies several of the proposed changes effective April 3, 2023, including:

  • PY 2011-2017: CMS will not extrapolate RADV audits findings and will not recover extrapolated HHS-OIG risk adjustment audits. For these years, CMS will discuss collection of overpayments with plans and begin recoveries based upon the enrollee-level audit findings after the April 3, 2023 effective date.
  • PY 2018 and Beyond: CMS will begin extrapolation of RADV audits findings. CMS is not finalizing a specific sampling and extrapolation methodology. Instead, CMS will use methodologies that are appropriate to the audit and disclose any determined extrapolation methodology to MA plans via a Health Plan Management System notice. CMS will target MA plans that are identified through statistical modeling and/or data analytics as being the highest risk for improper payments. CMS stated that it will not likely make extrapolated recoveries for payment year 2018 until calendar year 2025. CMS further estimated that the financial impact of its extrapolated recoveries for years 2023-2032 would be $4.7 billion in net recoveries for the government.
  • Fee-For-Service Adjuster: CMS will not apply a Fee-for-Service (FFS) adjustment factor in RADV audits.

As is evident, the RADV Final Rule will dramatically impact MA plans and providers that are subject to RADV audits or HHS-OIG risk adjustment audits. Stakeholders will almost certainly challenge the RADV Final Rule in court. At the same time, plans and providers (particularly those providers that are in risk-sharing arrangements) will need to: (1) continue to invest in data and diagnosis validation efforts to ensure accurate data submission; and (2) proactively prepare for RADV audits and HHS-OIG risk adjustment audits including preparing to administratively and judicially challenge the application of the RADV Final Rule and the audit results.