On February 1, 2023, the Centers for Medicare and Medicaid Services (“CMS”) issued its final rule on risk adjustment data validation (“RADV”) audits.[1] The rule is already the subject of litigation. On September 1, 2023, Humana filed suit in the U.S. District Court for the Northern District of Texas,[2] challenging the new RADV audit rule as an arbitrary and capricious reversal of the 2012 policy governing RADV audits conducted by CMS—and as retroactive rulemaking that upends the predictability of the Medicare Advantage bid process and threatens the availability of benefits to enrollees.[3] On December 15, 2023, the Department of Justice filed a motion to transfer or dismiss the Humana suit.[4] The Department of Justice argues that because CMS has not yet begun any audits under the new methodology, much less completed them, Humana lacks standing to challenge the new RADV audit rule and that certain aspects of the RADV audit rule are not ripe for adjudication.
Case Details
Humana argues that the new rule eliminating the fee-for-service adjuster (“FFSA”) introduces an inconsistent documentation standard that impacts the predictability of the Medicare Advantage (Part C) bid process. To manage financial risk, plans will be required to estimate potential rebates or premiums, due to increased audit recoveries arising from the retroactive application of a different audit methodology.[5] Underlying Humana’s argument is the fundamental principle that “[t]he legal effect of conduct should ordinarily be assessed under the law existing at the time that the conduct took place.”[6] The 2023 RADV audit rule change, asserts Humana, impermissibly creates retroactive liability affecting plan years from 2018 forward.[7]
In its prior final rule in 2012, CMS recognized the need to use the FFSA to account “for the fact that the documentation standard used in RADV audits to determine a contract’s payment error (medical records) is different from the documentation standard used to develop the Part C risk-adjustment model (FFS claims).”[8] The FFSA was intended to ensure that the amount due in a RADV audit considered the difference between audit review standards and the errors resulting from unsupported fee-for-service diagnostic codes, creating a permissible level of payment errors and limiting RADV audit recovery to payment errors above the set level.[9] Humana asserts that the elimination of the FFSA removes a factor required to achieve actuarial equivalence between Part B payments and those of Medicare Advantage.
Humana argues that the retroactively applied standard for calculating extrapolated overpayments changes the legal effect of conduct under the law existing at the time that the conduct took place.[10] Humana asserts that the change impacts all bids submitted by it since 2012. It states that since 2012, when CMS announced its adoption of the FFSA, Humana has predicated its Medicare Advantage contract bids on the existence of the FFSA.[11] It asserts that the application of the new standard in this current plan year and earlier periods is contrary to the obligations of CMS under the annual rate notice. A retroactive application of the new standard, Humana argues, is contrary to the factors that were key to establishing the current- and prior-year bid proposals. Humana states that it based its bids on the CMS annual rate notice in place in the earlier periods, which required disclosure by CMS to identify risk and other factors to be used in adjusting payments.[12]
Humana seeks to have the court vacate the final rule and enjoin its application against Humana in RADV audits.
Department of Justice Motion to Dismiss and Transfer Humana Suit
Humana’s suit is premised on the impact extrapolated overpayments identified in a RADV audit for payment years 2018 forward will have on current year plan bids and insurance pricing. The Department of Justice attacks Humana’s standing to challenge the 2023 CMS Final Audit Rule. It incorrectly asserts that no RADV audits under the challenged rule have occurred, and that neither Humana nor any of its subsidiaries have been audited. The Department of Justice argues that because the harm of such audits is not certainly impending, Humana cannot establish standing through “a reasonable reaction” to “that risk of harm.”[13] CMS’s authority to conduct RADV audits is set out in 42 CFR 422.311, and it has been retroactively applied by the Office of Inspector General for the Department of Health and Human Services (OIG), in its performance of its audits of Medicare Advantage Organizations, six times since the rule became effective.
Geisinger Health Plan, in its challenge to 2023 Medicare Advantage Compliance Audit findings from the OIG, challenged the authority of the OIG to perform risk adjustment audits, arguing it lacks authority under federal regulations (42 CFR § 422.311) and the Inspector General Act of 1978 to assume program operating responsibilities. [14] It argued that the OIG’s reliance on 42 CFR § 422.311, which outlines the authority of CMS to conduct RADV audits, as one source of authority for its actions, is incorrect in that the regulation “does not govern or inform OIG’s actions” and that the OIG is limited to agency oversight and reporting. Under 42 CFR Section 422.311, Congress intended risk adjustment audits “to be performed by CMS, not OIG” as a corrective audit activity developed by CMS to address provisions included in federal statutes. The exercise of RADV audits delegated to the OIG, Geisinger argued, is tantamount to providing it the authority to “effectively create a new rule under the wrappings of an audit.”
