CMS Issues Long-Awaiting Medicare Advantage RADV Final Rule

• Jurisdiction: United States,Federal
• Law Firm: Sheppard Mullin Richter & Hampton
• Subject Matter: Accounting and Audit, Food, Drugs, Healthcare, Life Sciences, Audit
• Author: Ms Christine M. Clements and John Tilton
• Published date: 06 February 2023

On January 30, 2023, the Centers for Medicare & Medicaid Services ("CMS") released the long-delayed final rule on risk adjustment data validation ("RADV") audits of Medicare Advantage ("MA") organizations (the "Final Rule"). CMS promotes the Final Rule as improving program integrity and payment accuracy as well as transparency and certainty. One thing that is certain, CMS can expect further challenges to its RADV audit methodology.

The Final Rule implements the following changes:

• CMS will extrapolate RADV audit findings beginning with payment year ("PY") 2018 and will not extrapolate RADV audit findings for PYs 2011 through 2017. This applies to both CMS RADV audits as well as Department of Health and Human Services Office of Inspector General ("OIG") RADV audits.
• CMS will not apply a Fee-For-Service ("FFS") Adjuster in RADV audits.
• MA organizations will be required to remit improper payments identified during RADV audits in a manner specified by CMS.

Despite its promise of transparency and certainty, CMS

• Did not adopt any specific sampling or extrapolation audit methodology. Rather, CMS will rely on "any statistically valid method for sampling and extrapolation that is determined to be well-suited to a particular audit."
• Shifted its RADV approach to a more targeted, risk-based approach that incorporates unspecified risk factors, although CMS did suggest a focus area would be HCCs that are more likely to be in error based on prior RADV audits.

We analyze below each of the three key components of the Final Rule:

Extrapolation

In confirming its use of extrapolation effective for PY 2018 RADV audits and with an eye towards potential future litigation, CMS defended its use of and its authority to use extrapolation and to retroactively apply extrapolation to past audits based on a number of sources, including case law, statutory and regulatory authority, and historical use.

• Case Law: CMS argued that "courts have held that sampling and extrapolation are a valid method of calculating improper Medicare payments, so long as statistically valid methods are used See United States v. Lahey Clinic Hosp., Inc., 399 F.3d 1, 18 n.19 (1st Cir. 2005) (noting that "sampling of similar claims and extrapolation from the sample is a recognized method of proof" for the United States in an affirmative case seeking recovery under a common-law theory). See also Ratanasen v. California Dep't of Health Servs., 11 F.3d 1467, 1469-71 (9th Cir. 1993) (collecting cases in which sampling and extrapolation have been approved in the Medicaid context, and "join[ing] other circuits in approving...