Since February 1, 2023, there have been six OIG audits carried out under the 2023 Final Rule including the audit of Geisinger.[15] A total of approximately $6.4 million in overpayments have been assessed against six Medicare Advantage payers, including a subsidiary of Humana, CarePlus Health Plan.[16] In two of these instances, the OIG extrapolated the overpayment amount assessed because it arose from plan activity after 2018.[17] No fee-for-service adjuster was applied in two of the audits to reduce the net overpayments recouped.[18]
In the OIG audits conducted under the new 2023 Final Rule, payers have objected to audit findings, challenging the methodology used as involving flawed audit sampling that is inconsistent with CMS’s actuarial equivalence mandate, and its requirements for data accuracy and compliance.
CarePlus, in its 2023 contract level RADV audit, asserted an actuarial equivalence argument and objected to CMS’s failure to apply an FFSA in the overpayment calculation, asserting that during the year audited (2015), the 2012 Final Rule allowed for the offset to the recouped overpayment. The OIG responded to CarePlus’s actuarial equivalence argument in its audit report by stating:
We note that after we issued our draft report, CMS stated that it “will not apply an adjustment factor (known as a Fee-For-Service (FFS) Adjuster) in RADV audits.” To this point, we recognize that CMS—not OIG—is responsible for making operational and program payment determinations for the Medicare Advantage program.[19]
However, by adjusting its findings to correspond to the requirements of the 2023 Final Rule for an audit with 2015 as the audit year, the OIG effectively applied a different audit standard than the one in place in 2015, the 2012 Final Rule, which did factor an FFSA into the calculated overpayment.
Conclusion
Medicare Advantage payers face a difficult road in their efforts to manage the risks associated with the 2023 RADV audit rule. However, the 2023 contract-level RADV audits have provided evidence demonstrating the risk of harm associated with the 2023 RADV Final Rule.
Medicare and Medicaid Programs; Policy and Technical Changes to the Medicare Advantage, Medicare Prescription Drug Benefit, Program of All-Inclusive Care for the Elderly (PACE), Medicaid Fee-for-Service, and Medicaid Managed Care Programs for Years 2020 and 2021, 88 Fed. Reg. 6643 (Feb. 1, 2023) [hereinafter 2023 Final Rule]. ↑
Complaint, Humana, Inc. v. Becerra, No. 4:23-cv-00909-o (N.D. Tex. Sept. 1, 2023). ↑
Humana further asserts that no notice and comment procedure was followed with the 2018 proposed rule, which reversed CMS’s policy and excluded the FFSA. ↑
Motion to Transfer or Dismiss, Humana, Inc. v. Becerra, No. 4:23-cv-00909-o (N.D. Tex. Sept. 1, 2023) (“Motion to Transfer or Dismiss”). ↑
87 Fed. Reg. 65,723 (Nov. 1, 2022). RADV refers to risk adjustment data validation, which is the process of verifying diagnosis codes submitted for payment by Medicare Advantage insurers to provide clinical support for the diagnoses. The fee-for-service model reimburses providers based on procedures performed. The Medicare Advantage and Medicare fee-for-service models differ in that Medicare Advantage risk-adjusts a capitated rate to allow plans that accept patient populations with chronic conditions. Reimbursement under the Medicare Advantage model is diagnosis driven. ↑
Landgraf v. USI Film Prods., 511 U.S. 244, 265 (1994). ↑
Contra Azar v. Allina Health Servs., 139 S. Ct. 1804, 1811 (2019) (rulemaking only applied prospectively); Regions Hosp. v. Shalala, 522 U.S. 448 (1998) (rule adjusting base-year cost for inflation was limited to affecting reimbursement for future years and for those cost-reporting periods within the three-year window for auditing cost reports—no new reimbursement principles were applied to prior periods); Bowen v. Georgetown Univ. Hosp., 488 U.S. 204 (1988) (recoupment of amounts previously paid to hospitals applying new rule retroactively is impermissible). ↑
Ctrs. for Medicare & Medicaid Servs., Fee for Service Adjuster and Payment Recovery for Contract Level Risk Adjustment Data Validation Audits (Oct. 26, 2018). See also Ctrs. for Medicare & Medicaid Servs., Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation Contract-Level Audits (Feb. 24, 2012). ↑
Ctrs. for Medicare & Medicaid Servs., Notice of Final Payment Error Calculation Methodology for Part C Medicare Advantage Risk Adjustment Data Validation Contract-Level Audits (Feb. 24, 2012). ↑
CMS asserts that it meets the standard for retroactive rulemaking, that the RADV audit final rule is “based on longstanding case law and best practices from HHS [Health and Human Services] and other federal agencies,” and that it had a right to change the extrapolation methods that are “historically a normal part of auditing practice throughout the Medicare program.” 83 Fed. Reg. at 54,984, 55,048 (Nov. 1, 2018). ↑
Since 2012, Humana has certified its prior-year bids based on the assumption that “the final risk scores will be calculated and payments and overpayments will be determined consistent with the fact that CMS has used diagnoses contained in administrative claims to calculate risk coefficients and risk scores for [Medicare] fee for service beneficiaries,” and that CMS “will . . . apply [] a Fee for Service Adjuster . . . to account for the fact that the documentation standards used in RADV audits to determine a contract’s payment error (medical records) is different from the documentation standard used to develop the Part C risk-adjustment model ([Medicare] FFS claims).” Humana, Inc. v. Becerra, No. 4:23-cv-00909-o, ¶ 83 (N.D. Tex. Sept. 1, 2023). ↑
Plan bids are based on prior-year risk scores of enrollees, which are derived from specific characteristics of expected enrollees in the relevant program area and the risk-adjustment method for that relevant period. The changes implemented under the 2023 Final Rule raise pricing uncertainties affecting the Medicare Advantage bid process, and the potential negative effect of potential premium increases may affect the availability or the cost of plan benefits. ↑
Clapper v. Amnesty Int’l USA, 568 U.S. 398, 416 (2013). ↑
Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Specific Diagnosis Codes That Geisinger Health Plan (Contract H3954) Submitted to CMS (Mar. 16, 2023), at 19–20. ↑
The six audits addressed in this article were commenced prior to the issuance of the 2023 Final Rule, but the draft reports were held, and the audit findings recalculated the net overpayments due, in a manner consistent with the 2023 Final Rule. ↑
Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Specific Diagnosis Codes That MCS Advantage, Inc. (Contract H5577) Submitted to CMS (Mar. 24, 2023); Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Specific Diagnosis Codes That Keystone Health Plan East, Inc. (Contract H3952) Submitted to CMS (May 31, 2023); Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Specific Diagnosis Codes That Excellus Health Plan, Inc. (Contract H3351) Submitted to CMS (July 10, 2023); Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Specific Diagnosis Codes That Presbyterian Health Plan, Inc. (Contract H3204) Submitted to CMS (Aug. 3, 2023); Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Diagnosis Codes That CarePlus Health Plans, Inc. (Contract H1019) Submitted to CMS (Oct. 26, 2023). ↑
Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Specific Diagnosis Codes That Excellus Health Plan, Inc. (Contract H3351) Submitted to CMS (July 10, 2023), at Report in Brief (payment year 2018 was audited, and CMS extrapolated the overpayment under the challenged rule without allowing for the use of the FFSA offset) (“On the basis of our sample results, we estimated that Excellus received approximately $5.4 million in overpayments for 2017 and 2018. Because of Federal regulations (updated after we issued our draft report) that limit the use of extrapolation in Risk Adjustment Data Validation audits for recovery purposes to payment years 2018 and forward, we are reporting the overall estimated overpayment amount but are recommending a refund of $3.1 million ($235,453 for the sampled enrollee-years from 2017 and an estimated $2.9 million for 2018).”); Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Specific Diagnosis Codes That Presbyterian Health Plan, Inc. (Contract H3204) Submitted to CMS (Aug. 3, 2023), at Report in Brief (payment year 2018 was audited, and CMS applied extrapolation principles as per the 2023 RADV audit rule, without allowing the offset of a fee-for-service adjuster) (“On the basis of our sample results, we estimated that PHP received at least $2.2 million in net overpayments for 2017 and 2018. Because of Federal regulations (updated after we issued our draft report) that limit the use of extrapolation in Risk Adjustment Data Validation audits for recovery purposes to payment years 2018 and forward, we are reporting the overall estimated net overpayment amount but are recommending a refund of $1.3 million ($206,048 for the sampled enrollee-years from 2017 and an estimated $1.1 million for 2018).”). ↑
Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Specific Diagnosis Codes That MCS Advantage, Inc. (Contract H5577) Submitted to CMS (Mar. 24, 2023), at 24 (The FFSA was not applied in this audit that covered payment years 2016 and 2017, despite those years being exempt from the 2023 Final Rule, and the OIG’s explanation referred to the 2023 Final Rule: “CMS stated (after we issued our draft report) that it ‘will not apply an adjustment factor (known as an FFS Adjuster) in RADV audits.’”); Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Specific Diagnosis Codes That Keystone Health Plan East, Inc. (Contract H3952) Submitted to CMS (May 31, 2023), at 20 (Although the audit years sampled were 2016 and 2017, the FFSA was not applied, despite the fact that the 2023 Rule stated that the FFSA would be eliminated only after February 1, 2023, when the rule became effective. The OIG nonetheless applied the 2023 Final Rule: “[W]e note that CMS stated (after we had issued our draft report) that it ‘will not apply an adjustment factor (known as an FFS Adjuster) in RADV audits.’ Thus, we did not revise the amount in our first recommendation based on Keystone’s comments; rather, we revised the amount in response to the updated regulations that CMS published after we issued our draft report.”). ↑
Off. of Inspector Gen., U.S. Dep’t of Health & Human Servs., Medicare Advantage Compliance Audit of Diagnosis Codes That CarePlus Health Plan, Inc. (Contract H1019), Submitted to CMS (Oct. 26, 2023), at 22–23. ↑
